For example, a 1992 book Hollander edited, The Energy-Environment Connection, featured scientists such as Stephen Schneider, a well-known proponent of government control to slow down global warming, and John Holdren, who expressed alarm about the “folly of failing to stabilize world population.” Although it avoided inflammatory rhetoric, the book treated global warming as a severe problem and expressed pessimism about acid rain and air pollution.

Hollander has not repudiated his past work, but has shifted gears. It’s as though he sat down one day and completely rethought, without bias, the seriousness and extent of environmental problems. However it happened, he has come to the conclusion that poor people in developing countries suffer from the worst environmental problems: hunger, disease, and dangerously unsanitary water. Environmental problems in Europe and North American simply pale in comparison. “Reducing poverty throughout the world should be a top priority for environmentalists,” he writes.

The environmental crisis of poverty is the theme of the book, but another theme is inextricably entwined and almost more dominant. That is Hollander’s reassessment of the severity of environmental issues. For example, he doesn’t call global warming an imminent catastrophe. He says there are still many scientific uncertainties, and “if it turns out that human activity is adding to the natural warming, the amount will probably be small, and society can adjust to that as well, at relatively low cost or even net benefit.” In some circles, this is heresy.

Hollander is optimistic about reducing pollution from automobiles too. Already on the decline, this pollution is likely to disappear entirely, he says, as competition develops between the hybrids (electric and gasoline-powered cars) and cars powered by hydrogen fuel cells. He predicts that the “worldwide deterioration of air quality that accompanied the rise of the automobile culture will be permanently reversed, and the world’s dependence on petroleum will probably be drastically reduced, as well.”

Nor does Hollander blindly support alternative energy, such as solar or wind power. He concludes that much effort to jump-start these alternatives is misplaced. The governments of such wealthy nations as the United States are subsidizing “large-scale renewable technologies for which there is little need,” yet ignoring solar applications that could help poor people in rural regions lacking electricity. He says that “poor countries have tremendous need for renewable energy sources, and a number of ingenious yet affordable technologies have been available for years.”

As these examples illustrate, Hollander has written a book that, like Bjørn Lomborg’s The Skeptical Environmentalist, offers upbeat views about issues usually treated as crises. Unlike Lomborg, Hollander doesn’t seem to be challenging the establishment. He is an insider telling it the way he sees it. Perhaps his moderate stance is one reason why this book hasn’t received as much attention as has the Danish statistician’s.

Hollander has made an effort to consider literature from both the doomsday and skeptical sides. I was, however, dismayed by his selection of a passage from Dickens’s novel Hard Times to illustrate air pollution in the nineteenth century. (“It was a town of red brick, or of brick that would have been red if the smoke and ashes had allowed it,” the passage begins). Dickens, a master of fictional exaggeration, is hardly a reliable authority on air pollution. I’m also a little surprised that Hollander is unaware of the growing literature (started by economists) surrounding the environmental Kuznets curve. This correlation between income and pollution shows that as countries become more wealthy their environments initially deteriorate but then become cleaner. Discussion of this would have underscored his point.

These are minor criticisms. Although it comes as no surprise to many of us that poverty is the environment’s number one enemy, at long last, thanks to Hollander, others may find it out too.

As crude oil continues to pour into the Gulf of Mexico, the politicians are waving the “green energy” shirt again. The logical chain goes as such: (1) crude oil is messy and dirty, especially when it is spilled into water; (2) “green” fuels and energy methods are clean and don’t result in oil spills; (3) therefore, the government should force us to use “green energy.”

The following article highlights that position:

Alternative energy proponents say the time is right for help from Washington. “Our thoughts are with the people living and working in the Gulf as they and other organizations deal with the oil spill,” said Denise Bode, CEO of the American Wind Energy Association. “Americans’ support for pure, clean energy is clear, and events such as this heighten the need for Congress to pass needed energy and climate legislation.”

Not surprisingly, the ethanol crowd has jumped into the mix:

“The Gulf oil spill is a heartbreaking catastrophe, and it demonstrates in stark terms why we need to accelerate the use of renewable energy alternative like ethanol,” said Stephanie Dreyer, spokesperson for ethanol advocacy group Growth Energy.

“The long-term ramifications of the oil spill are yet to be determined, but it definitely indicates a need for us to invest in alternative fuels in a renewable way and move away from oil.”

Throw global warming into the pot, and you have yet another round of government intervention into the energy business, as though there was not “enough” intervention already. To make matters worse, the new plan from President Obama would make gasoline prohibitively expensive, and gasoline price increases no doubt would trigger yet more condemnation of oil and lead to more demands that the government “nationalize” the industry.

Whose Idea Was It?

