That’s the punchline of a recent paper by Pierre Desrochers (U Toronto). Pierre has written some interesting papers on a range of topics related to economic development, technological innovation, and the intersection of business and the environment.   He argues that it is governmental (regulatory) failures that distort the environmental consequences of corporate behavior, not market failures. Should be an interesting read.

“The environmental responsibility of business is to increase its profits (by creating value within the bounds of private property rights).” Industrial and Corporate Change, vol. 19, no 1 (February 2010), pp. 161-204.

Abstract:

Proponents of corporate social responsibility (CSR) typically consider “business as usual” unsustainable. Building on historical evidence that long predates the modern environmental movement, the contrary case is made that the interplay of voluntary exchange, private property rights, and self-interest has generally resulted in the so-called “triple bottom line” (economic, social, and environmental) through more efficient use of materials and the continual creation of higher quality resources. However, because market processes continually eliminate less competitive firms and tend to concentrate business activities geographically, political pressure brought to bear by adversely affected vested interests often results in the creation of policies that cause greater environmental harm than would otherwise be evident. Environmental CSR proponents often misinterpret these government failures as market failures, and characteristically advocate policies that further distract firms from their core objective and resulting triple bottom line. The article concludes by arguing that the most promising path toward truly sustainable development lies in the unwavering pursuit of profitability within the bounds of well-defined and enforced private property rights.

Today the SEC voted 3-2 to approve an interpretive release offering guidance to companies on disclosure obligations as they relate to climate change.  Commissioners Casey and Paredes voted to reject the proposed guidance.

Everyone can agree that companies may have an obligation under Regulation S-K to disclose risks arising from, among other many things, climate change laws and regulations.  But this guidance goes further, urging companies to disclose risks arising from “physical effects of climate change.”  This is nonsense on stilts.  Leave aside the underlying inanity of the larger enterprise built on the premise that rationally-ignorant and rationally-passive individual investors should read, assess and make active investment decisions on the basis of massive amounts of regularly-disclosed information.  Here corporations are asked to disclose “information” about risks to the company posed by future, possible environmental conditions about which the firms know nothing, the science is utterly un-settled and speculative, and the actual physical and economic consequences of which are even less certain.  (I put the word information in scare quotes because nothing so speculative and uncertain can reasonably be called information).  What possible value could there be to investors (assuming there is any value to investors from disclosure of this type of information anyway) from the sorts of disclosures that would reasonably follow?:  “There is somewhere between a 0% and 90% chance that the temperature during either the summer or the winter or maybe-but-not-definitely both will be either warmer or colder by somewhere between 0.01 and 5 degrees sometime within the next 300 years.  This may or may not be bad for our business depending on whether it makes our customers richer or poorer, improves or harms our productivity and helps or harms our competitors by more or less than it helps or harms us.”

At least Troy Paredes isn’t buying it and once again stands nearly alone (Commissioner Casey also voted to reject) for common sense in Washington.  An extended quote from his statement at today’s hearing:

Second, the release states that companies “whose businesses may be vulnerable to severe weather or climate related events should consider disclosing material risks of, or consequences from,” the “physical effects of climate change, such as effects on the severity of weather (for example, floods or hurricanes), sea levels, the arability of farmland, and water availability and quality.”

The prospect that this guidance will in fact foster confusion and uncertainty about a company’s required disclosures troubles me. What triggers a “reputational damage” or “physical effects” disclosure is far from certain, as is the scope of any such disclosure if and when required. More to the point, reputational damage and the impact on a company of the physical effects of climate change can be quite speculative. There is a notable risk that the interpretive release will encourage disclosures that are unlikely to improve investor decision making and may actually distract investors from focusing on more important information. Here, it is worth recalling that, in rejecting the view that a fact is “material” if an investor “might” find it important, Justice Marshall, writing for the Supreme Court in TSC Industries, warned that “management’s fear of exposing itself to substantial liability may cause it simply to bury the shareholders in an avalanche of trivial information — a result that is hardly conducive to informed decisionmaking.

