Climate Change, Capitalism & The Market

There are two prevailing views about how best to manage climate change – have the government do it or let the market do it.  It will probably be a combination of both, but let’s evaluate both options anyway.

Let the market, not the government, lead the way.  The argument:  The market is more efficient than the government in managing economic affairs, therefore the best way to deal with climate change is to leave it to the markets.

Counterpoint:

If market pricing included the cost of the damage to the environment by greenhouse gases, this could be true.  But since it treats the atmosphere as if it were a free resource, the market – as history has shown – will avoid addressing it.  To correct this, the cost of environmental degradation must be expressed in economic terms and priced into the costs of products and services.

This alone might have been sufficient 30 or 40 years ago, but the crisis is so advanced that an emergency response is required, and this is best led by the government.

Have government do it.  The argument:  Capitalism requires constant growth.  This growth causes a constantly increasing demand for energy.  The constantly increasing demand for energy creates more and more greenhouse gas emissions, therefore capitalism and the project to reduce greenhouse gas emissions are incompatible.

Counterpoint:

The objective of capitalism is efficiency, not growth.  Growth has been the hallmark of Capitalism only because of unprecedented population growth in the 20th century and because of the failure to price for the cost of environmental degradation.

We are on the cusp of a population implosion comparable to the population explosion of the 20th century.  The damage to the environment soon will become so great that we will no longer be able to ignore it.  These two factors will enable properly regulated Capitalism to do what it does best – adapt.

All the alternatives to Capitalism have been tried and failed.  Capitalism doesn’t depend on growth to survive, but it does depend on sound regulation and people who are guided by a moral compass.