In reality, government intervention played an important role in the spill’s happening in the first place. As Judge Andrew Napolitano points out, BP originally sought to drill in 500 feet of water, a plan approved by the state of Louisiana but then nixed by the federal government, which demanded the company drill in 5,000 feet depths instead. Judge Napolitano writes:

Never mind that no oil company had ever cleaned up a broken well at that depth and never mind that the feds had never monitored a broken well at that depth and never mind that BP only needed to set aside $75 million in case something went wrong. The feds trumped BP’s engineers and the feds trumped the wishes of the folks who live along the Gulf Coast and the feds decided where this oil well would be drilled.

[See update below.]

Furthermore, the federal government has stymied efforts by local and state governments, along with private individuals, to deal with the spill, and has turned away offers from well-trained and well-equipped outfits from foreign countries because of the Jones Act, which protects American maritime unions. [See update below.]

Is this merely incompetence and protection of special interests? Or is more going on: namely, an opportunity to grease the skids to the less-efficient and much more costly energy “alternatives,” such as windmills and corn-based ethanol, both of which are highly inefficient and kept alive only by massive government subsidies. In a free market consumers would reject these costly sources, but thanks to the magic of political “investing,” they continue to destroy wealth.

So we have a spill the Obama administration and many others hope will change our attitudes toward oil. The fuels that come from crude oil are unmatched in their energy production and cost-effectiveness, so it would take a major event to make American consumers willing to impose huge costs on themselves. We may not need alternative fuels, and we may not want them, but apparently the government and its allies are using this unfortunate event to increase State power and to make us poorer.

Editor’s Updates:

Media Matters disputes claims that the federal government pushed BP into deep waters against its will and that foreign assistance in the spill has been blocked by the government. See this McClatchy story also, which states:

McClatchy reported last week that the MMS under the Obama administration had approved dozens of deepwater exploration plans that downplayed the threat of blowouts to marine life and fisheries. After McClatchy’s inquiries, the administration ordered oil companies to resubmit the plans with additional safety information before they’d be allowed to drill new wells.

Each of these alternative energy sources is based on mature technology. Agriculture and fermentation have their roots in prehistory; windmills date back at least to 65 B.C.; the photovoltaic effect was discovered in 1839. Yet nowhere in the world are these technologies serving as primary energy sources without significant government subsidies. While incremental improvements can be expected, it would take an order-of-magnitude increase in productivity for them to become viable. As old and as well-researched as the technologies are, such improvements are possible but unlikely. As significant future energy sources, these technologies are dead ends, which is why the government, and not the private sector, is funding them.

Industry is more than willing to risk research dollars on technologies that show real promise, but it is not willing to flush shareholder money down a rat hole. Politicians, however, operate from different incentives. When a crisis, real or imagined, makes headlines, they want voters to see them “doing something” about it, and they must move quickly because election cycles and constituent attention spans are short. Funding long-term research in promising technologies doesn’t meet politicians’ needs. Solar panels, wind turbines, and ethanol refineries are all current technology and can be erected quickly with fanfare and photo ops. By the time these alternative power sources prove to be financial and, possibly, environmental busts, the politicians will have been reelected and voters’ attention will have shifted to the next crisis.

Another benefit of subsidizing “shovel ready” solutions is that existing technologies have existing supporters who can provide campaign funds. Such supporters, however, constitute a well-financed status quo that will make government funding, once started, difficult to end. For example, even though corn-based ethanol has driven up food and fuel prices, increased auto emissions, raised atmospheric carbon dioxide concentrations (by causing additional acreage to be tilled), and possibly resulted in net energy losses, the government is still subsidizing the industry and still requiring that the fuel be added to gasoline.

Wind energy, for its part, has been “just a few years away” from being economically competitive with conventional power for at least the last 25 years, and this will not change any time soon. The Energy Information Agency predicts that in 2016 wind power will still be 49 percent to 77 percent more expensive than electricity from either coal or natural gas. Furthermore, because wind turbines work only when the wind blows, wind farms cannot replace conventional plants. Backup power from conventional sources, usually gas turbines, must be ready to come on line the moment the wind fails. Despite these fundamental problems, subsidies continue to flow thanks to an entrenched lobby.

By contrast, consider the significant oil-industry investments in researching biofuels made from algae. Unlike ethanol, biofuels are chemically similar to fuel made from petroleum and, like petroleum-based fuels, have a significantly higher energy content than ethanol. Biofuels can also be handled by current fuel distribution systems and can be burned in today’s vehicles.

Algae can be grown in brackish water on desert land and, with today’s technology, can produce over 2,000 gallons of fuel per acre each year. This compares favorably with the approximately 250 gallons of ethanol that can be produced from an acre of corn—a ratio of 8 to 1. Accounting for the differences in BTU content, the ratio jumps to over 12 to 1. It may even be possible to boost productivity to 100,000 gallons per acre per year, raising algae’s potential to over 600 times that of corn-based ethanol!

