Below is a short essay question I ask students in my Foundations of Economics class to grapple with. See how you do with it.
Anyone who has not heard of global climate change (previously called "global warming") really hasn't been paying attention to much of anything for the past 5 to 10 years. The basic hypothesis goes something like this:
1. Carbon dioxide (CO2) is a greenhouse gas that traps heat energy from the sun, thereby raising the average ambient temperature of the surface of the earth and the oceans
2. The quantity of CO2 in earth's atmosphere has increased dramatically over the past 100 years
3. An important cause of the increase in atmospheric CO2 is human burning of fossil fuels, which releases CO2 into the atmosphere, where it continues to build up, resulting in rising average ambient temperature on earth; some people claim that human activity is the most important cause of rising atmospheric CO2
4. Rising average ambient temperature on earth will cause bad outcomes for humans and other species on earth over the next 100 years, including melting arctic caps, rising sea levels, extreme weather events, greater risk of extinction for some species, and ocean acidification.
The science is not all in, which is to say, the sequence of events listed above cannot be taken as "scientific fact," regardless of what you may have heard. But let's put that issue aside for the rest of this essay question. Let's assume that everything in the list above is completely factual.
Using no more than 1,000 of your own carefully crafted words, use the economic way of thinking to address the questions below:
· If the hypothesis of global climate change is correct, why would human-caused climate change be an externality?
· If the hypothesis of global climate change is correct, what could government do to mitigate this massive negative externality? What should government do?
· If the hypothesis of global climate change is correct, what could individual persons do to mitigate this massive negative externality? What should individual persons do?
Below is the essay I wrote:
Assuming the hypothesis of human-caused global climate change (HCGCC) is correct (an assumption that many people think is dubious), then HCGCC is definitely the world's most significant negative externality. HCGCC is a negative externality because people are choosing actions that will unintentionally impose costs (value forgone) on others — other people who had no part in choosing the cost-imposing action.
Government can use the force of law and law enforcement to impose restrictions on choices that people are free to make. Government can restrict the quantity of fossil fuels that firms or individuals are allowed by law to burn. Government can impose taxes on burning fossil fuels, thereby raising the marginal cost to individuals of burning them, thereby internalizing some of the external cost of burning fossil fuels. Government can do anything it is willing to use force or threat of force to get people to do.
Before thinking about what government should do, we will want to remind ourselves that government is a small set of individuals. Government is not a real existent. Government is a collective noun. Collective nouns do not do anything. Only individuals act. With this reminder in place, government should make every effort to weigh costs of actions it takes against benefits of those actions.
Restricting the burning of fossil fuels in the lived world of today would definitely generate costs — value forgone — for billions of people. The economic way of thinking proposes that burning of fossil fuels should not be restricted to such levels that additional costs of the restrictions are larger than the additional benefits of the restrictions.
Both costs and benefits are valuations. Value is entirely subjective, depending on individual human minds, as we have learned. How would it be possible for government (a small set of people — 545 in the United States) to know what the additional costs and additional benefits would be of restricting the burning of CO2 in the lived world of today? Cost and benefit are both about value; science has nothing to say about value, so government cannot look solely to scientists to understand what should be done.
What if human life on earth will ultimately be eliminated by rising CO2? Wouldn't that be too high a cost to pay for continuing to burn fossil fuels? Even that outcome, even if it were certain (which it isn't) cannot add up to humans discontinuing the use of fossil fuels. Discontinuing use of fossil fuels will cause some humans to die today, which must be weighed against some other humans dying in the future. Remember, costs and benefits are values that occur in human minds. Which has higher value: 1 million lives continued today, or 8 billion lives made possible 1,000 years from today?
If you don't know the answer to the question posed in the last sentence of the preceding paragraph, then you can't possibly know that answer to what government should do about the issue of global climate change.
Finally, what could and should individual persons do? That, my friends, is entirely up to individual persons. Individuals could stop breathing. We each exhale CO2 every time we breath. But that would be a rather high marginal cost, and for what marginal benefit? If you are beginning to see that HCGCC is an economic issue, congratulations!