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Book Review of “Green Economics” by Robin Hahnel

By Raghav Kaushik

14 September, 2015

It is generally taken for granted that when solving many international disputes (e.g., Israel-Palestine, Kashmir), solutions must be sought within the framework of nation-states, even when recognizing that said framework is itself a major enabler of the above disputes. For example, if we respond to the Israel-Palestine issue by calling for the end of nation states, we are simply not taken seriously, although we might well be correct. And rightly so: if we are concerned with ending human suffering, we must focus on near-term solutions. Since we cannot wish away nation states, we must seek solutions within the framework of nation-states no matter how imperfect they may be.

Yet, in the realm of economics, a strange irrationality pervades the left. While it is generally accepted that markets fundamentally violate many of our core values, any attempt to solve real-world problems within the broad framework of a market economy is viewed as not being radical enough or even selling out. Nothing illustrates this problem more than the issue of climate change. There is no denying that markets fundamentally exacerbate anthropogenic climate change. The simplest illustration of the above is to note that in a market economy, any effect of economic activity on the environment is treated as an externality. That, by definition means that effects on the environment are not intrinsic to the logic of the economy. Still, markets cannot be wished away. Despite many claims that capitalism is in a crisis (isn’t capitalism always in a crisis?), there is little evidence that markets are vanishing any time soon. On the other hand, climate change as a social issue is at a tipping point. What we do over the next twenty to thirty years matters. A LOT. Our actions in the short to medium term future determine whether earth warms up by less than two degrees or greater than four degrees, the difference between which is profound for life on earth. Therefore, it is necessary, intellectually and morally, to consider solutions to the climate change problem within the framework of markets. However, the climate justice movement on the left by and large rejects solutions within the market framework such as cap-and-trade. Quoting from a critique of the climate justice movement (also) by Robin Hahnel:

Denouncing cap and trade and carbon markets as “false solutions” has become
ubiquitous divide in the climate justice movement. It was featured in the Durban
Declaration in 2004, the Copenhagen Klimaforum09 Declaration in 2009, and the
Cochabamba Peoples’ Agreement on Climate Change and the Rights of Mother
Nature in 2010. Ill-informed denunciations of cap and trade and carbon markets are
featured in numerous books and videos by prominent spokespersons for the

“Green Economics” is a book by an avowed market abolitionist that unabashedly proposes an approach to addressing climate change within the market framework. To be sure, being a market abolitionist, Hahnel holds back no punches in recognizing the well-known problem with free markets. Quoting from the book (p. 59), “Expecting a free market system not to pollute too much is like waiting for a lead balloon to float.” In fact, this is precisely why his (reluctant) adoption of the broad market framework coupled with government intervention to discuss solutions to climate change carries a lot more credibility than a similar approach adopted by your friendly neighborhood liberal. Hahnel draws upon principles set forth in the Kyoto framework and proposes a policy approach that is a combination of carbon taxation within national boundaries and cap-and-trade internationally. I found the arguments in the book quite convincing, but whether or not one agrees, I believe this book constitutes the most serious proposal made so far by a leftist to control climate change.

To me, the above was the most noteworthy aspect about this book. The book however is much broader. It also provides excellent background material on climate change from an economics viewpoint. It convincingly addresses fundamental questions such as the impact on jobs, what is an economically viable notion of sustainable development, and does economic growth contradict sustainability. A striking feature of the book is that it draws upon insights from a wide range of prior work in economics, including mainstream economics, Marxist economics and ecological economics. At the same time, it does not hesitate to demolish myths in any of the above prior work. For instance, statements like “infinite economic growth is impossible on a finite planet” and “capitalism is a system that must continually expand; no-growth capitalism is an oxymoron” (the latter is a favorite of Marxists) are simply false. The reason is that economic growth and Marx’s famous reference to capitalists’ tendency to accumulate both refer to economic value measured in dollars, not to physical matter. In fact, as the book points out, it is possible to have economic growth in dollar terms while reducing the amount of input resources and output waste. For instance, the resources per unit of computing has dropped dramatically since the 1940s. Suppose it had dropped by a factor of 10. This would mean we could consume five times more consuming capacity now than in the 1940s while cutting resource consumption for computing by half.

The book also contains an excellent primer on the history of climate negotiations, in particular the Kyoto protocol from which many of the principles of the proposed approach in the book are drawn. Stylistically, the book is meant to be read by a general audience but does get academic in parts. Despite this limitation, I found it engaging, not only for its climate change aspects but for its general economic insights of which there are many. For example, the book provides one of the best explanations of market bubbles and crashes that I have seen. The standard analysis of market equilibria assumes that sellers and buyers interpret market prices as a given, in particular that a price rise is just as likely to be followed by a price drop as by a further rise. Under the above assumption, it is indeed rational for buyers to buy less when the price rises. However, sometimes sellers and buyers interpret price changes as signals of further price changes in the same direction. In this scenario, it is rational for buyers to respond to a price rise with greater demand before the price rises further, and similarly for sellers to sell less while waiting for greater prices. This leads to greater demand and lesser supply driving the price even higher, thereby creating a bubble.

Climate change is an extremely urgent issue that calls for a sensible approach from the left, not radical posturing. This book offers precisely such an approach. Buy it if you can afford it. Else, beg, borrow or steal it.

Raghav Kaushik is a software engineer working in Microsoft in Redmond WA, and is a member of the Communication Workers of America (CWA) Local 37083 union. He has a PhD from University of Wisconsin-Madison and a Bachelors degree from Indian Institute of Technology (IIT)-Madras.


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