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Sunday, October 23, 2005

Classic Liberalism in the Twenty-First Century

Jason Scorse explains the need to update classic liberalism of the 1970s in light of 21st century environmental challenges:

Environmental Economics: The Ideal Political Platform Part #2: ...[C]lassic liberalism/conservatism as espoused in the 1970s by many prominent economists, notably Milton Friedman... posits that government should be limited to what government does best, that social welfare should be provided in ways that are minimally distorting to the economy (e.g. lump-sum payments), that the tax system should be simple and transparent, and that individuals should be allowed to do pretty much whatever they want to as long as their actions do not directly harm others... But classic liberalism as espoused decades ago ... under-estimated the environmental problems that would confront us and the need for government intervention in these matters. Below I highlight how the essential tenets of classic liberalism need to be augmented given the environmental realities of the 21st century:

  1. Classic liberalism assumed that as information improved, private markets would lead to the increased preservation of environmental resources and that externalities ... would be internalized ... given a system of strong property rights. While much improvement in the environmental arena has occurred, ... most economists vastly under-estimated the level of coordination that is required to tackle some of the world’s most serious environmental problems. Issues such as global warming and the loss of biodiversity require much more government intervention then had previously been assumed. This is not to say that this government intervention won’t rely heavily on the workings of the market system, but only that top-down regulation is absolutely necessary...
  2. ...[T]he government should move us towards a more rational method of risk management in areas that are prone to natural disasters. It is highly inefficient, as well as an abrogation of government responsibility, to create incentives for people to live in areas that are both dangerous and prone to catastrophe by providing them with reconstruction aid every time disaster strikes. The government has two options; either require that all people living in [risky areas] purchase private insurance, or make it absolutely clear that people will not be compensated ... by the government if disaster strikes. Such a policy would ... lead to dramatic shifts in the population densities in many disaster-prone areas..., and perhaps some one-time assistance in relocation would be required. The net effect would be to dramatically reduce future losses of life and property and save the government hundreds of billions in future costs. It would also force private actors (notably insurance companies) to take into account the effects of environmental externalities that until now have largely been ignored.
  3. Regarding personal health and risk, the government also must play a much more active role... Milton Friedman famously noted that there is no use for the Food and Drug Administration since companies whose products lead to illness will be forced out of the market... What he failed to realize is that if someone gets sick it is extremely difficult to trace the source of the illness, and without government regulation many companies that poison consumers could in fact operate profitably for long periods of time... it is clear that in this highly complex and inter-connected system, where we all are exposed to thousands of chemicals a year, many of which interact in ways that aren’t yet fully understood, where it is hard to trace the origin of products, and where the effects of these products often don’t manifest for years, the ... Food and Drug Administration, the Environmental Protection Agency, and the U.S. Department of Agriculture should all be well-funded, be decoupled from conflicts of interest with industry, and their mandate to protect the public welfare through rational risk assessment should be strengthened.

    Posted by on Sunday, October 23, 2005 at 03:47 PM in Economics, Environment, Market Failure, Policy, Regulation | Permalink  TrackBack (0)  Comments (1)

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