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“Green” Policies Don’t Make Economic Sense Even on Their Own Terms
“Green” Policies Don’t Make Economic Sense Even on Their Own Terms
When confronting the typical proponents of “green” government policies, the free-market economist must make a 
strategic decision: Since most of these recommended (and often, actually implemented) State measures make no sense even on their own terms, one course of action is to stipulate the alleged goals and simply point out that the policies do not achieve them.
However, the danger with such concessions “for the sake of argument” is that the interventionists can then say, “So you agree with us that the free market, left to its own devices, will drive humanity over a cliff, and now we’re all just quibbling over the details.” That’s why it’s also important to stress that the underlying fearmongering is baseless, too.
In the present blog post, I’ll move through the spectrum of possible responses. First, Ross McKitrick–who wrote a graduate-level textbook on the economic analysis of environmental policy–has a new study for the Canadian Fraser Institute, critiquing Canadian “green” regulations that make no sense on their own terms.
Specifically, McKitrick shows that if we stipulate for the sake of argument that (say) Canadians are emitting too much carbon dioxide, then the proper policy response would directly target CO2 emissions. So even if you thought this were a worthy objective, it would still be ludicrous (McKitrick argues) to ban 100W incandescent light bulbs–especially in Canada, where most of the electricity is generated through hydro and nuclear.
Similarly, direct mandates on “energy efficiency” in household appliances are also absurd. The government is playing “central planner,” telling Canadians how to achieve reductions in CO2 emissions which any textbook will say is a very costly way to achieve targeted emission reductions. (Naturally, the U.S. federal and state governments have similarly absurd regulations.)
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Hugh Hendry and the “Blue Pill” |
Hugh Hendry and the “Blue Pill” |.
Distorted Markets
We have always liked Eclectica fund manager Hugh Hendry for his sound views and outspoken manner. Below is a somewhat dated video compilation showing several moments in which he stunned his opponents in television debates by voicing uncomfortable and politically incorrect truths. Included in the video is a defense of speculators, entrepreneurs and other risk takers in the marketplace against statist interventionists and “champagne socialists”, which we wholeheartedly agree with. Speculators have a bad name, mainly because they always serve as a convenient scapegoat for politicians (in fact, speculators and merchants have served as scapegoats whenever economic policy failures became apparent since at least the time of the Roman empire). However, they fulfill an extremely important function, as Mr. Hendry points out to his debate opponents.
Mr. Hendry runs the Eclectica Fund and in recent quarters has frequently stressed that being contrarian has been a losing bet over the past few years (there are a few notable exceptions to this, see further below), while investors and fund managers relying blindly on the “money illusion” provided by central bank interventions have done quite well.
This is undeniably true. A prime example of what absurdities have become possible is shown below. The chart shows the 10-year JGB yield; Japan’s monthly annualized CPI rate of change over the past year is also shown, as an inset in the chart. The red rectangle outlines the time period over which these CPI readings were reported. At no point over the past year was Japan’s CPI not at least more than twice as high as the 10-year JGB yield. Even if one disregards the fact that CPI has been boosted due to a sales tax hike in April, current JGB yields make no sense. Prior to the sales tax hike, CPI fluctuated between 1.4% to 1.6% annualized, or 1.5% on average. This would still be almost five times the current 10-year yield of 0.31%.
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