Wow. I realised David Suzuki was a little bit loose when he talked about economics – but he’s a smart man. I assumed that when he talked he was merely bemoaning the fact that environment issues get ignored in policy, not that he actually had no idea how economics or the allocation of resources worked.
“David Suzuki is another skeptic and he offers a great anecdote about economic thinking. While at the University of British Columbia, Suzuki figured it would be a good idea to supplement his academic background in biology with an understanding of economics. During the first class, Suzuki’s instructor stood at the blackboard drawing lines in chalk to show the flow from the resource base into the market, with subsidiary industries adding value and creating wealth for investors.
Suzuki pointed to the side of the blackboard that was empty of equations, the resource base, and asked whether the calculations took into account the effect of human activity on the environment, the diminishing reserves and growing waste that Suzuki reasonably regarded as a cost mortgaged into the future. “That’s an externality,” the instructor responded drily. In other words, the environment is something external to the grand human workings of the market and not worth factoring in. Suzuki left the class on the spot.”
Holy sh*t, this is one of the dumbest – most arrogant – things I’ve read this morning … and I’ve just finished reading some of my own writing!
An externality is one of the central reasons why an economist justifies policy – it is a concept used to define thing that aren’t captured in market prices, and justify intervention. It is the very reason why so many economists actually do believe something needs to be actively done in environmental policy … contrary to the view among many people that economists don’t care.
I’ve been told by people that “one of the main weaknesses of economics is that it ignores the environment” – my reply is always “actually, one of economics main strengths is the way it can coherently put the environment, and trade-offs, into a framework”.
If the very icon for environmental policy has such a poor understanding of Econ 101 ideas – ideas that are REQUIRED to form GOOD policy – I have to admit I generally feel very concerned about the whole issue.
Note: If anyone wants to know how bad this mistake is, its sort of like if you had to do some accounts for your business – but you thought the idea of addition was some voodoo way of transforming numbers without any meaning. Externalities are one of the earliest concepts that are taught in economics – immediately after we learn what supply and demand represent.