Biofuels are carbon-neutral because the carbon dioxide released when they are burned is extracted from the atmosphere by the algae. Unlike burning petroleum-based fuels, then, burning biofuels will not result in a net increase in atmospheric CO2 levels.

With algae’s vast potential, it is easy to understand why private industry is interested and why no government subsidies are needed to encourage investment. Moreover, if algae-based fuels do not prove viable, the companies now researching them will have no “status quo” problems with ending their investments and shifting scarce resources to more promising technologies—where “promise” is measured in density.

A previous version of this article originally appeared at www.thefreemanonline.org.

If we substitute “the federal government” or “the United Nations Environment Programme” or “the European Union” for “you” and change the email to a proposed law, however, we discover that politicians from Washington to Brussels are embracing measures to “green” the economy and create “green jobs” with an almost religious fervor, despite weak empirical support for these proposals. The Obama administration included billions of spending and tax incentives for green initiatives in its budget, and last spring’s “stimulus” bill poured $62 billion in transfers plus $20 billion in tax cuts into “green initiatives.”

Unfortunately, the rhetoric about “greening the economy” or creating “green jobs” is just political window-dressing for some of the same central-planning measures proposed by the left for years. Behind that rhetoric are proposals built around government subsidies for favored technologies, measures to limit trade, and a great deal of wishful thinking about alternative energy measures not quite ready for prime time.

What Counts as Green?

The first problem in untangling the claims made by green-economy proponents is determining what counts as a “green” job or technology. Many times no definition at all is provided; even when the term is defined, different groups pick quite different definitions. For example, the U.S. Conference of Mayors’ report Current and Potential Green Jobs in the U.S. Economy defines a green job as

any activity that generates electricity using renewable or nuclear fuels, agriculture jobs supplying corn or soy for transportation fuels, manufacturing jobs producing goods used in renewable power generation, equipment dealers and wholesalers specializing in renewable energy or energy-efficiency products, construction and installation of energy and pollution management systems, government administration of environmental programs, and supporting jobs in the engineering, legal, research and consulting fields.

Interestingly, the mayors count jobs in existing nuclear power plants but not in new ones.

In contrast the United Nations Environment Programme’s Green Jobs: Towards Decent Work in a Sustainable, Low-Carbon World excludes all nuclear jobs, but includes all jobs said to “contribute substantially to preserving or restoring environmental quality.”

If we take politics into account we can explain these definitions. The Conference of Mayors is concerned with building a coalition for spending to benefit its members. Those mayors with nuclear power plants in their cities want to claim credit for greening their economy through nuclear plants (which also pay lots of local taxes). The U.N. report, on the other hand, was aimed at gaining support from an international environmental movement that detests nuclear power, which explains why it didn’t count any nuclear jobs.

Neither applies any objective criteria to the problem of defining which industries will gain and which will lose. For example, both define as “green” any jobs related to nonfossil-fuel technology, even if these energy sources (such as wood) release as much carbon dioxide per BTU of energy generated as fossil-fuel sources—or more. (Wood is much less efficient in terms of carbon emissions than either natural gas or gasoline on a per-BTU basis.) Moreover, burning many renewable fuels produces considerable particulate pollution, both inside homes and outside—a serious problem particularly for women and children in developing countries.

Green-economy proponents also disagree about how green hydroelectric plants are. Many who advocate government spending on alternative energy also want to dismantle existing hydro projects to restore rivers and improve fish habitats. (And many of those dams were built with subsidies by the Bureau of Reclamation and Army Corps of Engineers and would have flunked any serious cost-benefit analysis.) But small hydro, their preferred alternative, is by definition “small.” As a result, it would take quite a few small hydro plants to produce sufficient energy to replace even a single large dam or coal-fired power plant. Not surprisingly, there is no evidence of a large-scale building boom in small hydro projects or even a serious effort to identify where such projects might be located.

Even more interestingly, both definitions are expansive enough to include “supporting jobs in the engineering, legal, research, and consulting fields.” Indeed, the Conference of Mayors found that the top two U.S. jurisdictions for current green jobs are New York City and Washington, D.C., suggesting that the investment in green technology so far is producing a lot of consultants, lawyers, and lobbyists rather than engineers or factory workers. Another estimate found more secretaries, management analysts, bookkeepers, and janitors among “green jobs” than environmental scientists.

Defining terms is essential to a rational policy debate; without clarity we end up with a division between favored and disfavored technologies driven by interest groups rather than by either market forces or logical thinking. Unfortunately, so far the green-economy literature has mostly produced lists of “technologies we like” and “technologies we don’t like” based on politics. We certainly shouldn’t be spending billions of dollars promoting what we can’t define.

Where Do Estimates Come From?

Even if we don’t quite know what a green economy looks like, its advocates assure us there will be lots of jobs and other benefits from converting to it. Not surprisingly, most green-economy proposals predict huge benefits at low cost, making them politically appealing. Jobs will appear in economically depressed areas, and energy efficiency will soar, saving firms, consumers, and governments billions. Unfortunately these benefits are largely due to inappropriate economic forecasting methods. In particular, most estimates are produced via “input-output analysis,” the same technique used to produce outlandish claims for the benefits of municipal stadium projects.

