De Minimis

Allen R. Sanderson*
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"The rich may have five or ten times the income I do, but if I can keep them from driving expensive gas-guzzling sports cars, taking long (and hot) showers, and vacationing on the French Riviera, all in the name of reducing one's carbon footprint... then our relative standards of living are distributed ex post much more equally than our market incomes."
Basic economic course instruction and the discipline's logic begin with some universal "givens": seemingly unlimited human wants pitched against a world of apparent finite resources, and thus we are forced to make choices, sometimes difficult choices; comparative advantage, jargon for doing what one does relatively better (that is, at a lower opportunity cost) and trading for what would be higher cost goods and services; tradeoffs, in which we have to juggle several competing "goods"—improved gas mileage versus less safety (because cars capable of achieving 35 mpg will be lighter and thus their occupants more vulnerable in a crash), for example; and decision-making at the margin—weighing marginal benefits versus marginal costs or, for a firm, marginal revenue versus marginal costs—with the end goal of maximizing utility or happiness (or profits, in the case of firms).

To address the wants-versus-resources gap, economists have traditionally gone after expanding the well-known Production Possibilities Frontier via productivity gains, technological change and other advances, and for the most part that the "economic growth" approach has achieved success in contributing to enhanced standards of living for most of the world's (human) inhabitants.

But more recently a group of folks, who seem impervious to the above economic givens, offer a counter approach—making the world a better place by narrowing the wants-resources gap through lower production, but saving the earth in the process. This focus presents an alternative set of givens—"more money won't make you any happier", "you're measuring things all wrong," and "don't be selfish"—and urges us to minimize our carbon footprint, to buy products made locally, and in general, "think green." For most of us, this is a hard sell in a world where per capita income is around $6,000, or about the cost for an upscale cyclist on a high-tech bike, outfitted in high-tech clothing and helmet, and laden with designer sunglasses, a BlackBerry, and heart monitor.

 

For more discussion of comparative advantage, see "Treasure Island: The Power of Trade. Part I. The Seemingly Simple Story of Comparative Advantage,", by Russ Roberts. Econlib, November 6, 2006.

Comparative advantage also gets trumped or ignored by this "less is more" crowd. Even if a foodstuff could be grown on large-scale farms hundreds or even thousands of miles away and then shipped in, with total costs still lower than a "backyard" substitute produced closer to the point of consumption, the latter is still to be preferred because its energy costs—aka the carbon footprint—are lower. That we could get "more with less" by following comparative advantage doesn't count for much—sour grapes (although locally grown organic grapes, of course)—if one insists on couching everything in environmental costs and ignoring any and all benefits.

We would rarely consider minimizing the cost of one input the objective function. If that were the case, the New York Yankees could get me to play third base at about $25 million less than they're paying Alex Rodriguez ("A-Rod"). However, the demand or revenue side of the equation would dictate that not many people would buy a ticket to watch me muff grounders or flail at curve balls. At least not twice. A premier-league team is not out to minimize payroll, but to produce the largest spread between total revenues and total costs—of which payroll is only one element.

We could have semi-trucks roll along our interstate highways at 50 mph, a speed that likely minimizes gasoline consumption per mile traveled. But once one considers the hourly rate of the driver, and the desire to get the contents of the truck from Point A to Point B, a faster freeway speed is likely better. The same for a family on vacation: driving across Nebraska at 50 mph takes about 10 hours; at 75 mph it is closer to six; of course, we go through more fuel on the trip, but we save four hours of time (per passenger). The energy cost is only one aspect of the total cost, and even there it would be a marginal-cost-versus-marginal-benefit calculation. But to these latter-day critics, the benefit side is totally ignored, whereas in more traditional economic terms it is all about marginals and tradeoffs.

It may be true that if I wanted to minimize my caloric footprint on the planet I would restrict my diet to a few simple grains and nuts. But my goal is to maximize my pleasure, including some health considerations (thus I don't have chocolate cake as the entrée, only dessert—or desserts, but I do like my chocolate cake and banana cream pie even though the cocoa beans and fruit have to be imported from afar), not suffer through a virtually tasteless experience. I can always eat tofu or go to Denny's if I want that.

Here the "plant and planet advocates" are not entirely consistent. If I wanted to minimize the explicit costs of my eggs, I want the chickens cooped-up in cages on large-scale "egg farms." Eggs laid by free-range chickens are more costly because production is far less efficient. But those who advocate free-range and organic produce are trading off costs against other values—such as my chickens having a little elbow room and a chance to smell some roses. Why do chickens get to have fun but people don't? We could, I suppose, have more costly free-range lettuce if we just let wind power turbines scatter the seeds instead of planting them in tidy, efficient rows.

There is no shortage of ways to reduce our carbon footprint. I could teach my economics courses in the dark, forbid anyone to bring in a bottle of water, scale down the heat in winter and have everyone wear coats (and turn off the air conditioning on hot, muggy May days), force my 150 students to share one copy of the text to save trees, give only oral examinations to cut down on the use of paper, not answer e-mail from my students to minimize the electrical drain, be more like the French (or some of my colleagues) and not shower daily nor put on clean underwear. But I like to think of economics, and teaching my courses, in terms of tradeoffs—convenience, practicalities, comfort, being "fuelish"—and the marginal costs versus marginal benefits and reasonable alternative, as opposed to simply minimizing the energy bill.

