Exporting the Negative Externalities

I sincerely wish I had as many answers as I do questions. Here’s the question that’s bedeviling me today.

The U. S. used to be the world’s largest producer of rare earth metals, used in all kinds of high tech electronics and metallurgy. The reason that China is now the world’s largest producer of rare earth metals isn’t because they have them and we don’t. The rare earths are actually extremely common. We cagily don’t publish reports of our known reserves but they’re believed to be very large.

It also probably isn’t due to wages. Rare earth production isn’t enormously labor intensive. Most of the effort is in the processing. And that’s the reason our production has declined, too.

Processing rare earth metals into usable form has lots of nasty environmental effects. We’ve put environmental regulations into effect that makes it much less cost-effective to produce them here.

But now we’re getting to my question. A law prohibiting something or a regulation that prohibits something is just another way of saying that, as a society, we think that something is wrong. We think it shouldn’t be done. Importing our rare earth metals from China does not improve the environment or preserve people’s health one iota. It just moves where the harm happens from here to China. Indeed, I believe that lax enforcement of the environmental laws they have in China and their inadequate system of civil law mean that importing these things from China (or just letting the Chinese produce them so they can use them and we can buy the consumer products—let’s not get picayune) is actually worse than producing them here.

So here’s my question. What’s the moral defense of letting the Chinese pollute their environment and harm their people? I understand that it’s expedient. Out of sight, out of mind. I wonder about the moral issues.

Perhaps one could argue that in China there are mitigating circumstances. Aren’t there places in the U. S. where there are mitigating circumstances, too? How do you evaluate that, quantify it? Arguing along those lines seems to me to be getting into the territory of the unadministrable.

Shouldn’t we be imposing Pigouvian duties on imports of things that we don’t produce here because we’ve decided that doing so is too noxious?

11 comments… add one
  • Jimbino Link

    I think the answer is simple: while imposing fees and restrictions on production resulting in externalities might just shift the problem elsewhere, it also provides every incentive to eliminate the externalities, both to the “Chinese” and to a potential domestic entrepeneur who has a bright new idea.

    NYC was choking on horseshit until Henry Ford solved their immediate problem.

  • What’s the moral defense of letting the Chinese pollute their environment and harm their people?

    There is no moral defense. It is entirely about expediency and NIMBYism. We’re wealthy enough to export those negative externalities. (Well, we used to be, back when we exported those suckers.)

    The next time Apple releases a hot product line I recommend going to an inevitable line in front of an Apple store and asking the consumers about this issue. Ask them if they would be in favor of reducing environmental restrictions on rare earth mining and processing* in this country in return for more jobs here. If they say no, ask why. After the predicted answer ask them why it is moral to allow China to do so, with very lax environmental protections.

    Watching cognitive and moral dissonance is fun! But be careful, if you’re too good at this you just might kill the product launch, and with it the US economy. After all, Apple products account for a significant portion of GDP growth these days, and you don’t want to be accused of destroying the recovery.

    * After giving them a brief explanation of what you’re talking about, of course.

  • PD Shaw Link

    I’m not terribly familiar with the specific example here of the regulations on rare earth, but I assume a few things are true:

    (1) U.S. regulations are probably strict on two points, one is environmental and the other workplace safety (OSHA) because it sounds to me like we are dealing with very reactive substances, if not radioactive. I’m not sure if I can articulate why distinguishing these matters, but on the extremes I think it does. If the regulatory concerns are on the environmental extremes (aesthetic concerns), I don’t think the moral case can be made. If the regulatory concerns are solely workplace safety, I have to wonder about whether imposing OSHA standards on a developing country is moral either. I’m not happy to read about factory conditions in third world countries, but do we improve the lives of factory workers by closing the plants?

    (2) Since the main rare earth plant in the U.S. was in California, this does not strike me as primarily a national issue. Its very likely that California regulations have a lot of responsibility, and if so, isn’t the moral case to be made that national law should preempt state law?

  • but do we improve the lives of factory workers by closing the plants?

    I think they’d be even better off if the plants remained but had better standards of environmental and workplace safety. I don’t think it’s a black or white issue. But I do think we should be incentivizing good conduct. Hence, the duties I’ve suggested.

  • Processing rare earth metals into usable form has lots of nasty environmental effects. We’ve put environmental regulations into effect that makes it much less cost-effective to produce them here.

    You know, a few years ago Kevin Drum claimed that this kind of thing having an impact on employment simply was not true. We’d pass laws that addressed the environmental concerns and employment did not take a hit, or if did not for long.

    Obviously, when it comes to economics Kevin Drum is a flaming moron of the highest order. Pure stupid.

    But what is also interesting is the implication of Drum’s position…one he is probably completely and totally unaware of because he is just that stupid about economics.

