Wayne Winegarden

Well, either you're closing your eyes

To a situation you do now wish to acknowledge

Or you are not aware of the caliber of disaster indicated…

While Harold was talking about the perils of a pool table in River City, today the “Music Man” would be talking about the perils of global warming. In fact, these lines could easily appear in the musical sequel to “An Inconvenient Truth” – sung by Al Gore of course. But just as Harold was a con-artist, the global warming activists have their own cure-all scheme that warrants the same skepticism given to the snake-oil salesmen of old.

The global warming scam has nothing to do with the science behind global warming. It has everything to do with the economics. Oil, coal, or any other energy source is an economic good that is no different than any other product or service. Issues of supply and demand dictate the quantity and price of current energy sources as well as the incentive for suppliers to create viable energy alternatives.

Then there are externalities. An externality is defined as a cost (or benefit) that is imposed on somebody that is neither the seller nor the purchaser of the product or service in question. The pollution and greenhouse gases emitted from energy use are negative externalities. However, the economic growth, wealth, and poverty reduction that individuals leverage from energy use are a positive externality. Perhaps more importantly, economic growth and pollution are inter-twined in complex ways. There is ample evidence from recent history that greater economic growth, past a certain threshold, can actually reduce the amount of pollution a society creates.

Appropriately incorporating these externalities is no simple affair. Blind demands to force nations and companies to exclusively focus on reducing the negative externality, while politically popular, may cause more harm than good.

Despite these complexities, the business leaders embracing the Corporate Social Responsibility (CSR) movement are getting into the act. Several of these executives are supporting global warming regulations through a movement called the U.S. Climate Action Partnership (USCAP). The USCAP alliance boasts major corporate members such as GE, Alcoa, BP, Caterpillar, DuPont, Lehman Brothers, and PG&E. One of the basic principles of the alliance is to encourage the U.S. to impose a carbon emissions cap and trade scheme.


Wayne Winegarden

Wayne H. Winegarden Ph.D. is a partner in the firm Arduin, Laffer & Moore Econometrics.

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