The Economics of Ecology: Angry Planet or Beautiful World?

Economics Has Provided Real Solutions to Pollution and Environmental Degredation


“The bright promise of a new millennium is now clouded by unprecedented threats to humanity’s future.”


“We know that the environment is not in good shape. . . . My claim is that things are improving.”


Bjørn Lomborg is a Danish professor of statistics who was an environmental activist and member of Greenpeace for years. He accepted at face value the Malthusian views, expressed by Paul Ehrlich, Lester Brown, and groups such as the Worldwatch Institute, Greenpeace, and the Sierra Club, that the world was running out of renewable resources, clean water, and forestland, and that the earth was becoming more polluted and that population growth was exploding.

Along came Julian Simon, an American economist from the University of Maryland, who challenged Lomborg’s thinking. Simon had published several books and papers filled with data supporting his view that life was actually getting better, that air in the developed world was becoming less polluted, that fewer people were starving, and that the population growth was slowing.

Simon made two devastating arguments against the pessimists: First, natural resources are virtually unlimited in the long run because higher prices, reflecting scarcity, encourage the discovery of additional reserves and the use of substitutes. In addition, entrepreneurs and inventors are developing new technologies and cost-cutting techniques allowing more resources to be discovered and developed. Second, a large and growing population leads to a higher standard of living because it increases the stock of useful knowledge and trained workers.

Lomborg decided to test Simon’s statistics. In the fall of 1997, he and a group of students examined Simon’s data. Their conclusion: Simon was right! Lomborg reversed course and, in publishing his findings in The Skeptical Environmentalist, has created a furor within the environmentalist community.

Lomborg joins Simon in refuting most of the claims of the perma-bear environmentalists: global forests have increased since World War II; the world’s population growth rate peaked in 1964 and has since declined; only 0.7 percent of species have disappeared in the past 50 years; fewer people in the world are denied access to water; incidence of infectious disease is still on the decline worldwide; the number of extremely poor/starving people is also declining; air pollution is falling in many parts of the world.

But what about global warming, the overriding concern that our capitalistic lifestyle is changing the climate and could do permanent damage to our ecosystem? The evidence is clear that temperatures have been rising in the past century, but the questions remain: how much of the temperature increase is due to global carbon-dioxide emissions and what is the best course of action? Economic analysis shows it will be far more expensive to cut CO2 emissions radically than to pay the costs of adapting to global warming.3

Economists have also debunked the popular myth that economic development is responsible for environmental degradation. The truth is largely the opposite. As Lomborg states, “environmental development often stems from economic development–only when we get sufficiently rich can we afford the relative luxury of caring about the environment.”4

The Polluted Stat

Economists have also publicized “government failure” in the debate about the environment. Recent studies have revealed how less-developed countries, including the former Soviet Union, have more pollution, lower health standards, and more environmental hazards than industrialized nations. Economists Terry Anderson and Donald Leal point to several examples of government mismanagement: National parks such as Yellowstone are in major disrepair, the U.S. Park Service is notoriously wasteful (it built a $330,000 outhouse), the Canadian government destroyed the cod industry, and Brazil and Indonesia forced migrants to burn once-pristine rain forests to plant crops.5

Economics has provided real solutions to pollution and environmental degradation. One problem is what is known as the “tragedy of the commons.” In a 1968 issue of Science, Garrett Hardin, emeritus professor of biological sciences at the University of California at Santa Barbara, wrote a seminal article arguing that a resource tends to be overexploited when owned by the public and not private individuals. If no one owns a piece of grazing land, each herdsman has an incentive to add another animal to the herd until the land is overgrazed. As a result, “Freedom in a common brings ruin to all.”6

Hence, the lack of property rights and market prices creates a “tragedy of the commons”–unnecessary pollution, extinction of animals, destruction of forests, strip mining, and more. At first government favored regulation as a solution, but economists have encouraged the establishment of clearly specified property rights and accompanying price signals in water, fishing, and forestland, so that owners can preserve these resources in a balanced way.

In sum, free-market environmentalism has come a long way in showing how to replace the regulatory fist of command with a greener invisible hand. Many free-market think tanks, such as PERC and the Competitive Enterprise Institute, have challenged the supremacy of the Sierra Club and Greenpeace.7

Earth Day will never be the same.


  1. . Worldwatch Institute, The State of the World 2002 (New York: Norton, 2002), p. xvii.
  2. . Bjørn Lomborg, The Skeptical Environmentalist: Measuring the Real State of the World (Cambridge: Cambridge University Press, 2001), pp. 30, 32.
  3. . Ibid., p. 318.
  4. . Ibid., p. 33.
  5. . Terry L. Anderson and Donald R. Leal, Free-Market Environmentalism, revised ed. (New York: Palgrave, 2001), pp. 47-58.
  6. . Garrett Hardin, “The Tragedy of the Commons,” reprinted in Garrett Hardin and John Baden, ed., Managing the Commons (San Francisco: W.H. Freeman, 1977), p. 20.
  7. . Two additional sources written from a free-market perspective are Michael Sanera and Jane S. Shaw, Facts, Not Fear: A Parent’s Guide to Teaching Children About the Environment (Washington, D.C.: Regnery, 1996) and Ronald Bailey, ed., Earth Report 2000 (New York: McGraw Hill, 2000).


September 2002

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