Also problematic are the interpretive release’s introductory and background discussions on climate change and its regulation. To me, the effect of the discussions is to find the Commission joining the ongoing debate over climate change by lending support to a particular view of climate change. Although the release does not expressly take sides, the release emphasizes the “concerns” and potential harms of climate change and discusses a range of regulatory and legislative developments, along with international efforts, aimed at regulating and otherwise remedying causes of climate change. In particular, the release highlights new EPA regulations, proposed “cap-and-trade” legislation, the Kyoto Protocol (which the U.S. has not ratified), the European Union Emissions Trading System, and recent discussions at the United Nations Climate Conference in Copenhagen. While the release stresses the risks of climate change and ongoing efforts to regulate greenhouse gas emissions in the U.S. and abroad, the release fails to recognize that the climate change debate remains unsettled and that many have questioned the appropriateness of the regulatory, legislative, and other initiatives aimed at reducing emissions that the release features. In short, I am troubled that the release does not strike a more neutral and balanced tone when it comes to climate change — an area far outside this agency’s expertise.

Finally, given that there are more pressing priorities before the Commission, now is not the time for this agency to consider climate change disclosure.

For these reasons, I am not able to support the release before us. Nonetheless, I would like to thank the staff for their efforts and professionalism.

On the bright side, maybe this means the SEC is qualified to investigate the fraudulent disclosures in the UN IPCC’s Fourth Assessment Report.  On the other hand, the existence of such . . . misstatements in the authoritative global survey of climate change science suggests that, as Troy suggests, this whole endeavor will have few of the intended–and plenty of unintended–consequences.

In his New York Times column, Thomas Friedman advocates “doing the Cheney-thing on climate — preparing for 1%.” He’s referring to Vice-President Cheney’s reported remark: “If there’s a 1% chance that Pakistani scientists are helping Al Qaeda build or develop a nuclear weapon, we have to treat it as a certainty in terms of our response.”

This 1% doctrine, Friedman contends, is really just a restatement of the well-known and highly influential precautionary principle. In its most famous recitation, that principle states: “When an activity raises threats of harm to human health or the environment, precautionary measures should be taken even if some cause and effect relationships are not fully established scientifically.” In other words, “It’s better to be safe than sorry.”

The problem with the precautionary principle is that it’s literally non-sensical. It says, “If there’s a course of action that involves threats of harm to human health or the environment, take precautions against it.” The problem is that precaution-taking itself threatens harm to human health and the environment. When we devote resources to avoiding one risk, we divert those resources from some other welfare-enhancing use. When we turn away from a cheap risk-creating technology to a more expensive technology that creates less direct risk, we raise the price of the technology and of any goods or services the technology produces. Poor people will be even poorer. And poverty creates grave threats to human health and the environment.

Thus, it’s not enough to look only at the benefit side of precaution-taking. Because tradeoffs are inevitable, we should also consider the costs of precautions against anthropogenic global warming. In a series of Wall Street Journal op-eds, Bjorn Lomborg has detailed some of those costs: less money for sea walls, storm warning systems, and solidly constructed homes in India and Bangladesh; less money for food, medical treatment, and HIV drugs in Ethiopia; less money for fighting malaria in Zambia; less money for schooling and transportation in Vanuatu.

Now it may be worth incurring these costs in order to reduce the risks of anthropogenic global warming. But Friedman’s precautionary principle can’t tell us that. In saying, “Err on the side of precaution-taking,” it gives literally no direction. A far more helpful principle would balance the expected benefits of carbon caps against their very substantial costs (including, of course, the higher costs of heating and cooling this vulgar monstrosity).

It’s been interesting to observe the responses to the hacked emails from the Climate Research Unit at the University of East Anglia. The emails seem to show leading global warming scientists massaging data to generate the result they prefer (i.e., “I’ve just completed Mike’s Nature trick of adding in the real temps to each series for the last 20 years … to hide the decline”), scheming to squelch opposing evidence (i.e., “I can’t see either of these papers being in the next I.P.C.C. report. Kevin and I will keep them out somehow—even if we have to redefine what the peer-review literature is!”), admitting to a need to hide certain data from critics (”If they ever hear there is a Freedom of Information Act now in the UK, I think I’ll delete the file rather than send to anyone”), and even confessing that they were “tempted to beat” up researchers with opposing viewpoints.