In an input-output analysis a vast matrix is calculated from economic data as they exist today, tracing connections between firms in different industries. For example, an automobile plant uses steel, aluminum, plastic, batteries, paint, tires, and other materials to produce cars with a particular amount of labor per car under current technology. If we thought that the plant would begin producing more cars, the input-output matrix could be used to calculate how much more steel, aluminum, and other inputs would be demanded by the car industry and how many more workers would be hired to work in it.

There is a role for such calculations in industry forecasts (predicting steel demand from auto production helps steel plants decide about investing in new capacity, for example). But using them to predict the impact of government programs to green the economy is problematic because the method rests on two assumptions that green proposals violate: constant prices and constant technology.

By definition, efforts to change energy technology are going to change technology and prices. The relationships in an input-output matrix based on using coal to generate electricity and gasoline to fuel cars simply aren’t applicable to an economy where substantial amounts of energy come from high-cost sources like wind and solar and the cars are hybrids or run on ethanol.

Worse, the green-economy predictions rest on extremely optimistic estimates of the impact of spending on new technologies. Almost no advocates of these policies deduct the jobs lost from replacing existing technologies with the new, green ones. Refinery workers, coal miners, fossil-fuel power plant workers, and many others will all lose their jobs if the proposed shift to nonfossil fuels takes place. Some of those workers may find jobs insulating public buildings or bolting together windmills, but many will not. Because all that public spending to produce these new technologies comes from taxes (whether today or in the future), it reduces private spending and so eliminates the jobs that would have been created by the higher private spending displaced by the taxes.

Any estimates of major changes are likely to be imprecise even if all these factors are taken into account because of the considerable uncertainty surrounding these relationships. Ignoring all the downsides, as green-economy proponents do, suggests that they are less interested in accurate predictions than in creating political pressure for policies regardless of their impact.

Labor Productivity

Even if we set aside these technical issues, however, there are still some serious problems with green-economy plans. Perhaps most important, the literature mistakenly glorifies low-productivity jobs on grounds that more employment is better. For example, the UN Environment Programme criticizes modern agriculture because “labor is extruded from all points in the system,” argues wind and solar are better technologies because producing each BTU of energy requires more labor than in fossil-fuel industries, and argues that the steel industry has evolved to use too little labor.

To see why this is a problem, let’s consider ethanol. Although even many environmentalists now recognize ethanol’s problems, it was the darling of alternative-energy proponents for many years, and hundreds of millions of dollars in subsidies have produced a substantial corn-based ethanol industry in the United States. (Despite these subsidies, the fuel remains uncompetitive with gasoline at current gas prices.) Corn-based ethanol requires more labor to produce than gasoline does, largely because growing and processing corn is more labor-intensive than pumping and refining oil. As a result, green-economy advocates score ethanol higher than gasoline since each BTU of energy in ethanol takes more labor to make than a BTU of gasoline.

But lower labor productivity is a bad thing not a benefit. Not only does more labor mean higher costs, but higher-productivity jobs (generally those that involve working with greater amounts of capital) can pay higher wages precisely because they are more productive. Low-productivity jobs are low-paying jobs because employers cannot afford to pay their employees more than the employees generate. If more labor were the metric, we’d all be better off using quills and parchment in place of computers.

Rejecting Trade

The advocates for greening the economy reject more than basic labor economics. They also believe that a green economy is one with relatively little trade. The literature emphasizes buying locally produced goods over those from other areas, both to save the transportation costs and to promote self-sufficiency. Not surprisingly, the UN Environment Programme criticizes Walmart for its global supply chain:

Companies like Wal-Mart (with its policy of global sourcing and especially its policy of searching for cheap products, with potential negative impacts for labor and the environment) are major drivers and symptoms of [increased global trade]. . . . Ultimately a more sustainable economic system will have to be based on shorter distances and thus reduced transportation needs. This is not so much a technical challenge as a fundamental systemic challenge.

To be fair, the benefits of trade are sometimes hard to understand. Nobel Prize-winner Paul Samuelson said the theory of comparative advantage was a contribution of economic theory that was both “nonobvious and nontrivial,” and generations of Econ 101 instructors have proved his point by struggling to get students to understand it. But the libertarian case for trade is remarkably simple and clear: Voluntary exchanges must make people better off or they wouldn’t occur, so a world with more voluntary exchange is preferable to one with less. Even the person most confused by trade theory can understand that autarky (producing everything locally) is a recipe for disaster by examining the record of Albania under communist dictator Enver Hoxha or North Korea today, two examples of societies where the rulers reject virtually all trade.

