Many environmentalists see preserving the environment as a purely ethical issue that has no connection to economics. In fact, as MIT economist Lester Thurow wrote in The Zero-Sum Society, “Environmentalism is not ethical values pitted against economic values. It is thoroughly economic.” What Thurow means is that preserving the environment is what economists call a good, and achieving that good uses up resources that could have produced other goods.

 

Environmental quality is what economists call a “normal” good. That is, people want more of it as their real incomes increase. As a result people with higher incomes tend to place a higher value on a clean environment, and wealthy nations tend to have more rigorous environmental laws than poorer nations. The cost of preserving the environment is inherently economic as well. Equipment and labor to clean air or water, for example, have an “opportunity” cost: they could be used to produce something else.

 

The economic approach to environmental issues does not make economists either pro- or anti-environment. They simply recognize that any given level of, say, clean air or water entails a cost. How clean the air should be is what economists call a normative issue: people’s answers depend on their values.

 

What sets many economists apart in environmental debates is that they want to achieve environmental quality efficiently, and they tend to want an efficient (optimal) amount of environmental quality. Though figuring out the efficient amount of environmental quality is difficult, it theoretically is the point at which the value that people put on the last increment of cleanliness equals its cost. After that point additional cleanliness costs more than its value to society (see Marginalism). Some economists believe that air in much of the country is too dirty because the people who make it dirty do not have the right incentives to make it clean. Some of these same economists believe that air in other parts of the country is too clean. Why? Because the cost of achieving the last units of cleanliness outweighs the benefit to people of doing so.

 

David R. Henderson is the editor of this encyclopedia. He is a research fellow with Stanford University’s Hoover Institution and an associate professor of economics at the Naval Postgraduate School in Monterey, California. He was formerly a senior economist with the President’s Council of Economic Advisers.