The mainstream press and climate policymakers have largely brushed off these emails and have treated anthropogenic global warming as a settled scientific fact. For example, in reporting the story of the climate emails, the New York Times stated that “[t]he evidence pointing to a growing human contribution to global warming is so widely accepted that the hacked material is unlikely to erode the overall argument.” At the White House, Climate Czar Carol Browner dismissed the emails as an irrelevant distraction. And in announcing the EPA’s recent conclusion that carbon dioxide endangers public health and welfare (and is thus subject to extensive regulation under existing environmental statutes), EPA Administrator Lisa Jackson deflected questions about the emails by curtly noting that “[t]he science has been thoroughly evaluated.”

What could explain this apparent lack of concern about these emails, which strongly suggest that the scientific evidence has been doctored? An obvious possibility is that the powers that be realize we’re on the verge of implementing policies they’ve long favored — significant carbon caps, either via legislation or EPA rulemaking — and they don’t want to do or say anything that might prevent that outcome.

But we might be able to explain the absence of alarm on less cynical grounds. As Cass Sunstein has observed, when people have to make complicated risk judgments under uncertainty, they frequently fall prey to psychological and social forces that make them wary of questioning the conventional wisdom about particular risks. In his 2002 book, Risk and Reason, Sunstein explained how informational cascades, reputational cascades, and group polarization can collectively cement — and even strengthen — ill-founded risk judgments:

An informational cascade occurs when people with little personal information about a particular matter base their own beliefs on the apparent beliefs of others. Imagine, for example, that Alan says that abandoned hazardous waste sites are dangerous, or that Alan initiates protest activity because such a site is located nearby. Betty, otherwise skeptical or in equipoise, may go along with Alan; Carl, otherwise an agnostic, may be convinced that if Alan and Betty share the relevant belief, the belief must be true. It will take a confident Deborah to resist the shared judgments of Alan, Betty, and Carl. The result of th[is] set of influences can be social cascades, as hundreds, thousands, or millions of people come to accept a certain belief simply because of what they think other people believe. …

In the case of a reputational cascade, people do not subject themselves to social influences because they think that others are more knowledgeable. Their motivation is simply to earn social approval and avoid disapproval. … If many people are alarmed about some risk, you might not voice your doubts about whether the alarm is merited, simply in order not to seem obtuse, cruel, or indifferent. … Sometimes people take to speaking and acting as if they share, or at least do not reject, what they view as the dominant belief. As in the informational context, the outcome may be the cleansing of public discourse of unusual perceptions, arguments, and actions. … Lawmakers, even more than ordinary citizens, are vulnerable to reputational pressures; that is part of their job. They may even support legislation to control risks that they know to be quite low. …

When like-minded people are talking mostly to one another, especially interesting things are likely to happen. If members of a group tend to think that global warming poses a signficant danger, their discussions will move them, not to the middle, but to a more extreme point in line with their original tendencies. … If members of a group tend to believe that for cancer, the serious dietary problem lies in the use of pesticides, those same people will tend, after discussion, to have a heightened fear of pesticide use. All these are examples of group polarization — a process by which people engaged in process of deliberation end up thinking a more extreme version of what they already thought. Group polarization is central to the cascade-like processes discussed here. If like-minded people are speaking mostly with one another, they can end up with intensely heightened concerns about small risks.

Now I’m not arguing that the risks associated with anthropogenic global warming are small. On that matter, I’m agnostic. I do think it’s appropriate, though, to ask whether our climate policymakers and the members of our media elite are beset by the same social forces that influence the masses. Their lack of concern about the climate emails suggests that they may be. Consider, for example, Climate Czar Browner’s response to questions about the emails:

There has been for a very long time a very small group of people who continue to say this isn’t a real problem, that we don’t need to do anything. On the other hand, we have 2,500 of the word’s foremost scientists who are in absolute agreement that this is a real problem and that we need to do something and we need to do something as soon as possible. What am I going to do, side with the couple of naysayers out there or the 2,500 scientists? I’m sticking with the 2,500 scientists.

Of course, many of the 2,500 scientists “who are in absolute agreement” are Betties, Carls, Deborahs, Edwards, etc. who have formed their beliefs, at least in part, on the basis of evidence presented by a tainted Alan. And the Carol Browners and Lisa Jacksons of the world are certainly worried about preserving their reputations (not to mention, their jobs)! And they and their fellow policymakers have left their nests of like-minded folks in Washington, Geneva, etc. and convened to form an even larger community of like-minded folks in Copenhagen. Informational cascades, reputational cascades, and group polarization — oh my!

