Concerning the Proper Role of Government Regarding Fossil Fuel Use, Pollution, and the Threat of Climate Change

Question: As a free market capitalist, where do you draw the line with regards to the exploitation of resources specifically when exploitation of said resources affects the rights of others?  One might argue that since the combustion of fossil fuels drives global warming, it affects us all negatively and is therefore something that should be regulated heavily and alternatives should be incentivized.  What are your thoughts?

Response:  This is a very complicated question, so I'm going to break up my response into different sections.

First, the scarcest of all resources is knowledge. This foundational fact of reality helps justify free markets since free markets are the only mechanisms where those with the most knowledge about their desires, circumstances and abilities can act on that knowledge when engaging with producers who necessarily lack that knowledge. I know what I want. Corporations do not. I tell them what I want through my purchasing behavior. If enough consumers share my tastes, preferences and desires, then the products and services I purchase will continue to be provided. If I'm relatively alone in my desire, then the product or service will be discontinued because the market will have demonstrated that there are not enough consumers with similar tastes both able and willing to pay the necessary prices in order to cover the costs of that good's production or that service's provision.

A corollary of this exists with regard to how property should be used. In a free market, the property owner has free reign to do as he wishes with his property. However, free markets do not often exist in anarchy. One of the chief roles of any government is the protection of life, liberty and property from any activities of neighbors that might cause harm. This is why governments establish judiciaries to handle breaches of contract, bankruptcies, and a variety of other common-law issues. This is also why an economic case can be made for the government handling of the problem of pollution. If my neighbor pollutes the air because he has built an industrial factory next to my land, he is not the sole bearer of the cost of that pollution. I also suffer. It is not unreasonable for bureaucrats to establish rules with regard to the pollution being created, in order to shift as much of the cost as possible back to the polluter and away from the bystander.

This argument works very well with pollution that can be easily identified, quantified, and possesses consequences which can be readily explained, understood and justified. The specter of global warming or climate change, however, poses numerous problems that must be solved before anyone's liberties can be justifiably limited.

This brings us to the second section of the answer: the problems with anthropogenic climate change.

The first problem – how do we prove it is taking place? How do we effectively observe and measure 'global climate?' How do we take an almost infinitely complex, organic, planetary system and determine within an acceptable margin of statistical error that human beings are altering the way the planet handles greenhouse gasses in the atmosphere? How do we identify and adequately account for every variable that may skew the numbers we're searching for? How do we know what we're looking for and how do we know that there aren't things we don't know that would destroy the whole model and render useless the conclusion we reach?

This is a pretty big problem.

Let us assume we've solved it.

The second problem – once we've determined anthropogenic climate change is taking place, how do we determine what the solution is? How do we effectively measure the reaction to the policy or policies we seek to implement? How do we adequately predict the results to make sure we don't unintentionally make the problem worse? Are we prepared to choose inaction if inaction is determined to be the solution that results in the least overall harm to the climate versus every other option currently on the table? How do we prove that we understand the nature of the problem well enough to develop a solution to that problem? How do we implement the solution well enough to avoid any side effects that might make most of us worse off than before? How do we adequately predict all of the side effects to the solution we wish to implement? How do we adequately account for the fact the planet is an extremely dynamic – not a static – system? How do we attune the solution to handle this dynamism?

This is also a pretty big problem.

Let us assume we've solved it, too.

The third problem – how do we convince everyone to go along? How do we convince every nation, every people, and every society to go along with the solution? Can we come up with a solution that will work if only the West goes along with it? If China, India et al decide to go their own way and put the economic interests of their people ahead of the survival interests of the rest of the globe, what then? How do we convince our fellow citizens to go along? How do we convince the wealth creators, industrialists and multi-national corporations not to move to the countries that aren't going along with us? How do we guarantee that we aren't unilaterally destroying our standard of living for no reason?

The fourth problem – what's the time limit for solving the previous three problems?

Since knowledge is the scarcest of all resources, as an economist I am extremely hesitant to support the taking of any action to solve a 'problem' that does not possess a solid foundation in demonstrable fact.

Lastly, I'll address what appears to be the third portion of your question regarding the exploitation of resources.

From an economic perspective, resources should be exploited as much as the owners of those resources wish to exploit them. Once third parties are permitted the privilege of dictating what others may or may not do with their personal property, we no longer live in a society conceived in liberty - and liberty is vital for economic growth. Personal liberty is absolutely vital for economic growth.

I hope you find this response adequate. If not, or if you have any follow-up questions, please feel free to ask them.