Andrew Colclough

No matter the situation, there will always be That Which is Seen and That Which is Not Seen. Great article from the Mises Institute:

Conserving conserves nothing

December 22, 2009 5:21 PM by Jim Fedako (Archive)

Maybe it was the holiday spirit. Or maybe it was the impatient line of holiday shoppers anxiously waiting for me to finish paying the cashier. Regardless, I let an economic fallacy slide without comment.

As the cashier was totaling my bill, she asked if she could pack some of my goods in the plastic bag I was holding; a plastic bag that previously held an item I had returned upon entering the store.

"Certainly," I replied.

She then noted with a smile, "Great. I'll reduce your bill by a quarter. You are saving the environment, you know."

I'm certain my sweater could feel the hair on my neck rise. "Saving the environment?" I thought. But before I could respond, and begin a lesson in economics, the holiday spirit, or the line of holiday shoppers growing and waiting, kept me quiet.

In a slower time of the year, I would have noted that I would soon spend the quarter she left in my wallet on an after-dinner mint at a local restaurant. You know what I'm talking about; one of those small, foil-wrapped chocolate mints conveniently placed at the cash register.

My reuse of a plastic bag at the store allowed me to purchase a conglomeration of chocolate, sugar, fat, and foil. So, in the end, was the environment really "saved?"

Were my actions the same as those envisioned by the cashier? Did she really mean for me to consume different resources - something other than plastic? Is that really the end sought by those in the environmentalist movement?

Conserving conserves nothing is an outrageous claim, but it is true nonetheless. Oh, sure, by reducing my consumption, I am conserving certain scarce resources - that is the seen. However, as Hazlett and Bastiat showed years ago, the seen never tells the whole story. And, many times, the story it does tell is simply not true.

To get to the truth of my claim, we have to scratch beyond the surface. So, let us begin our Hazlettian and Bastiatian journey from the seen toward the unseen, and a better understanding of the economics of conservation.

First, we must define conservation. [1] As commonly used today, conservation refers to actions that reduce the use of certain resources for the purpose of protecting the environment. So, in this view, I conserve when, for the sake of protecting the environment, I travel by bicycle instead of by car. It then follows that I am not conserving when I choose to ride my bike as a benefit in itself. For my actions to be considered conserving, I have to be acting with the environment in mind. Or so the current definition goes.

I can reduce my consumption of a certain resource in order to satisfy a number of ends. For example: I can reduce out of a belief that, by doing so, I am protecting the environment; I can reduce due to a change in my valuation or preferences; I can reduce in order to save for future use; or, I can reduce as a result of government interventions.

In all cases, the result is the same: nothing is conserved. [2]

Let's analyze the result of my supposed conservation effort at the store? As noted above, if I simply redirect my quarter to another purchase, I am not conserving the environment, so to speak. While it is true that I am reducing my use of certain resources, it is also true that my new purchase results in the increased use of other resources. The unseen negates the seen.

What if I had flipped the quarter into the trash can on the way out of the store? Or dropped it in a piggybank at home? In either case, the market would have read my action as a change in preference for money over other goods. The value of money would change ever so slightly and the resources that I left unused would be purchased by some other consumer or producer. My abstention would result in their consumption - and nothing would have been conserved (or, more correctly, some resources might be conserved, but at the expense of others).

What if government had taxed that quarter away? Well, the same applies as above. Government could have spent its ill-gotten gain on monuments to itself, using scarce resources in the process. Or it could have destroyed the quarter, and the value of money would have changed in the market. Again, nothing would be conserved.

So there is nothing about the reuse of the plastic bag and the reward of a quarter which causes a reduction in the use of scarce resources -- in the aggregate, of course. And this holds every time I reduce my consumption of some good. I either consume some other good or change my preference for money. But nothing gets conserved.

Are there other ways to reduce consumption of a scarce resource? Absolutely. If folks in the environmentalist movement want to conserve (say) oil, they can purchase oil fields with all of those quarters returned at the checkout line. And they can leave the oil in the ground for as long as they own the land.