Apparently the Obama administration is not very confident about getting its environmental climate change agenda passed through Congress. Given a legislative “solution” is off the table, at least for the foreseeable future, perhaps it is not surprising that today the EPA announced it’s ruling that greenhouse gases are “a danger to public health and welfare“.

By making it’s declaration, the EPA has unilaterally claimed authority over regulating greenhouse gas emissions (under the auspices of the Clean Air Act) without worrying about legislative approval. After all, why bother waiting for the elected representatives of the citizenry to grant authority that can be obtained by administrative fiat? Instead, claim the authority and risk Congress being able to muster enough votes to overturn the decision.  The checks-and-balances version of the old adage: better to ask forgiveness than permission.

To be fair, the US Supreme Court opened the door for the EPA to make this move in its decision in Massachusetts v. EPA (549 U.S. 497 (2007)), a door the Obama administration was all to happy to run through. There is no little irony in the fact that the Court’s majority relied heavily on a report by the UN’s Intergovernmental Panel on Climate Change (IPCC); a report that has been criticized by the scientific community (for example, see here or here–referred by my Nobel-winning atmospheric science colleague Tony Lupo ), and a report which, according to recently-revealed emails between IPCC proponents, intentionally squelched opposing voices.

Although the EPA’s ruling is immediately aimed at increasing fuel economy standards for new cars and light-weight trucks, the broad-sweeping pronouncement that greenhouse gases (presumably of all sorts and from all sources) are a “danger to public health and welfare” portends a much more expansive role for EPA to regulate virtually any greenhouse gas-producing activity…a regulatory reach that would seem unprecedented, and all without so much as a debate in Congress.

But breathe easy…the EPA has already stated it is not concerned about the greenhouse gases produced simply by humans breathing.

In a move stupider even than Chicago’s foie gras and trans fat bans (on which see Thom here), California appears to be set to ban . . . wait for it . . . big TVs.  Environmentalists, those growing enemies of freedom and common sense everywhere, are pushing the ban because large-screen TVs use a lot of power.  And by large screen we’re talking 40 inches–not just the giant honkers bigger than most Multiplex screens.  And former-libertarian-leaning Arnold is on board.

Here’s a taste:

Arnold Schwarzenegger, the state’s governor, has supported controversial proposals by the California’s energy commission to impose strict energy consumption limits on TVs with screens that are more than 40 inches wide.

* * *

The commission argues that television owners would save around $30 (£18) a year per set in reduced energy consumption. The state itself could benefit by as much as $8.1 billion and could drop plans to a new natural gas-fired power station.

“We would not propose TV efficiency standards if we thought there was any evidence in the record that they will hurt the economy,” Julia Levin, an energy commissioner, told the Los Angeles Times.

“This will actually save consumers money and help the California economy grow and create new clean, sustainable jobs.”

I never fail to be impressed by the temerity and economic illiteracy of public officials.  Certainly there can be no benefit to anyone in California from watching a large screen TV, so $30 dollars a year in savings is all gain!  And why try to align incentives and let people decide for themselves where they might best cut energy use by raising the price of electricity or–better yet–by using dynamic pricing and smart grid technology, when we can just micromanage their choices for them?  And, gosh, nothing says “economic growth” like beating up on an existing (mostly foreign–hmmmm, I wonder . . . nah!) industry.   Finally–bonus!–by making TV less attractive, we’ll make Californians more productive!

I sure do hope our inevitable health insurance overlords commissioners are as sensible as the California Energy Commissioners.

For a great review of smart grid and its prospects, see this article by Lynne Kiesling in Reason.

(HT:  Seth Weinberger)

I’ve been waiting for my old con law prof to take a political stand I could really get behind, and he finally has. Barack Obama is the only one of the presidential candidates to take a firm stand against this shamefully populist gas tax holiday. Good for you, Prof!