Moreover, the idea of locally grown food (a key component of the green economy) is hard to accept for those of us living far enough north to lack a year-round growing season. From my home in rural Illinois, I can see miles of soybean and corn fields. I am delighted that my neighbors can trade their corn and soybeans to people living elsewhere and that people in countries from France to Honduras to Israel to New Zealand send agricultural products here in return. I can buy French wine, Honduran bananas, Israeli citrus, and New Zealand lamb in my local grocery store because of trade, enriching both the variety and healthfulness of my diet. Even if it didn’t make us better off, the freedom to trade would be an important liberty. Since it does, it is indispensable to the vastly better lives we live today compared to our ancestors.

Ignoring Incentives

Those advocating for a green economy often appear to believe that no one will undertake any measures to improve environmental quality or conserve resources without a government program to show them the way. We know this is false because we have over a hundred years of experience with market incentives for both providing environmental quality and reducing resource use.

Studies of income levels and environmental quality have found what is termed the “environmental Kuznets curve,” a U-shaped relationship between national income and environmental quality. As very poor countries begin to develop, environmental quality often falls as energy production and use increase, factories appear, and people begin to consume more. But once per capita gross domestic product (GDP) reaches about $5,000, people can afford to spend more on improving the environment. Not surprisingly they do, and environmental quality improves after that point with respect to most pollutants for which we have data. In short, richer is greener.

The Environmental Kuznets Curve

Environmental quality also improves because market incentives spur firms to reduce energy and resource use. Any firm that cuts its energy use can devote the savings to undercutting its competitors’ prices. This has happened on an economy-wide basis. For example, from the 1970s to 2000, energy use per dollar of real GDP fell by 36 percent as firms economized on energy without reducing output.
Each unit of energy input yielded four times as much useful heat, moved people 550 times farther, provided 50 times more illumination, and produced 12 times as much electricity in 2000 compared to 1900—a stunning success story. Major energy-using industries like steel, aluminum, and paper have all become more energy- and resource-efficient, while consumer goods like refrigerators have become larger, more feature-rich, and cheaper to operate. It doesn’t take a government program to make firms more efficient, but it does take a market economy.

According to its proponents, the green economy will run on biofuels, wind, and solar power, ushering in a new age of clean energy. Unfortunately, this is mostly wishful thinking. The Department of Energy (DOE) says wind currently contributes less than 0.6 percent of total U.S. energy production. (Usually green-energy advocates note that it contributes 7 percent of renewable electricity generation, ignoring the less flattering total energy numbers.) Moreover, wind is both expensive and unreliable, as wind turbines produce energy only when the wind blows. Plus the massive wind farms green-energy advocates envision would require building what DOE estimates are $60 billion of new transmission lines (which many environmentalists oppose) and offshore wind farms like the Cape Wind project (blocked for years by the late Sen. Ted Kennedy, who objected to its impact on the view from his sailboat). There are also important questions about wind turbines’ effects on bird populations and the impact of “shadow flicker” from the turbine blades on neighbors. Similarly, solar power (mostly solar thermal and hot-water production) currently produces only 0.05 percent of U.S. energy consumption and is projected by DOE to rise to just 0.13 percent by 2030. Solar panel arrays take a great deal of land, usually in sensitive desert environments where endangered-species issues have already blocked some proposed photovoltaic sites. And both solar and wind power require expensive backup plants for when weather conditions aren’t right (such as at night and on days without wind).

None of these problems are insurmountable, and it is quite possible (and perhaps likely) that as the prices of natural gas and oil rise in the future, an entrepreneurial inventor will find ways to make these technologies viable. The problem is that they are not viable today and will not become so in an environment of subsidies.

Looks like its Hail Mary time.

FEE Timely Classic:
“Mandating Renewable Energy: It Ain’t Easy Being Green” By Michael Heberling

First, one may ask: how can Obama and his economic advisers know what kinds of jobs will position our economy to “lead the world” in the long term? Indeed, how can we expect anyone to know what kinds of jobs will be able to offer such a guarantee of wealth and security, considering the enormous complexity of our world? Billions of individuals are constantly making decisions based on their own expectations about the future. Potential ideological shifts and their inevitable changes to policy funding and support complicate matters further. This is without considering technological advancements that can turn the best-laid central plans into white elephants. There is little an individual or group can possibly know or predict for the future, particularly on such a large scale as three to four million jobs.

However, assuming Obama and his advisers are right—that his plan will indeed save or create that many jobs—what proof do we have that it will leave us better off than if it’s not implemented at all?

In his essay “What Is Seen and What Is Not Seen,” the French classical-liberal economist Frédéric Bastiat explained that there is a tendency to recognize only the intended consequences of an action (what is seen). However, there are often other, subsequent effects that are not perceived as connected to the action (what is not seen). Furthermore, the short-term effects of an action can sometimes be quite different from the longer-term, unseen consequences.

