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Tuesday, March 28, 2006

Doesn't even know what he doesn't know

Running true to form, Al Gore has a column in today's WSJ pointing the way to earthly redemption. Mr. Gore does understand that there are such things as "externalities", but beyond that there are some flawed assumptions about how the world works. Pete Du Pont has a different take. Over at Econopundit, Steve Antler deals with the matter by showing more restraint than I would. He juxstaposes excerpts with his own comments.

Capitalism and sustainability are deeply and increasingly interrelated. After all, our economic activity is based on the use of natural and human resources. Not until we more broadly "price in" the external costs of investment decisions across all sectors will we have a sustainable economy and society.

The crux of the argument is right here. Capitalism can't bring you "sustainability" but heroic social engineers like Al Gore can. The problem is in that word "sustainability." It's religion.

Externalities are costs created by industry but paid for by society. For example, pollution is an externality which is sometimes taxed by government in order to make the entity responsible "internalize" the full costs of production. Over the past century, companies have been rewarded financially for maximizing externalities in order to minimize costs.

No, externalities are costs paid for by someone else -- not always by "society as a whole." Companies often shift costs onto other companies. The earliest examples using the Coase theorem had to do with upstream businesses issuing effluents which raised the costs of downstream water-using businesses.

Only the doctrinaire public service technocrat sees all costs of pollution borne by the "public" and all benefits borne by the business community. This is a kind of class analysis most modern economists no longer accept.

There's plenty more to see over at Econopundit. If Mr. Gore could set aside his beliefs long enough to study three books: The Fatal Conceit, The Bottomless Well and The Singularity is Near, he might relax. But it's not going to happen. As we go racing towards the singularity, more energy options will be available and sustainability will be a natural outgrowth of our freedom to innovate and adapt!

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