 

See Boudreaux on the Economics of "Buy Local", for a podcast on the tradeoffs of restricting where we can buy. EconTalk, April 16, 2007.

We could certainly eliminate altogether many appliances that alter temperatures, a huge energy drain. No more water coolers or refrigerators; we can drink water, sip our Starbucks beverages and down our beer at room temperature. (And, by the way, why not boycott coffee entirely—the major ingredient comes from South America or even farther away, though at a very high energy cost we could grow all our coffee in Minnesota greenhouses.)

If I want to minimize my vacation footprint I can delude myself into thinking that Peoria and Paris offer approximately the same R&R amenities. People used to live like this—they ate locally-gathered, free-range, organic ingredients and ate their meals uncooked; didn't venture far from their surroundings; walked to work; and breathed clean air. We refer to them as cavemen, or people trapped in brutal third-world conditions today. The relative benefits of economic advances accrue to the poor not the rich; the major goal, or at least contribution, of economics in the last twenty-five years via technological advances, freer international trade, and economic growth has been to help those at the bottom rungs of the economic ladder.

Part of the current debate on these issues turns in part on how to respond to the worldwide widening inequality of resources. Thus the relatively well-off are faulted for their consumption patterns (more than their income levels), which allegedly impact the relatively poor among us as well as the planet. And that is a legitimate set of issues to discuss—the costs of consumption (including external costs), means versus ends, more generally how to reduce the inequalities, and the overarching conversations about "values".

But there is also a less charitable interpretation of what much of this is about: The rich may have five or ten times the income I do, but if I can keep them from driving expensive gas-guzzling sports cars, taking long (and hot) showers, and vacationing on the French Riviera, all in the name of reducing one's carbon footprint—the current mantra—then our relative standards of living are distributed ex post much more equally than our market incomes, and continued growth in their incomes won't make them that much better off, and thus perhaps they too will prefer to smell locally grown roses.

(One sees this in reverse with the current whining about crowded airplanes, brought about by deregulation and the concomitant reduction in airfares: What's the fun—for the rich—if virtually anyone can afford to occupy the middle seat and spend the weekend sipping margaritas in Playa Del Sol.)

Inherent in the exhortation to buy local are also "tastes" that fly in the face of most economic theory. First of all, buying local implicitly means buying from a "mom and pop" operation rather than a larger-scale enterprise. So the contempt that some hold for corporations and that form of business enterprise, and erroneously equating corporations with monopoly or market power, can be expressed implicitly here without having to reveal that bias and misconception. Second, buying local means buying small, and thus would result in our forgoing the (cost) benefits from economies of scale. A non-trivial component of economic growth in the 20th century, in agriculture, manufacturing and services, has been to capture the gains from producing for large markets. In Adam Smith's terminology, specialization and division of labor are correlated positively with the size of the market. Third, buying local would mean a reduction in trade, both domestic and international. This, too, fits conveniently into the quiver of those who line up against international trade and globalization. As a country and individually, we would pay a huge price in terms of a reduction in our standard of living due to formal or informal restrictions on international exchange.

One could view the 35-hour (work week) law in France and tight limits on the number of hours a store can be open for business in Germany as performing similar functions. If I don't want to work long hours or very hard, making sure that any substitutes for my labor or establishment can't supply more effort or convenience makes me less unattractive and allows me to indulge my tastes for leisure, including nibbling at croissants or guzzling beer with buddies, at a lower cost—and indirectly enables me to narrow the income and consumption gaps.

In the end this contemporary conflict is really about consumption, and personal freedom versus private pressures and public policy constraints on being able to convert the income earned from long hours, and in most cases very productive hours, into durable goods, non-durables and services. Or, in terms of the alleged exchange between Fitzgerald and Hemingway, the rich are not just different from you and me in that they have more money—it's that in some quarters there are objections as to how they derive pleasure in spending their money.

The casual supporters of leading a simpler lifestyle do it for all kinds of reasons, some noble and some perhaps misguided. Fred and Wilma Flintstone left a very small carbon footprint, but their life expectancy was pretty modest, toiling in a stone quarry was probably not as fun as working for Microsoft or Goldman Sachs (or even a non-profit or NGO), and they couldn't get good high-speed Internet service, travel to Washington, D.C. or Davos, Switzerland for protest rallies, or get good Chinese take-out. The same is true for third-world counties with third-world amenities, where life is indeed brutal and short.

But in some way that's the environmentalist's dream. Consider the strangely popular book The World Without Us, a volume not about mosquitoes or day-time TV talk/reality show hosts, but about what bad people are doing to a good planet. This privileging nature over humans completely ignores the fact that some self-interested folks, in pursuing their own creative dreams, have actually benefited both humanity and some of the earth's other creatures as well. I expect the same will continue to hold for the decades ahead unless we take a very wrong turn.


* Mr. Sanderson teaches economics at the University of Chicago.

For more articles by Allen R. Sanderson, see the Archive.
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