Environmental Quality

The correlation between environmental quality and economic growth is incontrovertible. Comparing the World Bank’s environmental sustainability index with gross domestic product per capita in 117 nations shows that richer countries sustain environmental quality better than poorer countries do (see Figure 1).1 Indeed, every systematic study of environmental indicators shows that the environment improves as incomes rise. When per capita incomes reach $4,000 to $8,000 (this would include countries such as Brazil, Ukraine, and Indonesia, for example), arsenic pollution, sulfur dioxide emissions, and deforestation decrease, while dissolved oxygen in streams, a necessary element for healthy aquatic plants and animals, increases. Nonetheless, alternate and more pessimistic views are widespread. For example, Paul and Anne Ehrlich, the modern counterparts of thomas robert malthus, write:

Humanity is now facing a sort of slow-motion environmental Dunkirk. It remains to be seen whether civilization can avoid the perilous trap it has set for itself. Unlike the troops crowding the beach at Dunkirk, civilization’s fate is in its own hands; no miraculous last-minute rescue is in the cards.. . . [E]ven if humanity manages to extricate itself, it is likely that environmental events will be defining ones for our grandchildren’s generation—and those events could dwarf World War II in magnitude. (Ehrlich and Ehrlich 1996, p. 11.)

Similarly, Harvard biologist Edward O. Wilson contends that “the wealth of the world, if measured by domestic product and per-capita consumption, is rising. But if calculated from the condition of the biosphere, it is falling” (2003, p. 42). From the Worldwatch Institute’s assertion that “the key environmental indicators are increasingly negative” to the World Wildlife Fund’s prediction that if we do not change our ways, human welfare will collapse by 2030, the view seems to be that the Earth’s environment is getting worse.

The data, however, are inconsistent with this conclusion. Thanks largely to the pioneering work of the late economist Julian Simon and, more recently, to the work of statistician Bjørn Lomborg, abundant data show that we are not running out of resources, that we are not destroying our environment, and that the plight of human beings is improving rather than diminishing. Simon’s confidence in challenging Ehrlich’s pessimistic thinking came from his belief that people respond to scarcity by conserving on scarcer resources and by reducing waste and hence pollution.

Doubting Simon’s logic and data, Bjørn Lomborg, a statistician and political scientist, set out to prove him wrong by examining reams of data on various environmental claims. These claims include: global forest cover is declining, finite resources are being depleted, global temperatures are rising due to human causes, and massive species extinctions are occurring.

Consider Lomborg’s findings. Global forest cover has remained quite stable since the middle of the twentieth century. Even the Amazon forests are not declining at the alarming rates touted by doomsayers. Since the arrival of man, Amazon deforestation has been only about 14 percent, three percentage points of which have been replaced by new forests.

High oil prices in 2004 and 2005 have caused many people to fear that we will run out of energy. Long-run trends, however, suggest that such claims are exaggerated. The pessimistic view comes from the assumption that no more oil will be found. But that assumption has been wrong every time it has been made. By 2003, world oil production was eighteen times its level in 1945 and yet known oil reserves were twenty-four times their 1945 level (Bradley and Fulmer 2004, p. 88). And if current oil prices prevail in the longer term, alternative sources such as shale oil will become economical with enough supply to meet current consumption for 250 years (Lomborg 2001, p. 135). For an explanation of why prices and supply are so interconnected, see natural resources.

On the global warming debate, there is a growing consensus that temperatures are rising, but the projected increase over a one-hundred-year period continually gets smaller as models for predicting global climate change improve. Whether and how much of the increase is anthropogenic, however, is debatable, as increases over the past century, when the human impact on the greenhouse effect has surely been the greatest, are not radically different from early global temperature increases.

Finally, claims of massive extinctions are based on projections from mathematical models rather than on data. The standard claim that we are losing forty thousand species per year comes from Cambridge scientist Norman Myers’s “supposition” that if we lose one million species in twenty-five years, “this would work out . . . at an average extinction rate of 40,000 species per year, or rather over 100 species per day” (Myers 1979, p. 5). Using this number, biologist Thomas Lovejoy predicted in 1980 that we would lose 15 to 20 percent of all species by 2000 (Lovejoy 1980, p. 331). We have not. Today, the best guess is that we will lose 0.7 percent of all species over the next fifty years (Lomborg 2004, p. 35). Some species are going extinct, but there is no empirical evidence that the extinction rate is catastrophic.

From his extensive data search, Lomborg confirmed most of Simon’s findings and created a firestorm when he concluded from the data that

children born today—in both the industrialized world and developing countries—will live longer and be healthier, they will get more food, a better education, a higher standard of living, more leisure time and far more possibilities—without the global environment being destroyed. (Lomborg 2001, p. 352)

The reason that the data do not fit the neo-Malthusian predictions is that those predictions take no account of the human ingenuity that is induced by the proper incentives. For there to be proper incentives requires the institutions of freedom—namely, private property rights and a rule of law. When the Eastern bloc countries were freed of communism, Milton Friedman believed that the key for their economic progress was “privatize, privatize, privatize” (Friedman 2002, p. xvii.) After more than a decade of experiments and a growing amount of data on what it takes to stimulate economic growth, however, Friedman modified his position, saying: “Privatization is meaningless if you don’t have the rule of law. What does it mean to privatize if you do not have security of property, if you can’t use property as you want to?” (Friedman 2002, p. xviii). In other words, without the rule of law and secure property rights, growth will not occur, and without growth we will not have the ability to cope with resource scarcity and to improve environmental quality.

Using indexes of freedom to measure the sanctity of property rights and the rule of law, economists have correlated environmental quality with institutions. Madhusudan Bhattarai (2000) found that civil and political liberties, the rule of law, less-corrupt governments, and the security of property rights reduced deforestation rates in sixty-six countries across Latin America, Asia, and Africa. Seth Norton (2004) found a strong positive correlation between several measures of human well-being and varying degrees of the strength of the rule of law. For example, countries with a strong rule of law have a 45 percent lower death rate by age forty than countries with a weak rule of law; 59 percent have more access to safe drinking water; and 79 percent have lower deforestation rates.

In his book The Ultimate Resource 2 (1998) Julian Simon built the coffin for neo-Malthusian ideas. Simon viewed human ingenuity as the ultimate resource. As he was fond of saying, “With every mouth comes two hands and a mind.” The late Aaron Wildavsky shared Simon’s view, saying that “scarcity has yet to win a race with creativity” (quoted in Chai and Swedlow 1998, p. 91). Both scholars understood that institutions that get the incentives right and prices that signal resource scarcity are the reasons that scarcity always loses the race. Economic prosperity emanates from the institutions of freedom—namely, private property and the rule of law—and environmental quality emanates from economic prosperity. If we can get the institutions right, we will be able to have our environmental cake and eat it too.