One hopes the market for intellectual thought is not like the market for comedy, where the retelling of highlights exhausts the creative resource. Nobel Laureate Joe Stiglitz has been a tremendously creative thinker over his career, and his lecture at Resources for the Future on October 5 offered intellectual highlights that deserve reflection and bear retelling. Three key ideas touched me, especially given the contemporary contest for the self-identity of our nation and society.
- Inequality. Stiglitz argued that inequality affects our access to the natural environment and our willingness to protect it. At the national level, the upper 1 percent of households earns 20-25 percent of the income and owns one-third of the wealth. This is twice the level in 1980. More important is the issue of equality of opportunity. Contrary to our national self-image, the United States has the least equality of opportunity among developed countries; that is, the life prospect of a young person is more dependent on the status of one’s parents than in any other country for which we have data.The uneven distribution of wealth and opportunity has health consequences and environmental ones. While the nation is overall much richer the median income is lower than 15 years ago. The life expectancy for women without a high school degree has fallen 4 years. And, the sense of declining wellbeing among many families affects their willingness to protect and invest in the environment. Environmental economics has moved away from thinking only about the management natural resources to the broader discussion of environmental quality. In this context, inequality is not just a side issue.
- Economic Theory. A fundamental underpinning of economic theory is that individual preferences are firmly established; the project for economics is to satisfy preferences. Stiglitz pointed out that this underpinning is a limitation of philosophical importance and practical consequence when dealing with environmental problems, especially long-lived problems like climate change. Preferences are shaped endogenously by our environment, our social relations and political leadership.
- Markets versus regulation. Environmental assets have public good characteristics consequently private markets can be expected to fail to allocate environmental assets to their highest social value, which may be conservation. Economic advice is often to use market-based approaches to fix this problem. However, it cannot be expected to always work well, according to Stiglitz, because of the limitations of using a market approach to fix a market failure. Stiglitz argued that regulatory approaches have their place. In principle this is a point with which I would strongly agree, but perhaps the logic presented by Stiglitz is not convincing. Many times environmental problems are not caused by a market failure but are due to the entire absence of a market. In this case the creation of a market for environmental services would seem to fit. However, this creates a challenge that ties back to Stiglitz’s overarching theme: To whom does the market value for environmental services accrue? Is it a common property resource (i.e. held in common) or does it belong to incumbent emitters? The answer to this question affects not only distributional outcomes and inequality but also how individuals relate to their environment.
