Edward Lotterman
Damn you, Dick Darman! That un-Christian thought about a 1990’s presidential bureaucrat hit me on reading about new flooding in south Florida and warnings of 90 mph winds for several states the next day.
These follow myriad tornadoes in our country, unprecedented flooding in Brazil and several other countries and, once again, days with the haze of smoke from forest fires in Canada.
Whatever label you put on it, the climate is changing. And we can feel it happening.
Not only that, unrelated pollution problems continue. The number of streams and aquifers in our state with excessive nitrates or complex “forever chemicals” continues to rise, for example. Despite more than a quarter century with a Cabinet-level environmental agency, pollution harming human health, destroying ecosystems and altering climate continues apace.
More senselessly, even though a century has passed since a stuffy British economist outlined the wisest ways of handling problems like pollution, both U.S. political parties continue to spurn his wisdom. Some people still opt for measures that are less effective and more costly. Others simply deny that problems exist.
This did not have to be, but it is. And a now-obscure staffer for President George H.W. Bush bears some blame.
Richard Darman, a North Carolinian with two degrees from Harvard, was a sort of wunderkind in three Republican administrations. A protégé of Bush-41 guru James Baker, Darman started as an assistant secretary of Commerce in the 1970’s Ford administration when still in his 30s. He was staff secretary to Ronald Reagan for four years before becoming deputy Secretary of the Treasury. Once George H.W. Bush was elected, Darman became director of the Office of Management and Budget. It was here that he strangled what might have been a dramatic upgrading in effectiveness of U.S. environmental policy.
To understand the economics in all this, drop back a century or two. In the 1770s, Adam Smith argued economies can use resources efficiently without government direction. But he also noted situations in which that might not be true.
Over the following century, Smith’s insights were formalized and then translated into mathematics. His idea that unregulated markets could produce good outcomes became a doctrine — that they always would; any government action in markets would make society worse off.
These ideas were the roots of modern libertarianism. They co-opted and paralleled Darwinian scientific arguments that natural selection optimized biological survival without divine intervention. Indeed, “social Darwinism” gained power, and was applied to justify a society that, in effect, stole from the poor to give to the rich.
Some of the same arguments are popular today. But the late 1800s had vast social problems and upheavals, and the cataclysm of World War I shook existing beliefs.
Even during Smith’s time, there always had been cases of markets not working perfectly. But these were dismissed by devotees as aberrations. However, in 1920, Cambridge economist Arthur C. Pigou formally described examples in which costs or benefits to society diverge from those making key decisions. In cases of such “externalities,” the absence of government action did not lead to optimal outcomes.
Pollution is a prime example. Pollution from making plastics or generating electricity costs entire populations, but it is not paid for by the chemical or electric companies. We all need vital products, but there are no automatic, correct incentives to balance the costs of pollution against the benefits of the products.
Pigou argued that negative externalities, such as pollution, should be discouraged through taxes proportional to harm done, while positive “spillovers,” such as benefits from bio-medical research, should be encouraged with subsidies.
Decades later, as concern about pollution, workplace safety and resource scarcity grew, a new cohort of environmental economists took Pigou’s ideas and ran with them. A consensus emerged that instead of mandating exactly what pollution control technology be used, the amount of pollution generated should be taxed. This would create incentives to find the lowest-cost reduction measures.
There was a parallel approach in situations where specifics differed. Decide on an acceptable level of emissions, then allot or auction off permits to emit specific chunks of the total. Make these permits tradeable, so that if someone achieves reductions easily, they can get cash for any leftover rights from someone else for whom reductions are costly. Either way, we have economic incentives for producers to reduce their harm on the rest of society in the ways that use up the least resources. Society gets the largest amount of remediation at the lowest cost.
One would think such market-based measures would be welcomed by like-minded libertarians. But as this method came to dominate the thinking of most economists and pollution control scientists, the general public and lawmakers always were skeptical.
This was not due to lack of interest. By the late 1960s, concern about the environment was widespread. Sen. Henry Jackson, who introduced the National Environmental Policy Act in early 1969, was a Democrat, but it passed the Senate unanimously a few months later. Then it passed the House on a 371-15 vote, with the nays distributed across both parties. Environmental cleanup was not yet a partisan issue.
It was more so by 1989 when George H.W. Bush was inaugurated, but bipartisan support for thoughtful environmental policy remained. Pollution reduction policies had started out with command and control, a continuation of government regulation such as for boiler safety or pure foods, but, 20 years on, it was clear that there were better approaches. There was a consensus among environmental economists, engineers and scientists that market-based approaches were the way to go.
Bush 41 was a thoughtful president with more personal concern about the environment than Reagan. Now was the time to move U.S. policy in a direction that would be more effective in harm reduction and more efficient in terms of value of results produced versus resources used. Hopes were high.
Then, a year into the new administration, OMB director Darman testified before Congress. The administration wanted to continue to reduce budget deficits. When asked what other legislation it sought, Darman replied that there was none. In saying that everything was hunky-dory, Darman drove a stake through the heart of more effective environmental regulation and resource conservation.
A third of a century later, command-and-control remains dominant. Liberal Democrats see emissions as sinful corporate greed that must be punished. Conservative Republicans read Milton Friedman’s non-scholarly books or Ayn Rand’s potboilers and say all government actions make us worse off. Levels of nitrates and PFAS in our waters rise. The oceans continue to warm, the climate continues to change, and weather events that are extreme by historical record are increasingly common.
The idea of diminishing marginal returns is forgotten, so the common-sense fact that reducing gasoline use from 20% of some starting level to 10% is much more expensive than the first drop from 100 to 90. The press still approvingly describes an arbitrary mandate that 50% of vehicles must be electric by a certain date as “tough!”
Our politics have become so embittered that no reform is possible. Conservative Democrat Jackson is gone, as are moderate Republicans like Dave Durenberger or Richard Lugar. Good estimates are that deadlock is costing us about as high a fraction of GDP as that raised by the personal income tax. No Nero is fiddling, but our nation — and world — burns.
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St. Paul economist and writer Edward Lotterman can be reached at stpaul@edlotterman.com.
