By: Amy E.
As more money is put towards environmental endeavors, they will grow!
Photo from: Diamond Blue Financial Services
When you think about economics, the environment is probably not the first thing that pops into your head. Nonetheless, at the end of the day, a large component of economics is understanding why groups and individuals make the decisions that they do. Everyone around the world makes decisions everyday. Think about how many choices you have made today. Most of the decisions we make are small such as what shirt we’re going to wear or where we are going to go for lunch. However, some decisions that governments, businesses, organizations, and everyday people make have serious implications for our environment.
Before I talk about the connection between economics and the environment, I wanted to bring up an idea in economics known as the production possibilities frontier. The production possibilities frontier is a graph that shows the efficiency of different distributions of a finite amount of resources among two products/endeavors (Greenlaw, Shapiro & Taylor, 2017). This graph has a downward sloping curve because of something called the law of diminishing returns. The law of diminishing returns is the idea that “as we add additional increments of resources to producing a good or service, the marginal benefit from those additional increments will decline” (Greenlaw, Shapiro & Taylor, 2017). Think about it this way: if you were hungry and you ate one sandwich, you would get a lot of benefit/utility from eating that sandwich. If you ate a second sandwich, you would still benefit but it wouldn’t be as beneficial as the first sandwich. If you kept eating sandwiches, each sandwich would be less beneficial to you than the last until the sandwiches actually start to harm you instead of help you. As you
put more resources into one endeavor, those resources become less beneficial.
Photo from: Principles of Macroeconomics 2e
Let’s look at this in terms of comparing two different endeavors/products: If we were to put all of our money into food and none into rent, we would not be using our money efficiently because we wouldn’t have any shelter. If we were to put 100 dollars per month toward rent instead of food, that wouldn’t really affect the quality of food that we could buy each month but it would greatly affect the quality of our shelter. This is the idea behind the production possibilities frontier. Whenever we are deciding whether we should put more resources in one endeavor over another, we should look at the efficiency of our decision. In other words, does our decision allocate the resources that we have to their most valuable uses?
We can use this type of thinking when talking about the way that our government makes decisions concerning the environment. When the government creates its budget, it should make economically efficient decisions that put our resources toward their most valuable uses. Unfortunately, the majority of US federal funds are not going toward programs that would maximize our economic efficiency. For example, in 2017, we put 14 percent of our budget into defense while we only put 0.21 percent of our budget into the US Environmental Protection Agency (Lavelle, Hirji, Shankman, Kusnetz & Gustin, 2017). Given our military’s current rank and our environmental performance rank, this distribution of resources doesn’t make sense. The United States rank in terms of military performance is 1 (Ioanes, 2020) while our environmental performance rank is 24 (Holden, 2020). In addition to this, the United States ranks 10th in terms of most CO2 emissions (Smith, 2017). The United States has been ranked number 1 in terms of military power for years yet our defense budget has increased consistently for the past 17 years. In 2019, the defense budget was 904.3 billion dollars, more than double what it was in 2003. In contrast, the EPA’s budget essentially stayed the same from 2003 to present, increasing slightly from 8.1 billion to 9.1 billion (EPA, 2020), while the climate crisis has only gotten significantly worse.
I am by no means saying that defense spending is not important. It is very important, not only for the safety of the United States, but also for new innovations. The military even works to create new environmental innovations, such as new ways of creating clean energy (Amadeo, 2020). However, if we were to clearly put more money from our budget toward environmental innovations, in the form of money given to the EPA or other environmental organizations, we would be able to better adapt to the changing environmental circumstances around us. We need to realize that if we put a fraction of the money and power given to the department of defense toward the EPA or other environmental endeavors, we would be able to drastically increase our environmental performance without decreasing the effectiveness of our military. That is much more economically efficient than putting more money into the military and less money into environmental protection in the middle of an environmental crisis.
Putting a small portion of our defense budget into the EPA is not only economically efficient in the short term but it will also save the United States money in the long-term. We are facing an environmental crisis and if we do not act soon, we will have much larger, more pressing, more expensive issues to deal with. We need to combat this crisis and that starts with changing the way we distribute our resources, in particular, our money. The Environmental Protection Agency gets a tiny fraction of the total United States budget even though many scientists warn that we must act extremely soon on environmental problems to prevent further damage to our planet.We are already seeing increased cases of extreme weather, such as hurricanes, tornados, etc., and we will soon have to deal with problems concerning our rising and more acidic oceans (Plumer, Schwartz & Popovich, 2020). Eventually, if we don’t invest more in environmental protection and restoration, a much larger portion of our budget will have to go towards dealing with the devastating consequences of global warming and climate change. If we start putting a relatively small amount of money into our environment now, we won’t have to put nearly as much of our budget into the environment when the disastrous consequences of global warming come to fruition.
Although Economics and Environmentalism do not seem to go together all that well, at its core, Economics is just about why people make the decisions that they do. If we were to put more of our resources into the environment when making decisions now, we would have more effective, long-term solutions to problems without taking much away from other important aspects of our society.
Discussion Questions:
Would you rather take money out of other aspects of the US Budget and put it directly into an environmental organization (like the EPA) or put money toward the other aspects of the US Budget to make those systems more environmentally friendly? Why?
What are some ways that you can use economically efficient decision making to create a positive impact on the environment?