    What Drum’s position implies is that people do lose their jobs in the production of rare earth metals, but they then moved on to other jobs. What other jobs? I don’t know. Drum doesn’t know either. But when this issue comes up in other areas and I say, “Well, maybe that is the way it should be. Creative destruction of the market process. Eventually, these people will find jobs elsewhere (usually),” the response is always, “Where?” If I say, “I don’t know.” They respond, “So they wont find jobs.” It is okay when it works in Drum’s favor, but anytime else, nope.

    But now we’re getting to my question. A law prohibiting something or a regulation that prohibits something is just another way of saying that, as a society, we think that something is wrong. We think it shouldn’t be done. Importing our rare earth metals from China does not improve the environment or preserve people’s health one iota.

    Well, depends on perspective doesn’t it. Does the environmental costs China is incurring also impact me? It might very well be the case that less pollution here and more pollution there is a good thing for our environment and our health. So, from a local perspective, yes…yest it does help with environment and health. From a global perspective you are merely re-arranging deck chairs.

    Shouldn’t we be imposing Pigouvian duties on imports of things that we don’t produce here because we’ve decided that doing so is too noxious?

    You mean we should impose our will on the Chinese? That is what you are saying. That because we don’t like the environmental impacts here and take actions, then we should also be able to do the same to other countries? From a moral stand point shouldn’t they be allowed to decide these things for themselves? Or lets flip it…suppose the Chinese find something we do noxious and don’t think we should do it…can they impose their will on us?

  • I do not for a moment believe that we should impose our will on the Chinese. What I’m suggesting is that we impose our will on ourselves. We should be paying the costs regardless of where they’re incurred. Now, that may have an impact on what we buy and that may have an impact on what is produced here or how the Chinese administer their plants and factories. But it’s not imposing our will on anybody but ourselves.

  • PD Shaw Link

    If Drum said environmental regulations don’t cost employment, he’s an idiot. I believe all of the major environmental regulations from 1970 to 1990 were identified by the USEPA as costing jobs, but the public health benefits were worth it. As time moved on, environmentalist began trying to offset the job losses, by the gains in job consultancies. The job losses these days are probably less because they tend to be smaller, incremental changes,and the fewer, larger businesses that remain are better able to pass on cost increases to the consumer.

    But I think Steve’s observation is interesting. People promoting new regulations are quite optimistic about capitalism’s ability to reduce the cost of compliance , particularly through technological innovation. If you pinch the straw they are blowing out of, companies will find a way, they won’t die.

  • PD,

    If Drum said environmental regulations don’t cost employment, he’s an idiot.

    He did. Unfortunately it was at his old, old site IIRC (might have been when he was at Washington Monthly).

    But I think Steve’s observation is interesting. People promoting new regulations are quite optimistic about capitalism’s ability to reduce the cost of compliance , particularly through technological innovation. If you pinch the straw they are blowing out of, companies will find a way, they won’t die.

    I’m not saying they wont die, but that the economy wont die. Shut down is always an option for a company. Take those resources and put them to a better use. Might be the initial owners of those resources, or the owners who purchased them from the initial owner.

    I do not for a moment believe that we should impose our will on the Chinese. What I’m suggesting is that we impose our will on ourselves.

    But in a way we will be. We’ll be telling them, make less. No matter where you levy the taxes both it impacts both the supply and demand side.

  • Drew Link

    I think icepick in his 9:25 post hits the nail on the head in his first paragraph, and then has some fun with snark in paragraphs 2 and 3.

    If I follow, this is Dave’s position as well.

    This is nothing more than faux environmentalists (can you say no windmills off Nantuckett?) feeling good about themselves as long as they get their goodies. Filthy bastards.

    If I were King, I’d first attempt to establish whether or not we are creating a true strategic problem by eliminating US production. It must be an essential element to the analysis. We once passed on an investment in a magnet maker because the promises of a US based reopening of a mine for neodymium rang hollow. We weren’t ready to expose our investors to the whims of the Chinese……..and environmental nut jobs.

    Second, no rational person would simply say damn the torpedoes and expose the US to real environmental issues. The problem is that environmentalists are generally hysterical(can you hear me Dr Chu?) , and don’t give a rats ass about American jobs juxtaposed against their religion. It doesn’t take a rocket scientist to understand that apprppriate firewalls and Pigouvian taxation is the answer, and some sort of normalization vis-a-vis non-Pigouvian taxation producers is required. For all the false analysis about how Romney is no different than Obama, this is his position. And it of course would be given what he did for a living, as it is mine.

  • steve Link

    We should determine our costs and benefits, then decide what is best for us. China should do the same, as they have been doing. You cant limit this to rare earth metals. They are doing the same things for much of what they make. How do we know how to value their trade offs? If the Chinese are being abusive of their workers or their environment, publicize it. Let people decide if they want to buy from companies that are abusive.

    Steve

  • Yeah, but what China does can impact us. Pollution isn’t completely localized, especially when it starts impacting oceans.

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