The Economics of Going Green

Stanford Review
June 11, 2008

Interview with Terry Anderson

By Tristan Abbey
Editor at Large

Terry Anderson is the John and Jean DeNault Senior Fellow at the Hoover Institution and the executive director of the Property and Environment Research Center in Montana.

SR: Should free-market entrepreneurialism lead the way in making our economy more environmentally-friendly, or does the government need to intervene?

TA: Government regulations from 1970-2000 picked the low hanging fruit. Taking the next step toward environmental quality will require the innovation of free enterprise. It is time for "Generation E," where the E is for enviropreneurship.

SR: In terms of an eco-friendly economy, how does the US measure up to other countries?

TA: The U.S. has led the world toward environmental quality, mainly because we have had a vibrant economy which has allowed us to afford to be environmentalists. Data show that our more efficient and environmentally friendly technology has been exported to the developing world, allowing them to improve more cheaply and quickly.

SR: Has our economy become more eco-friendly or less ecofriendly in the past 50 years?

TA: The answer is unequivocally, yes. The title of one of my gooks (borrowed from the Beatles) says it well, You Have to Admit It's Getting Better. ,

SR: How much R&D is currently being done on alternative sources of energy? Who is doing it, the government or the private

TA: Politicians pay lip service to governmental R&D, but the private sector is where results are produced. Both effluent and wasted energy represent costly inputs that are not being transformed into revenue-producing output. Therein lies the incentive to improve.

SR: Biofuels, geothermal, solar, wind-all are criticized for not being cost-effective. Is this a fundamental problem or can it be corrected with more R&D?

TA: There is a fundamental problem-politicians are throwing our tax dollars at trendy alternatives that aren't cost-effective. Count on the private sector to make sound investments as it is now doing and doing it better.

SR: How much of the greenhouse gas emissions could be stopped by a shift to nuclear power? Would this be a wise policy?

TA: Of course, nuclear could reduce carbon output, but this is the wrong question. Like Marx's "labor theory of value," we have adopted a "carbon theory of value" which assumes that saving carbon is the only relevant goal. Nuclear power makes sense, not because of carbon saving, but because it is cost effective.

SR: The president has declared that "America is addicted to oil." Are there any promising alternatives?

TA: If we are addicted, it is because the price remains low in real terms. Once people expect the price to rise and stay high, the marketplace will create the alternatives. Anyone who thinks we will be driving cars powered by gasoline 25 years from now is underestimating the power of markets and entrepreneurship.

SR: What role does and should national security play in this discussion?

TA: National security has driven more bad policies than it has good ones. Intervening in Middle Eastern affairs can only make energy markets more volatile. Trading goods and services we produce for energy from that or any other region is far more likely to encourage peace and cooperation.

SR: Which job sectors would be negatively impacted by "going green"? Which job sectors would benefit?

TA: "Going green" is a meaningless term, but the question highlights the implications of politically directing investment and production. Unlike markets, which generate gains from trade, political direction creates winners and losers without a check on whether there are economic or environmental gains.

SR: According to the Heritage Foundation, had Kyoto been implemented we would have lost $100-400 billion annually, several percentage points of GDP. In the final balance, would "going green" help or hurt the US economy?

TA: If "going green" means more environmental regulation, it will hurt the economy and do little if anything for environmental quality. On the other hand, if "going green" means making the environment an asset through the powers of enviropreneruship, we will have more prosperity, environmental quality, and freedom.

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Terry Anderson is the William A. Dunn Distinguished Senior Fellow and former President of PERC as well as the John and Jean De Nault Senior Fellow at the Hoover Institution, Stanford University. He believes that market approaches can be both economically sound and environmentally sensitive. His research helped launch the idea of free market...
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