- Category: Guest Commentary
- Published: Monday, 02 February 2009 18:59
- Written by By Terry Anderson
- Hits: 1662
Property and Environment Research Center (PERC)
The financial meltdown has led many people, especially politicians, to blame the problem on market failure and to jump on the regulatory bandwagon. Though the problems on Wall Street are much more related to regulated markets than free markets, the call is for more regulation to fix failed regulation. Couple this with the fact President-elect Obama and a Democratically controlled Congress are unlikely to embrace Adam Smith’s notion of the invisible hand, and we can expect the anti-regulatory sentiment born in the Reagan administration to wane quickly.
Environmental protection will not escape the anti-market, pro-regulatory mentality. Despite the growing evidence that property rights and markets help the private sector improve environmental quality, three forces are likely to work against “free market environmentalism” and in favor of “regulatory environmentalism.”
First, reduced wealth and incomes resulting from the global economic downturn will lower the demand for many goods, and the environment will be no exception. It is well established that most aspects of environmental quality are positively related to economic growth. As GDP rises, people want cleaner air and water, more open space, and endangered species preservation. Of course, the level of these demands varies depending on how certain environmental goods directly affect human health and welfare. Thus clean air and water are demanded at lower levels of income than endangered species protection. Like it or not, most environmental improvements are luxury goods for which the demand moves inversely with the economy.