Now, I’m not normally a big tax guy. Taxes generally expand the government’s coffers, enabling the state to do more of the stuff I don’t think it should be doing, and lots of taxes (e.g., capital gains taxes, Sen. Obama) create terrible, wealth-destructive incentives. But not all taxes are created equal. Activities that impose costs that are not borne by the people engaging in the activities – negative externalities, to use economic jargon – may be appropriately taxed. Gasoline consumption, which creates all sorts of negative spillovers, is one of those activities.

A friend of mine whom I hadn’t seen for a while came over the other night. I laughed when I realized he’d traded his ridiculous monster truck (he’s a city boy who definitely doesn’t need that much vehicle) for a sensible Honda Civic. “What’s up with the ride?” I asked. “Gas prices,” he replied.

What good greenie (as Hillary is trying to portray herself) or economically astute policymaker (as McCain is trying to portray himself) could think this is a bad thing?

Greg Mankiw explains.

I’ve previously tiraded about paternalism in my beloved Chicago. I won’t beat that dead horse, but I just can’t ignore the latest liberty restriction imposed by our esteemed aldermaniacs. The members of the aldermen’s Buildings Committee recently voted to extend the city’s smoking ban to performers in theatrical productions.

What a freakin’ embarrassment.

The aldermen remind me of the administrators of my Baptist high school, who routinely censored student theatrical productions. Lest we offend our more sensitive brethren (i.e., those who might give money to the school), we were required to refer to the elderberry wine in Arsenic and Old Lace as sassafras tea. The big dance in Meet Me in St. Louis became a banquet. I’m not kidding. Good Baptists don’t drink or dance.

Not surprisingly, the censored productions lost a bit of their zip and we performers looked like idiots. But there was an even more negative result. A large proportion of my classmates, long forced to adhere to a ridiculously stringent code of conduct, eventually turned into wild heathens. The continual top-down control wore on them until they could take it no more and they rebelled, throwing out the baby of Christian belief itself with the bathwater of one particular brand of Baptist fundamentalism. It’s tragic, but it’s an inevitable result of overly stringent conduct restrictions.

This is one of the reasons I oppose smoking bans: they make smoking more attractive to the most impressionable folks out there, rebellion-prone youngsters. I also oppose them because they remedy no genuine technological externality. People who choose to go to an establishment that permits smoking have decided to accept the risks, inconveniences, and benefits (yes, for some folks there are some) of a smoking-permitted zone. The owner of the property at issue has every incentive to maximize the attractiveness of her venue by selecting the optimal smoking policy.

When it comes to censoring smoking in theatrical productions, these arguments are even stronger. A ban on portrayals of smoking was the end of the slippery slope in the film Thank You for Smoking, in which an anti-Tobacco senator tried to order Hollywood to doctor old movie star portraits so that the actors’ cigarettes were replaced with innocuous items like candy canes and chopsticks. The notion that the government would try to censor art (and history) as part of its anti-smoking crusade seemed ridiculous enough to evoke a few laughs. Now it’s for real, and it’s bound to create more smoking rebels.

With respect to externalities, any theatre patron who is offended by onstage smoking — either because of the “risk” presented (by the way, there’s not one) or the message conveyed — can ask in advance whether the production involves smoking and can spend his entertainment dollars elsewhere if he’s so inclined. People routinely decline to see plays that involve offensive elements. (Should the Board of Aldermen protect the easily offended from The Vagina Monologues?)

Theatre critic Terry Teachout had it right in this weekend’s WSJ:

To perform “[A] Streetcar [Named Desire]” without cigarettes, or “Twelve Angry Men” without a smoke-filled jury room, is to insult the intelligence of audiences who come to see these well-known plays expecting to see them performed as written. … Such a ban isn’t unconstitutional — but it’s stupid, which is even worse. It makes Chicago look like a backwoods burg full of philistine pols with nothing better to do than mind other people’s business. … [S]ince when did Carl Sandburg’s City of the Big Shoulders turn into Nannytown, U.S.A.? As for those Chicagoans who don’t care to have their nostrils brutalized by the smell of a lone cigarette burning halfway across a crowded theater, they have an inalienable right of their own — the right to head for the nearest exit. I urge them to exercise it and leave the actors to go about their stage business undisturbed.

Well said.

