Wednesday, December 31, 2008

Economic Critique of the Boulding Ballad

I came across this "Ballad of Ecological Awareness" by Kenneth Boulding that has a couple of economic points that sound misleading, perhaps even incorrect, but at the least require clarification. Since it is trying to make a political point (I suppose), I take it as being worthy of critique. Here it is:
The cost of building dams is always underestimated -
There's erosion of the delta that the river has created,
There's fertile soil below the dam that's likely to be looted,
And the tangled mat of forest that has got to be uprooted. (1)

There's the breaking up of cultures with old haunts and habits loss,
There's the education program that just doesn't come across,
And the wasted fruits of progress that are seldom much enjoyed
By expelled subsistence farmers who are urban unemployed. (2)

There's disappointing yield of fish, beyond the first explosion;
There's silting up, and drawing down, and watershed erosion.
Above the dam the water's lost by sheer evaporation;
below, the river scours, and suffers dangerous alteration.

For engineers, however good, are likely to be guilty
of quietly forgetting that a river can be silty,
While the irrigation people too are frequently forgetting
That water poured upon the land is likely to be wetting. (3)

The the water in the lake, and what the lake releases,
Is crawling with infected snails and water-born diseases.
There's a hideous locust breeding ground when water level's low,
And a million ecological facts we really do not know. (4)

There are benefits, of course, which may be countable, but which
Have a tendency to fall into the pockets of the rich,
While the costs are apt to fall upon the shoulders of the poor. (5)
So cost-benefit analysis is nearly always sure,
To justify the building of a solid concrete fact,
While the Ecological Truth is left behind in the Abstract.
  1. This part would be true in the absence of property rights (or their violation via eminent domain). Assign property rights and the opportunity cost of fertile soil will be reflected in the purchase price of the land.
  2. This must only apply to outside the United States where they have subsistence farmers instead of subsidy farmers. Again, if this was a problem it would be a result of poor property rights. Why would farmers sell their land only to become permanently unemployed? Interestingly, it is often the opposite argument invoked for making dams a public works project with eminent domain. The argument is that the holdout problem artificially raises the costs because small property owners hold an enormous amount of bargaining power that undermine "the greater good."
  3. Why is everyone so bad at their job? Why are there systematic errors? This comes off as intellectual elitism to me, and dams seem to be doing their job (Katrina notwithstanding) just fine.
  4. These appear to be a true externality if they exist, which are again a property rights problem. The "million ecological facts" are hypothetical but an interesting point of discussion for how things are valued. Economists adopt a fairly judgment-free view of value in their analysis, and it is frequently criticized by those who think things should be valued differently (usually in the manner they value them).
  5. This class warfare statement is difficult to make any sense of for me. Is it a public choice critique? That special interest groups (the rich, in this case) subvert the will of the masses (the poor, in this case) in the political process leading to the public works project (the dam). Please tell me Boulding is not suggesting he believes the silly "rich get richer, poor get pooper" saying as a statment of fact?
I think if you look for who becomes a fan of this ballad, it would reveal to you an interesting schitzophrenia. The point of the author is that costs are underestimated, and therefore dams (or other large infrastructure projects) are going to be oversupplied. Nonetheless, this ballad will find its favorite audience in the same camp that is currently favoring government spending on new public infrastructure. Also, there is the reverence for the rural farmer and disdain for the urban centre, despite the ecological and environmental advantages of urban density.


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Unknown said...

An Economic Critique of An Economic Critique of the Boulding Ballad

(1) Property prices underestimate the true cost of land conversion. The negative externalities of carbon emissions, other pollution, for non-human life and ecological disruption are not accounted for, as property prices concern only human interests, and only those that participate in the transaction. And property rights are easily and swiftly over-ridden via eminent domain, particularly in indigenous lands (e.g., often in flagrant disregard for the human rights of those who reside there.

(2) Property rights are usually not held by the people who reside in river deltas in countries where dam building is common and problematic (e.g., China, Thailand). Indigenous peoples and subsistence farmers, while they may have resided on the land for a very long time, are often not recognised as stakeholders or consulted on the construction of dams (or if they are, this consultation is tokenistic). Farmers do not choose to sell their land, they are forcibly resettled with promise of compensation from their homes. Furthermore, there is a valid economic critique of equating the impact of forcing people to leave their home and compensation money. I would argue that many people would not consider this a fair exchange, or consider their homes to be up for sale.

(3) There are indeed systematic errors, as you can see documented in depth in the World Commission on Dams (WCD) report in 2000 ( Engineers do not tend to care about or understand ecology, irrigators tend to know only the impact of their actions on agricultural productivity (already based on an unsustainable model using heavy articifical inputs and causing soil erosion).

(4) Economists do not adopt judgment-free estimations of value. The axiom that everything can be measured in dollars is already a judgement that everything can be valued in numbers, which is not true (e.g., how much would you accept to sell your own child?). Furthermore, what underlies the use of dollars as a yardstick and the associated cost-benefit analysis is a utilitarian ethical system, where the greatest good is held to be maximisation of 'utility' of society. In practice what this means is the maximisation of monetised return (again in dollars), which again can only account for things if they are expressed in numbers (which rules out most ecological impacts, climate change, human cost, displacement of people from their homes).

(5) Boulding is exactly right that the benefits accrue to the rich rather than a poor, which is admitted by environmental economists themselves. Outcomes are considered of benefit to society, or more accurately "allocatively efficient", if overall "welfare" (in dollars") increases, EVEN IF this increases inequality by redistributing wealth from the poor to the rich. This is known as the Kaldor-Hicks criterion (look it up), and it means that if 1000 poor farmers lose their homes but 3 firms increase their profits, then the project is considered to be of net social benefit. Perhaps one might call this point "class warfare"; I consider simply and morally wrong.

Reading this ballad in 2020, 20 years after the WCD report brought many of these issues to the fore, Boulding's words are as relevant as ever; and, they can be extended to a variety of other issues.

We no longer live in an age where we can ignore ecological and human destruction based on circular economic logic. As time goes on, the crisis we face deepens, and it is no longer justifiable to resist change to an inadequate and blind economic system because the changes needed challenge dominant ways of viewing the world.