1.
The assumption is that each individual and each
company is working to further their own interests. There is no altruism put forward to
rationalize a decision in capitalism.
2.
Flexibility is the key. The power of the free
market is flexibility. As socio-economic
realities change there are a multitude of entrepreneurs and small businesses
thinking of ways to best service new needs.
3.
The cost of providing a product or service must
be borne by the consumers of that product or service. Products may be priced according to demand,
but should never be priced artificially low.
If a product is extremely expensive to produce, but artificially priced
at a low point, then consumers will buy more of that product and less of
competing products. This breaks the
ability of the free market economy to respond to the current needs of society
in the most efficient way possible. Artificially
low prices disrupt the supply and demand relationship that keeps capitalism
flexible and responsive to needs.
In economics the environment is what is called a “public
good”. It does not belong to any one
individual or company. Thus it is not in
the best interests of any individual or company to be respectful of the
environment. Their job is to make
money. This does not mean that a public
good has no value. It means that the
value is generalized across the population.
Pollution damages a public good. It removes wealth from society. Pollution exacts a cost. In order for the laws of supply and demand to
effectively direct resources, the cost of providing a product or service must
be borne by the producers and ultimately the consumers of that product or
service. Otherwise those consumers will
purchase more of that product than they would if it were priced appropriately. When coal mines dump toxic waste into
streams, a portion of the cost of the coal is distributed in an economically
random way across the population downstream, regardless of whether or not they
purchase the coal or any energy produced with that coal. The people living downstream are effectively subsidizing
the coal mine and therefore all the coal consumers and consumers of energy from
that coal.
Production costs go up with environmental regulations. This is appropriate. Let’s say I setup a business next to your
house, and dump my trash in your yard.
This saves me the cost of trash hauling and I can sell my goods for less
than other similar businesses. But I
have not provided a lower cost option. In
the absence of laws to stop my behavior I am simply making you pay the cleanup
cost. If I had come up with some
creative process that truly allowed me to produce my product at a lower cost I
would be able to price the product lower, and claim a larger share of the
market. Soon other creative people would
figure out my method, or even a better method, and the price would drop
further.
The point here is that allowing businesses to pollute the
environment does not lower the cost of producing those products or services to
society. It simply allows particular
businesses to effectively dump their trash on someone else’s lawn. They have not earned their market share
through any particular creativity or hard work.
By allowing them to pollute the environment we give them an unfair advantage
over businesses that produce their goods in an environmentally friendly way. When consumers purchase a product they look at
the price. The price of the goods
produced in an environmentally friendly way will likely be higher. The goods produced without environmental
regulations will likely cost less. Consumers
will choose the item with the lower price tag at the store, but it may well be
the higher cost item. By allowing the
producer to freely pollute the environment during production we have
artificially lowered the price of that product.
The laws of supply and demand are circumvented when pollution costs are
not included in the price of goods.
The EPA is the organization that makes and enforces the laws
to prevent my business from dumping trash on your property. As the business owner, I’m likely to find
them unreasonable. My goals are to make
money. Yes, there will be some business
owners who would not dump refuse on someone else’s property even if it were
legal to do so. There will be plenty
more businesses that will use every tool legally available to them to lower the
cost to their consumers. With no law to
prevent the behavior, capitalism rewards the businesses that dump their trash
on your lawn. Environmental protection
laws force businesses to assume all the costs of production, so that the price
of their goods will reflect the true cost, and consumers will then make
appropriate decisions based on the real costs.
The true flexibility of capitalism is from small and medium businesses. Large businesses are no more flexible than
large government institutions. An example
is the energy industry. There are a
myriad of innovative small firms coming up with renewable and clean energy
solutions. These businesses are
showcasing the power of capitalism to develop needed products and services. Yet we are finding ways to subsidize the oil,
gas and coal industries, large firms who lack the flexibility to respond like
smaller firms. Yes, the energy giants
have diversified, but they are clinging to a dated technology, and asking us to
subsidize them by allowing pollution so they can offer an artificially low
price to consumers and score a larger market share. If they are truly dinosaurs, let them go
extinct. The new generation of energy
companies is here: small; creative;
flexible; and ready to take us forward.