In the case of public works, Bastiat explained that government produces nothing independent from the resources and labor it diverts from private uses. When government borrows money to create jobs, what is readily seen are people employed and the fruits of their labor. However, what is generally not considered are the many things that could have been produced if the capital had not been removed from the private sector to fund the government programs in the first place. Such policies necessarily benefit some (the favored workers) at the expense of others (those who would have had the jobs that were not created) and eventually the taxpayers, who have to repay the debt.

What is Seen

New Deal public-works projects provided plenty of evidence for Bastiat’s theory. They not only failed to help lift the economy out of the Great Depression but also served to make it “great.”

First, many jobs created under FDR benefitted few besides those employed—in things like studying the history of the safety pin, collecting campaign contributions for Democratic Party candidates, chasing tumbleweeds, and cataloging 350 different ways to cook spinach. (See Lawrence Reed’s Great Myths of the Great Depression, www.tinyurl.com/7eecje.)

In addition, much of the “job creation” was directed according to political preferences, rather than where jobs were arguably needed most. For instance, a disproportionate amount of public relief went to western “swing states” expected to help Roosevelt win votes in future elections, rather than to the poorest states, such as those in the South, which were already solidly Democratic during this period. Relief and public-works spending also seemed eerily to increase during election years, and it has been shown that votes for FDR correlated closely with jobs and other special government benefits given. (See Burton Folsom’s New Deal or Raw Deal? How FDR’s Economic Legacy Has Damaged America.)

What is Unseen

New Deal job-creation projects also impeded productivity by discouraging private firms from adopting new technologies. A prime example is a government farm in Arizona where a dairy crew discovered that it could turn a profit only by using milking machines, rather than milking by hand, and eliminating some jobs. But that would have violated the terms of a government loan. So the machines were not brought in, and the staff members who made the suggestion were fired. (Amity Shlaes tells the story in “The New Deal Jobs Myth.”)

Roosevelt is still celebrated for his job-creating measures because the people who gained employment were easily seen. However, what wasn’t (and isn’t) so easily recognized is that to pay for his public-works experiments, the government sucked up much of the available capital by selling bonds and collecting taxes, including a 5 percent withholding tax on corporate dividends and ever-rising income taxes. The top income tax rate hit a staggering 90 percent. Thus the New Deal had the unintended consequence of prolonging the Great Depression by diverting resources that could have been used to create wealth.

Barack Obama and his advisers should take a lesson from history. The New Deal and its public-works projects were a disaster, and it would be remiss to think they should be given another try. As Bastiat explained, government doesn’t create wealth; it only diverts it. When government controls wealth it inevitably tends to serve political ends rather than consumers. FDR’s New Deal policies are a testament to that, and if they are repeated in response to our current economic crisis, it will only hinder the recovery.

Thus far the typical libertarian response to the growing clamor has been to challenge the science behind it. Now it really is the scientific consensus that global warming occurred during the twentieth century. What is not so obvious is that (1) humans caused this warming and (2) this warming is necessarily bad.

Although it is interesting to explore the question of whether science has been perverted in the cause of environmentalism, there is a danger for libertarians in pinning their entire case on this strategy. After all, every serious student of science knows that when it comes to empirical claims, we never achieve certainty. For example, even if today one thinks that there are insurmountable problems facing the theory of manmade global warming, one still must accept the possibility that new evidence or theoretical advances could indicate that the environmentalists are perfectly right. Another possibility is that there is some other, similar disaster lurking unsuspected.

For these reasons, I believe it is crucial to accept provisionally, for the sake of argument, the scientific claims behind the case for manmade global warming. In the present article I will demonstrate that it still would not follow that the taxes and other regulations typically proposed by greens are the best way to address the problem. Just as the free market is still the optimal economic arrangement, regardless of how many citizens are angels or devils, so too does the free market outperform government intervention, regardless of the fragility of Earth’s ecosystems.

When trying to determine if the free market is to blame for possibly dangerous carbon emissions, a logical starting point is to list the numerous ways that government policies encourage the very activities that Al Gore and his friends want us to curtail.

The U.S. government has subsidized many activities that burn carbon: it has seized land through eminent domain to build highways, funded rural electrification projects, and fought wars to ensure Americans’ access to oil. After World War II it played a key role in the mass exodus of the middle class from urban centers to the suburbs, chiefly through encouraging mortgage lending.

Every American schoolchild has heard of the bold transcontinental railroad (finished with great ceremony at Promontory Summit, Utah) promoted by the federal government. Historian Burt Folsom explains that due to the construction contracts, the incentive was to lay as much track as possible between points A and B—hardly an approach to economize on carbon emissions from the wood- and coal-burning locomotives. For a more recent example, consider John F. Kennedy’s visionary moon shot. I’m no engineer, but I’ve seen the takeoffs of the Apollo spacecraft and think it’s quite likely that the free market’s use of those resources would have involved far lower CO2 emissions. While myriad government policies have thus encouraged carbon emissions, at the same time the government has restricted activities that would have reduced them. For example, there would probably be far more reliance on nuclear power were it not for the overblown regulations of this energy source. For a different example, imagine the reduction in emissions if the government would merely allow market-clearing pricing for the nation’s major roads, thereby eliminating traffic jams! The pollution from vehicles in major urban areas could be drastically cut overnight if the government set tolls to whatever the market could bear—or better yet, sold bridges and highways to private owners.