Friday’s WSJ documented an effect of ethanol mandates:

Rising costs for agricultural commodities are making their way up the food chain into the food you eat. Thanks to rising demand for corn-based ethanol, corn prices have nearly doubled during the past year. That’s raised costs for corn products, like the ubiquitous high-fructose corn syrup that’s used to flavor everything from Apple Jacks to Yoplait Yogurt. It’s also raised costs for livestock and poultry, which are fed corn, and for crops like soybeans, which farmers are replacing so they can grow more corn.

Yesterday, the Labor Department reported February prices for “crude foodstuffs and feedstuffs” were 18.8% above year-ago levels. Food companies are starting to pass those higher costs on — wholesale consumer food prices were 6.8% above year-ago levels. Today’s report on consumer inflation will probably show higher prices at the checkout line, too.

These higher prices might not be a bad thing if we were getting some environmental benefit from increase ethanol use. But as Jerry Taylor and Peter Van Doren have shown, we’re not.

Farmers, of course, are benefitting. And we Americans like farmers — so much so that we throw subsidies their way despite the fact that U.S. farm households earn about 11 percent more on average than non-farm households. Unfortunately, the subsidy inherent in ethanol mandates disproportionately impacts the poor, who spend a larger percentage of their incomes on food. Doesn’t that seem like a perverse sort of redistribution?

Unfortunately, the situation is likely to persist. Midwestern farmers constitute the sort of discrete and insular group that organizes well to curry legislative favors. Food consumers, by contrast, are pretty widely dispersed and difficult to organize. And since the costs of ethanol mandates (increased food prices) are diffuse while the benefits (increased profits for farmers) are concentrated, farmers will be much more likely to lobby for their preferred outcome.

I say we require ethanol to stand on its own two feet, and if it can’t, let it fail.

The recent State of the Union address, in which President Bush called for an almost 500% increase in alternative fuel consumption by 2017, once again turned the nation’s attention to the various elixirs that promise to make the U.S. “energy independent.” The closer we look, though, the less appealing the leading alternative fuel — ethanol — appears to be.

In The Ethanol Boondoggle, appearing in the current issue of the Milken Institute Review (free registration required), Jerry Taylor and Peter Van Doren persuasively catalogue ethanol’s shortcomings. Among the deficiencies they cite are the following:

Ethanol requires massive government subsidies. The U.S. Department of Agriculture estimates that ethanol costs $2.53 per gallon to produce in the United States — far more than the cost of conventional gasoline. The stuff would never make it to the pump but for massive government subsidies. Indeed, the 2006 subsidies amounted to about $1.05 to $1.38 per gallon, or 42 to 55 percent of ethanol’s wholesale market price. While ethanol proponents contend that these subsidies are needed to level the playing field with oil, whose production is also subsidized, the facts suggest otherwise. The 2006 subsidies for oil production amounted to about 0.3 cents per gallon. Moreover, as Taylor and Van Doren note,

the proper remedy for an objectionable subsidy is its elimination, not the imposition of a countervailing subsidy. The riposte that oil subsidies are impossible to eradicate, thus necessitating a “second-best” response of counter-subsidy — is hardly persuasive. Oil subsidies have been eliminated in the past — most recently, during the Reagan administration.

Ethanol’s environmental benefits are nil. Most folks seem to believe that ethanol, produced from pretty green corn fields in the Midwest, must be better for the environment than that ugly black stuff the gurgles under desert sands. But the facts suggest otherwise. First, ethanol creates more smog than conventional gasoline. In Ethanol in Gasoline: Environmental Impacts and Sustainability, published in the Renewable and Sustainable Energy Reviews, Prof. Robert Niven concluded that burning E10 (fuel that’s 90% conventional gasoline and 10% ethanol) actually increases emissions of total hydrocarbons, non-methane organic compounds, and volatile toxins. Substitution to E10 thus increases both smog and ambient concentrations of toxic chemicals. And the situation is worse for E85, the 85 percent ethanol fuel that’s being pushed by GM and is widely available in the Midwest.

But what about greenhouse gases? Ethanol fares no better. Niven’s review found that burning E10 rather than conventional gasoline reduces greenhouse gas emissions by only 1 to 5 percent, and that switching to pure ethanol would provide only a 12 percent reduction in such emissions. While 12 percent sounds pretty substantial, that figure doesn’t account for the increased energy required to produce ethanol. Once we run additional tractors to cultivate the corn, fire the boilers required to distill it into alcohol, and fuel the trucks needed to transport the stuff around the country (ethanol is corrosive and can’t be transported in pipelines), any reductions in greenhouse gas emissions disappear.

