The Price Is Not Right

by Carolyn Chase


red Schnaubelt is likely as successful as he is because he has found a way to consistently interpret the past and then lay his belief-based conclusions on to everyone else. His world view certainly provides fertilizer - make that "buffalo chips" as he puts it - of a certain kind into the public arena. But he asks some opportune questions and makes some common mistakes based on fundamental cultural misunderstandings. The first I'd like to address is that of pricing.

In "Taking Chase to Task"" on May 15, Fred said: "The fact of the matter is we are not running out of the Earth's resources. They are getting more plentiful all the time. One only has to look at prices. The higher the price, the more scarce the supply; the lower the price the more plentiful."

Now I appreciate Fred's optimism, but I'm afraid I don't quite share his blind faith. Looking at the world exclusively through the world of economics is a spooky thing. But with some better analysis, it's a useful and powerful view as well. I would be happy if what he was saying were true, but prices are relentlessly manipulated to offload costs onto the average taxpayer and into the environment - both of which are getting the shaft.

Prices do not reflect the true costs to the resource base. Prices more reflect demand, inventory, and the market's ability to pay, or finance transactions. Commodity pricing, especially, is manipulated via many subsidies and laws that ignore environmental costs. The 1872 Mining Law says it all in the title - mineral rights at 1872 prices.

The problem is that our economic system has evolved to meet the needs - and now the wants - of mankind, but ignores the needs of earth's ecosystems. Currently unpriced ecosystem services to life-as-we-know-it include: purifying air and water, decomposing wastes, regulating climate, preventing erosion and pollinating food crops. Currently, these "free" services of nature- one should consider it our natural capital - are being continuously depleted. These functions are either priced at zero or priced so that the public and the environment absorbs or subsidizes the costs from ecologically or socially damaging processes and products. In our current system, by the time prices reflect scarcity, it can be too late to recover the resource.

Indeed, many environmental and social problems are caused by what Amory Lovins of the Rocky Mountain Institute reveals as "untruthful prices." If the prices do not reflect the true costs, then the market does not get the right signals. In the United States, the social costs of driving, including roadway damage, land use, pollution, congestion, global warming and other "side-effects," are largely socialized. These so-called externalized costs approach 1 trillion dollars/year, and are borne by everyone, and are not reflected in drivers' direct costs.

In their book "Factor Four, Doubling Wealth, Halving Resource Use," Lovins and Ernst Von Weizsacker continue: "the list of price distortions needing correction is longer than this book (300 pages). American railway pricing that charges more to transport a tonne of recycled copper than of virgin copper; other forms of discrimination against resource efficiency and recovery; over $30 thousand million a year in direct federal subsidies to the US energy system, $100 thousand million to the European Union agriculture, and probably more worldwide to transport - all are the tips of a whole seaful of icebergs on which even the most prosperous economy can quickly founder. Estimates by business reformer Paul Hawken indicate that the direct waste in the U.S. economy - from subsidies to do silly and uneconomic things, to remedial costs for damage done elsewhere, to uncounted depletion and pollution, to other follies too numerous to mention - constitutes at least half the Gross Domestic Product.

"And the problem is not only false prices but also false price structures, as when a utility wishing to sell more energy provides volume discounts - the more you buy, the less you pay per unit - or conversely, has a high fixed charge per customer, making effective per-unit costs astronomically high for frugal users and correspondingly lower for extravagant users. It is neither impossible nor even unusual to price a commodity at a reasonably accurate level on average, but to structure the price in a wholly irrational and counterproductive way.

"If economic democracy and customer sovereignty are won by voting with our wallets, then we are living under a tyrannical cloud of demagoguery, fraud and electoral irregularities. Even the most conscientious votes cast with our money will not elect the results we thought we had chosen unless they go to the candidates described, bound to the platforms they advertised, and will be accurately counted and announced. If free and honest voting is the hallmark of a mature democracy, then free and honest pricing and buying are the hallmarks of a mature economy."

If our mass media coverage is any true reflection of our culture, and I for one believe that it is, then we are anything but mature in either our economy or much of anything else. The strength of 'me' far outweighs the strength of 'us' in our society and it is our ability or inability to evolve our individual and collective actions that are adding up global consequences. Freedom is important, but no one is free from the biosphere.

Prices are a powerful tool either for or against the environment, which is why it's also vitally important to get the prices right. Right now, the price signals are aligned to hyper-stimulate demand and offload costs into society and the environment. Only when prices incorporate the true costs associated with the impacts will either individuals or other decision makers get the correct feedback necessary to be able to make meaningful and responsible decisions regarding growth, consumption and conservation.