Of course, there is no way to determine just what the energy landscape in America would look like if these interventions had not occurred. Yet it is entirely possible that on net, with a freer market economy, in the past we would have burned less fossil fuel and today we would be more energy efficient.

Even if it were true that reliance on the free-enterprise system makes it difficult to curtail activities that contribute to global warming, still the undeniable advantages of unfettered markets would allow humans to deal with climate change more easily. For example, the financial industry, by creating new securities and derivative markets, could crystallize the “dispersed knowledge” that many different experts held in order to coordinate and mobilize mankind’s total response to global warming. For instance, weather futures can serve to spread the risk of bad weather beyond the local area affected. Perhaps there could arise a market betting on the areas most likely to be permanently flooded. That may seem ghoulish, but by betting on their own area, inhabitants could offset the cost of relocating should the flooding occur. Creative entrepreneurs, left free to innovate, will generate a wealth of alternative energy sources. (State intervention, of course, tends to stifle innovations that threaten the continued dominance of currently powerful special interests, such as oil companies—for example, the state of North Carolina recently fined Bob Teixeira for running his car on soybean oil.)

Private insurers have a strong incentive to assess the potential effects of global warming without bias in order to price their policies optimally—if they overestimate the risk, they will lose business to lower-priced rivals; if they are too sanguine about the dangers, they will lose money once the claims start rolling in. Individuals finding their homes or businesses threatened by rising sea levels will find it easier to relocate to the extent that unfettered markets have made them wealthier. Industrial manufacturers, as long as they are held liable for the negative environmental effects of their production processes—a traditional common-law liability from which state policies intended to “promote industry” have often sought to shield manufacturers—will strive to develop technologies that minimize the environmental impact of their activities without sacrificing efficiency. Government interventions and “five-year plans,” even when they are sincere attempts to protect the environment rather than disguised schemes to benefit some powerful lobby, lack the profit incentive and are protected from the competitive pressures that drive private actors to seek an optimal cost-benefit tradeoff.

If the situation truly becomes dire, it will be free-market capitalism that allows humans to develop techniques for sucking massive amounts of carbon out of the atmosphere, and to colonize the oceans and outer space. Beyond these futuristic possibilities, the obvious responses to global warming—such as more houses with AC, sturdier sea walls, and better equipment to evacuate flooded regions—are again only feasible when the free market is unleashed.

It is the poorest people and nations that stand to suffer the most if the worst-case scenario for global warming is realized, and the only reliable way to alleviate their poverty, and thus help protect them from those effects, is the free market.

Can the Market Meet the Threat Head-On?

In the first section I summarized some of the ways governments inadvertently contribute to the very activities that allegedly cause dangerous global warming; in the second I sketched some of the ways that free markets allow humans to better adapt to climate change. However, I haven’t really tackled the problem directly. Am I conceding that with a worldwide problem the market—which is just dandy for one-on-one interactions—can’t match the concerted “will of the people” working through their elected representatives for a common solution?

Of course not. Even when economic transactions generate so-called negative externalities (activities that shower harms on third parties), I still contend that the free market is the best institution for identifying and reducing the problems.

One way negative externalities can be addressed without turning to state coercion is public censure of individuals or groups widely perceived to be flouting core moral principles or trampling the common good, even if their actions are not technically illegal. Large, private companies and prominent, wealthy individuals are generally quite sensitive to public pressure campaigns.

To cite just one recent, significant example, Temple Grandin, a notable advocate for the humane treatment of livestock, asserts that McDonald’s is the world leader in improving slaughterhouse conditions. While many executives at the fast-food giant genuinely may be concerned with the welfare of cattle, pigs, and chickens, undoubtedly a strong element of self-interest is also at work here, as the company realizes that corporate image affects consumers’ buying decisions.

But that self-interest does not negate the laudable outcome of the pressure McDonald’s has applied to its suppliers to meet the stringent standards it has set for animal-handling facilities. Similarly, to the degree that the broad public regards manmade global warming as a serious problem, companies will strive to be seen as “good corporate citizens” that are addressing the matter. And this isn’t ivory-tower speculation on my part—I can see the “green friendly” ads already.

