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Thursday, July 29, 2010

Sustainability: Not Just for Environmentalists

It has a friend in markets.

Busybodies, left and right, seem extraordinarily talented at coming up with buzzwords to justify imposing their visions of a better world at the cost of our freedom. Environmentalists are a good example.

The latest in environmental buzzwords is “sustainability.” Of every act we take with respect to the natural world we must ask: Is it “sustainable”? My university even has a position devoted to overseeing its environmental sustainability.

Conceptually, there’s nothing wrong with the idea of sustainability. Even though it is rarely defined rigorously by its supporters, it seems to mean something like: “making sure we leave enough for future generations.”  That vagueness is a reason why it makes such a good buzzword: Who is against ensuring that we don’t exhaust resources and leave future generations with nothing?  Of course, libertarians have raised a number of objections to the means by which many environmentalists would try to ensure that we treat nature sustainably.  It’s not at all clear that free markets are the enemy of the natural world — and even less clear that government is its friend.

What is interesting is that environmentalists who are hostile to markets are blind to how they embody concern with sustainability. In a Freeman article awhile back I made a similar point about how economists and environmentalists talk past each other about the idea of scarcity. Much of that argument applies to sustainability.

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Many environmentalists apparently assume that owners of resources in a free market have an incentive to use them up as quickly as possible for short-run profit, with no reason to care about their long-term sustainability. What environmentalists miss is that in a competitive market the price system informs us if we are behaving in an unsustainable way and provides us with the incentive both to restrict our use of resources and to search for substitutes.  When the supply of a resource becomes more scarce relative to demand, its price rises.  This signals to users that the good is more scarce and provides an incentive for them to reduce their quantity demanded, which “sustains” the resource in ways that would not happen without the price signal.  The rising price also encourages entrepreneurs to look for substitutes, which will also make the original resource use pattern more sustainable.

Beyond that, the process of finding substitutes promotes “sustainability” by providing new ways of solving old problems.  One of the problems with the standard environmentalist view of sustainability is that it is overly static and seems to assume that our goal should be to ensure that current patterns of resource use are sustainable into the indefinite future.  The only way to achieve that goal would be to limit innovation and thereby dramatically reduce or reverse economic growth, impoverishing billions.  By contrast, the economist’s conception of sustainability is more dynamic and recognizes that the goal is not to sustain a specific pattern of input use, but to create an institutional environment in which human beings can respond to changes in the demand for and supply of resources in ways that ensure their wants can continue to be satisfied at progressively lower cost, leading to the enrichment of all.  It is free markets that create exactly this institutional environment.

One last aspect of sustainability has to do with the role of government.  Both Ludwig von Mises’s theory of interventionism and the Austrian theory of the business cycle have at their theoretical core the idea that government intervention in the market leads to patterns of activity that are not sustainable.  Intervention creates unintended consequences that tend to lead to more intervention, which itself creates more problems. Inflation creates a pattern of capital use — the boom of the business cycle — that will eventually collapse for lack of real resources.  The current recession is the result of government-caused unsustainability.

The lesson for environmentalists is that they should see free markets as friends of sustainability and at least consider that, at both the microeconomic and macroeconomic levels, government intervention is sustainability’s enemy.

  • Steven Horwitz was the Distinguished Professor of Free Enterprise in the Department of Economics at Ball State University, where he was also Director of the Institute for the Study of Political Economy. He is the author of Austrian Economics: An Introduction.