Captain Neoliberal saves the planet

Kate Raworth’s Doughnut Economics changes the subject of economics rather less than many seem to assume. The central claim is that resources are scarce and therefore there’s only some amount, number, of resources that can be used before we run out of those scarce resources. An advantage of this claim is that it is correct. It changes economics less than many think because economics is, in one description, the science of the allocation of scarce resources. So, we’ve rather got built into economics the concept that resources are scarce. We’re not hugely changing the subject by pointing out that resources are scarce that is.

There are those who take the observation further. That because of the scarcity of resources we therefore need to have a more communal, socialist even, attitude toward resource use. Some even claim that we’ve got to get rid of the capitalism, markets, even neoliberal type ideas, in order to stay within those resource limits. This has the disadvantage of not being correct. A test of more communal, more socialist, non-neoliberal resource use is a quick visit to where the Aral Sea isn’t.

But what if we actually tested, properly, the assertion? Capitalist, market based, even neoliberal, places would have worse environments than those wihch already did the communal and socialist things. Puerto Rico would have a fouler environment than Cuba, say. This is a testable proposition.

So, tested it has been:

Degrowth scholars often claim that capitalism generates social and ecological imbalances, as captured by Kate Raworth's leading doughnut model. We formalize this model using social and environmental indices and measure imbalances using their coefficient of variation. We then test if capitalism, proxied by economic freedom, is associated with greater imbalances across multiple datasets, specifications, and functional forms. We find little support for the model's central prediction. If anything, the relationship often runs in the opposite direction.

Ah.

Yes, resources are scarce. Therefore if we price resources then we’ll use them better. Further, if we price the output from the use of resources then we’ll gain more output from less use of resources. By making every economic participant see the immediate scarcity of resources all decisions are made fully cognizant of that scarcity. We thus gain, for any use of resources, a higher standard of living. Or, equally, for any given standard of living we use fewer resources. Prices, markets, capitalism, dare we say neoliberalism, optimise scarce resource use.

The lesson of this analysis is that Captain Obvious has entered the room.

The takeaway is that neoliberalism - that insistence upon the use of capitalism, prices, markets, in decision making - is therefore the desired, even required, system to deal with the environment.

Captain Neoliberal is here to save the planet.

Tim Worstall