Finally, we must consider non-air quality environmental effects. Profitable corn production requires tremendous quantities of fertilizer, pesticides, and water. And, of course, more land will have to be devoted to corn production. Increased ethanol use therefore promises to increase water pollution (from farm run-off), destroy wildlife habitat, and reduce biodiversity.

Increased ethanol production will increase food prices. Since rules kicked in last year requiring that reformulated gasoline use ethanol rather than MTBE, corn prices have skyrocketed. Last Monday’s price of $4.05 per bushel was double the price from a year ago. This development has huge implications for the food supply, for corn is in just about everything we eat. As an article in last Monday’s WSJ explained,

Corn goes into more than a bowl of cornflakes. It’s in your bacon and eggs — corn gets fed to hogs and chickens. High-fructose corn syrup sweetens soda, salad dressing and, if you look at the label, probably your cough syrup. In his book “The Omnivore’s Dilemma,” author Michael Pollan relates that he asked University of California, Berkeley, biologists to pass a McDonald’s cheeseburger through a mass spectrometer. They found 52% of its carbon content started out as corn.

As one analyst colorfully put it, “If you look at cattle and hogs and chickens, what they really are, are devices for turning low-value corn into high-value meat.” Raising the price of corn therefore raises the price of many, many food products. Since Americans spend 15% of their income on food (as opposed to 9% on energy), and since poor people spend an even higher percentage than that, ethanol mandates may have large and regressive negative economic impacts. Outside the rich U.S.A., the situation may be even worse — poor Mexicans are reeling as the price of tortillas has doubled in response to America’s ethanol mandate.

***

Despite ethanol’s shortcomings, many insist on viewing the alternative fuel glass as half-full. As an article in last Monday’s WSJ noted:

But even as the outlook for alternative energies darkens, some analysts see a more positive outcome from the latest turbulence: a forced redirection of resources toward alternative fuels that are more efficient and sustainable than the current batch. These analysts see an analogy in the dot-com bust of 2000. The bust cleared out some of the worst ideas and least-efficient companies in the tech arena, allowing deeper-pocketed investors to consolidate operations and emerge leaner to make the Internet an even more powerful force in the world economy. They believe a similar scenario will play out in the alternative-fuels market.

There is, of course, a massive difference between the dot-com bubble of 1998-2000 and the current exuberance over alternative fuels in general and ethanol in particular: in the Internet bubble, bad ideas were allowed to fail. The same should be true for alternative fuels. If the government stays its hand and allows oil prices to rise to reflect scarcity, political turmoil, etc., entrepreneurs will compete against each other to find alternatives. And if the government doesn’t muck things up trying to “pick the winner,” the alternative fuel that emerges will be cost-effective.

But enterprising entrepreneurs are not going to invest in new technologies if the government commits us to an ethanol solution. With the huge subsidies noted above (and a 54-cent per gallon tariff against imported ethanol), that’s exactly what it’s doing. Given that the benefits of the government’s actions are concentrated on a powerful minority and the costs are spread throughout society, this outcome is practically inevitable. But the vast majority of us would be much better off if the government would allow ethanol to fail, or at least require it to pay its own way.

***

UPDATE: An editorial in today’s (Tuesday’s) NYT acknowledges that increased ethanol production threatens to drive up food prices. As usual, though, the Times has a simple solution to the tradeoffs problem: “What we will need to change is the size of our appetites.” Problem averted — whew!

In January, Washington, D.C. will join the nearly 500 cities nationwide that have thwarted the free market’s accommodation of heterogeneous preferences and have ordered private property owners to forbid their invitees from engaging in otherwise legal behavior. I am speaking, of course, of Washington’s forthcoming smoking ban.

The Washington Post was gracious enough to permit me to explain on its website why I think this is a bad idea. A longer version of the argument — which should be wholly familiar to regular TOTM readers — is here.

(By the way, TOTM’s policies permit this sort of shameless self-promotion.)