Critics of libertarianism sometimes denigrate it as a political program of “market fundamentalism” that, if put into practice, would reduce all human values to the price they can fetch as mere commodities. But that is a caricature of the social arrangements advocated by any sensible libertarian. The great figures of classical-liberal and libertarian thought have always recognized the vital contributions that nonmarket institutions, such as churches, families, charities, social clubs, communities of scholars and their students, art foundations, conservation groups, neighborhood associations, and youth athletic leagues, make to the healthy functioning of a free society. What libertarians offer as an alternative to statism is not a social order that judges every human interaction solely on a miserly calculation of profit or loss, but a society in which every desirable form of voluntary association is allowed to flourish, free from coercive interference by the state.

Customary Law

Besides the samples listed above, most libertarians recognize private or customary law as another important, nonmarket source of social order. A historical case in point is the Anglo-American common-law tradition in which legal norms evolved spontaneously from the customs of the people to whom it applied, rather than through legislation and state planning deliberately aimed at achieving some “public good.” The many centuries during which the common law sustained civic order in the face of inevitable divergences between individual citizens’ own interests demonstrate that a successful legal order does not inevitably require state sponsorship. The common law has shown itself to be fully capable of dealing with a number of issues that, while not exhibiting the worldwide scope of global warming, are still similar to our present concern in arising from the cumulative effects of many individual actions, each of which, regarded in isolation, appears to be unproblematic and not subject to legal sanction. For instance, the salmon-fishing streams of Scotland are a valuable natural resource, and the communities along them have developed quite successful institutions for ensuring the value of the streams is maintained, including private policing and legal penalties for overfishing and for polluting the water.

The many cases in which voluntary solutions to problems of collective choice have worked pose an empirical embarrassment for those who argue that “public goods” must be provided by the government. Most advocates of compulsory solutions to pollution abatement, for example, would assert that voluntary efforts will be vitiated by “free riding.” If individuals are not forced to contribute their fair share toward addressing these problems, this argument runs, each person rationally will hold back and hope others will pay for the proposed solution, since any free riders would gain the benefits (such as clean air) anyway. Since almost no one likes to be “the sucker,” it follows that the amount of resources devoted to the provision of the public good will fall woefully shy of the total that would be available if each person gave the amount he’d be willing to give if only he could count on everyone else pitching in equally. The sole solution that can be imagined is for the members of a society to create a “social contract” by which they are forced to pay for pollution abatement.

However, Anthony de Jasay notes in his book The State that this argument is severely flawed. If people cannot solve public-goods problems through voluntary cooperation, how can they rely on politicians’ promises to do so? There is no external authority to enforce those promises. There is only public opinion, the same thing that would enforce voluntary solutions. Moreover, government is itself a “public good” in the sense that free riders benefit from the efforts of those who try to get the government to produce public goods such as clean air.

Is Temperature a Public Good?

Another consideration is that the earth’s temperature isn’t such a public good after all. That is, certain people really do have more at stake, particularly if the warming is moderate. For example, if Manhattan became submerged because of rising sea levels, that calamity would not affect every human being equally. The residents of Manhattan and the owners of its skyscrapers would be hurt far more than people living in inland China. Because all the various potential dangers of global warming affect particular people more intensively than others, it is these groups that (in a free market) would have the incentive to reduce CO2 concentrations. For example, if rising sea levels would cause $10 trillion in damage to a comparatively small group of wealthy individuals, that’s a huge “pie” that the wealthy can offer others to motivate them to reduce emissions.

Despite my optimism about the potential to deal with environmental problems through voluntary means, I don’t wish to be misunderstood: If the official global-warming story is true, it presents a serious problem that humanity will find difficult to solve through voluntary means. But this isn’t a strike against voluntarism—of course a difficult problem will be difficult to solve! By the very same token, the government doesn’t do a terrible job at collecting stray dogs, because that’s a very simple task. When it comes to harder assignments, such as stopping terrorism or reducing teen pregnancy, the government’s record is quite a bit worse.

The very features of the official global-warming scenario that hamper purely private solutions would apply equally to government efforts. For example, even if the U.S. government passed draconian measures at home, that alone wouldn’t be enough if China and India don’t follow suit. And just as private companies in a free market may have an incentive to pollute if they can get away with it, so the state, under the influence of special-interest groups and run by leaders always tempted to ignore the public good in favor of increasing their own power and wealth, can have incentives to allow more pollution than is optimal. (It should be clear the “best” amount of pollution is not zero, because even using fire to cook generates some pollutants, and I doubt that anyone but the most misanthropic, fanatical nature worshippers want to reverse all of the last 40,000 years of human progress.)

As in all debates over public versus private choice, it’s inappropriate to measure a realistic free-market response to global warming against an idealized government program. We must try to envision what real people would do if their property rights were respected and compare that scenario with the probable outcome of actual politicians in today’s world being given a blank check in the name of saving the earth.

Government programs don’t ameliorate world poverty or sickness, and no libertarian would deny that these are serious problems. So even if manmade global warming is a real threat, why should we expect governments to get it right on this issue?