Certainly, by doing so, they will conserve oil. Nevertheless, they must also recognize that oil left in the ground will likely be offset by an increased use of other resources, with nothing being conserved in the end.

You may think, "That's a sad tale. If there is no way to conserve, then we have no future."

Such an argument is pure question begging. What makes conservation - as currently defined - a necessary means to a future? And what is that future, anyway?

There is hope. A truly free market would efficiently and effectively utilize scarce resources - conserve - through time. A free market and requisite property rights are the solution. They are our only hope, our only means to a brighter future.

I suggest that environmentalists redirect their efforts from so-called conservation to efforts that strengthen property rights and build freer markets. By doing so, they will be able to rest more easily knowing that the market will conserve resources efficiently and effectively. And then their means will be the same as our means, all leading to an end desired by most of us: a better world for ourselves and our children.

Note:

1. I am only looking at conservation as used by environmentalists - the three R's of recycle, reduce, and reuse. I am not considering conservation as defined by conservationists -- protecting certain plants, species, and habitats. Of course, strong property rights can protect those as well.

2. It is true that under full-blown socialism, with vast numbers of starving men, women and children lying down in the fields awaiting a quick dust to dust ending, fewer resources would be used - conservation would occur. However, with the exception of all but a few of the most-ardent environmentalists, no one desires such a dystopian world.

My appeal to the environmental movement is the same: Promote things that are true and actually make economic sense, not collectivism. That is all I ask.

The Broken Window

Let us begin with the simplest illustration possible: let us, emulating Bastiat, choose a broken pane of glass.

A young hoodlum, say, heaves a brick through the window of a baker’s shop. The shopkeeper runs out furious, but the boy is gone. A crowd gathers, and begins to stare with quiet satisfaction at the gaping hole in the window and the shattered glass over the bread and pies. After a while the crowd feels the need for philosophic reflection. And several of its members are almost certain to remind each other or the baker that, after all, the misfortune has its bright side. It will make business for some glazier. As they begin to think of this they elaborate upon it. How much does a new plate glass window cost? Two hundred and fifty dollars? That will be quite a sum. After all, if windows were never broken, what would happen to the glass business? Then, of course, the thing is endless. The glazier will have $250 more to spend with other merchants, and these in turn will have $250 more to spend with still other merchants, and so ad infinitum. The smashed window will go on providing money and employment in ever-widening circles. The logical conclusion from all this would be, if the crowd drew it, that the little hoodlum who threw the brick, far from being a public menace, was a public benefactor.

Now let us take another look. The crowd is at least right in its first conclusion. This little act of vandalism will in the first instance mean more business for some glazier. The glazier will be no more unhappy to learn of the incident than an undertaker to learn of a death. But the shopkeeper will be out $250 that he was planning to spend for a new suit. Because he has had to replace a window, he will have to go without the suit (or some equivalent need or luxury). Instead of having a window and $250 he now has merely a window. Or, as he was planning to buy the suit that very afternoon, instead of having both a window and a suit he must be content with the window and no suit. If we think of him as a part of the community, the community has lost a new suit that might otherwise have come into being, and is just that much poorer.

The glazier’s gain of business, in short, is merely the tailor’s loss of business. No new “employment” has been added. The people in the crowd were thinking only of two parties to the transaction, the baker and the glazier. They had forgotten the potential third party involved, the tailor. They forgot him precisely because he will not now enter the scene. They will see the new window in the next day or two. They will never see the extra suit, precisely because it will never be made. They see only what is immediately visible to the eye.

Bastiat: What is Seen and What is Not Seen

In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.

1.2
There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.

1.3
Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.

The recent program "Cash for Clunkers" was a direct application of the Broken Window Fallacy. In theory - it sounds like a great way to get old crappy cars off the roads, while stimulating the economy by getting people to purchase vehicles. This was the Seen. But what of the Un-seen?