According to Bar None, an op-ed by Jack Turner in today’s NYT, “history shows that, however commendable the reasoning, efforts to control how people drink — or eat, or smoke — tend to backfire.” I’ve made a similar argument in discussing smoking bans.

Advocates of such bans (often citing the work of “norms scholars,” such as Larry Lessig and Dan Kahan) frequently defend the bans on grounds that they alter social norms. The argument is that smoking bans provide a de facto community statement that public smoking is unacceptable and thereby embolden non-smokers to confront smokers who are inconveniencing them. Facing heightened public hostility toward their habits, smokers are likely to revise their preferences regarding smoking. Thus, by making smoking more socially costly, bans reduce the number of smokers.

Of course, this is a good thing only if actual social utility is increased by reducing the incidence of smoking. Ban advocates assume that it is for the obvious reason that smoking carries serious health risks. But ban advocates generally are not in a position to judge the cost side of reducing smoking, for they do not know the degree of utility smokers experience by smoking. Smokers themselves, who these days are aware of the risks of smoking, appear to believe that the benefits they experience from the activity outweigh the costs. It is thus not at all clear that social welfare will be enhanced by eliminating smoking.

But even if it were clear that society would be better off with less smoking, this sort of “norm management” may be a bad idea. Sweeping smoking bans may actually increase the incidence of smoking. A large percentage of smokers acquire the habit at a young age, and they frequently do so because smoking is “cool.â€? Smoking is cool, of course, because it’s rebellious. The harder anti-smoking forces work to coerce people into stopping smoking, and the more they engage the government and other establishment institutions in their efforts, the more rebellious — and thus the “cooler” — smoking becomes. As an empirical matter, then, it is not clear whether sweeping smoking bans — highly intrusive regulatory interventions — actually reduce the incidence of smoking in the long run.

Nazi Germany may provide an example of this sort of “norm backlash.” According to a report in the British Medical Journal, “Germany had the world’s strongest antismoking movement in the 1930s and early 1940s, supported by Nazi medical and military leaders worried that tobacco might prove a hazard to the race.” It bombed:

German smoking rates rose dramatically in the first six years of Nazi rule, suggesting that the propaganda campaign launched during those early years was largely ineffective. German smoking rates rose faster even than those of France, which had a much weaker anti-tobacco campaign. German per capita tobacco use between 1932 and 1939 rose from 570 to 900 cigarettes a year, whereas French tobacco consumption grew from 570 to only 630 cigarettes over the same period.

While this post hoc evidence is admittedly anecdotal, it’s consistent with Turner’s point that paternalism tends to backfire. Norm managers proceed at their own peril.

Want to save endangered species? Turn them into private assets. So argues Barun Mitra in today’s NYT.

In Sell the Tiger to Save It, Mitra observes that our thirty year-old conservation policy, which prohibits harm to individual tigers and the trading of tiger products, has failed to increase the tiger population. The problem, Mitra argues, is that the prevailing prohibitionist approach fights markets rather than harnesses them:

[L]ike forests, animals are renewable resources. If you think of tigers as products, it becomes clear that demand provides opportunity, rather than posing a threat. For instance, there are perhaps 1.5 billion head of cattle and buffalo and 2 billion goats and sheep in the world today. These are among the most exploited of animals, yet they are not in danger of dying out; there is incentive, in these instances, for humans to conserve.

So it can be for the tiger. In pragmatic terms, this is an extremely valuable animal. Given the growing popularity of traditional Chinese medicines, which make use of everything from tiger claws (to treat insomnia) to tiger fat (leprosy and rheumatism), and the prices this kind of harvesting can bring (as much as $20 for claws, and $20,000 for a skin), the tiger can in effect pay for its own survival. A single farmed specimen might fetch as much as $40,000; the retail value of all the tiger products might be three to five times that amount.

Yet for the last 30 or so years, the tiger has been priced at zero, while millions of dollars have been spent to protect it and prohibit trade that might in fact help save the species.

A property rights-based approach to conservation similarly offers greater protection for elephants, as Zimbabwe’s experience reveals. (See also here.)

Unfortunately, our own Endangered Species Act, which places severe development restrictions on any property providing habitat for listed species, turns endangered critters (and flora) into liabilities. The result is the regrettable “shoot, shovel, and shut-up” syndrome.