Economics in Two Lessons Chapter 16: Environmental policy

by John Quiggin on July 7, 2018

Nearly seven years after I started work, here’s the final draft chapter from my book-in-progress, Economics in Two Lessons. Thanks to everyone who commented on the first 15 chapters and encouraged me in the project as a whole.

I’ve had quite a few amusing snarks on Twitter to the effect that 16 chapters and 90 000 words is an awful lot for just two lessons. That’s true and yet there are even more topics I wanted to cover. In particular, I wrote quite a bit on health and education but have had to omit most of it for space reasons. Still, if anyone wants to point out critical omissions, now’s the time.

Comments, criticism and praise are welcome. I’m also on the lookout for telling graphs, insightful illustrations and apt quotations.

Earlier draft chapters are available. These aren’t final versions, as I am now editing the entire manuscript, but you can read them to see where the book is coming from.

Table of Contents
Chapter 1: What is opportunity cost?
Chapter 2: Markets, opportunity cost and equilibrium
Chapter 3:Time, information and uncertainty
Chapter 4:Lesson 1: Applications.
Chapter 5: Lesson 1 and economic policy.
Chapter 6: The opportunity cost of destruction
Chapter 7: Property rights, and income distribution
Chapter 8:Unemployment
Chapter 9: Market Failure
Chapter 10: Market failure -Externalities and pollution.

Chapter 11: Market failure: Information, uncertainty and financial markets

Chapter 12 on Predistribution

Chapter 13 on Redistribution

Chapter 14: Policy for full employment

Chapter 15: Monopoly and the Mixed Economy.

Feel free to make further comments on these chapters if you wish.

I’m going to leave these draft chapters online for the moment, but my publisher has asked that they be taken down once the manuscript is approved and the book goes to press. The final version should be available in print and online form at a modest “trade” price, rather than that of an academic text.



Mark Brady 07.07.18 at 5:16 am

But how do we access Chapter 16?


Peter T 07.07.18 at 5:21 am



John Quiggin 07.07.18 at 7:33 am

Grrr! The new visual WordPress editor on my own blog doesn’t copy links, just the text. Fixed now, I hope.


Peter T 07.07.18 at 12:11 pm

You might tie trans-national pollution issues and the state-created nature of markets together. If you want to control such a problem, you need to create, monitor and enforce international agreements. If you use a market to do so, then you have to create, monitor and regulate that market using some international mechanism. This is hard (Sulfur pollution involved a few big companies, a known number of major sources and standard technologies – the issue was really phase-out time of older plants, and creating a mechanism to encourage early phase-out while spreading the load across all the polluters. CO2 is not such a problem).


George Berger 07.07.18 at 12:15 pm

Here I go. If I read it soon I will send you any commentd I have. Now, you mentioned writings on health. I’d be especially interested in reading them. Are any available?


Robert 07.07.18 at 5:37 pm

Maybe you can extract something from the long quote from Veblen linked to by my name. This would be for the previous chapter.


Peter T 07.08.18 at 2:19 am

I’ll expand on my comment above, because i think it goes to a point that the use of the term “markets” in the abstract evades. Money (and with it prices and markets) faces a problem of the infinity upper bound. Money is a claim on others, recognised as such wherever that particular money is accepted. Withdraw the recognition and the value of that money falls to zero or, conversely. all prices go to infinity. One day a South Vietnamese/State of Georgia/Imperial Russian…millionaire, the next day a pauper). You can, of course, transfer the claim elsewhere before that but, when you reach the global end, there’s nowhere to go.

Insurance faces an exactly parallel issue: I can insure my life/car/house with a a company, and the company can insure its claims with the state, but the state cannot insure its claims except with a larger state, and the largest state cannot insure its claims at all (see US as world back-stop).

Pollution or similar issues (fisheries, environmental degradation) face this problem when they become global. The UK could transfer the pollution to Sweden, Sweden to Russia, but when it comes around again (US to UK), there’s nowhere to go in the market. There’s only a hard cap, above which prices go to infinity.


CDT 07.08.18 at 9:28 am

John: I’m a U.S. environmental lawyer in my day job. It is true that the Clean Water Act became common parlance in 1972, but prior incarnations regulated water pollution well before that. The CWA arose out of the 1899 Rivers and Harbors Act, which prohibited impeding navigation by dumping stuff in rivers. (The Supreme Court had recognized in 1865 that Congress had authority to regulate interstate navigable waterways). Over time Congress began to regulate pollution as well, with the Federal Water Pollution Control Act in 1948 and 1956 regulating pollution. The 1972 CWA was technically another set of amendments to the FWOCA.

There are also some interesting climate change cases ongoing against big oil and others, touching on the property rights issues. Briefly, a number of California cities are suing for costs of abating alleged climate-related sea level rise. Drop me an email if you’d like more detail.

Finally, effective January 1, 1970 the National Environmental Policy Act became effective. That’s the law that requires federal agencies to consider environmental impacts before taking major actions.


John Quiggin 07.08.18 at 11:36 am

@6 I was struck by “The dispositions which they make are business transactions, ‘deals,’ as they are called in the business jargon borrowed from gaming slang. ” I wonder if this etymology is correct.


Peter T 07.08.18 at 12:56 pm


A quick search suggests not, alas. The word is used to mean “to share with/transact with” from the early 16th century. What does the continuing popularity of folk etymology tell us?


Michael 07.09.18 at 2:40 am

Attempts to limit pollution by law go back at least to Justinian, somewhat earlier that the 19th century. ( I’ve heard, but can’t immediately find the reference, that medieval London occasionally hung polluters. Some (Marvin Harris, IIRC) argue that anti-pollution measures inspired many deep religious taboos.


Michael 07.09.18 at 2:45 am

Attempts to limit pollution by law go back at least to Justinian, somewhat earlier that the 19th century. ( In medieval London fines were regularly imposed, although the story of a hanging is probably apocryphal. (
Some (Marvin Harris, IIRC) argue that anti-pollution measures inspired many deep religious taboos.


Another Nick 07.09.18 at 7:29 am

Peter T, I’d be interested if you can find a noun usage for ‘the deal’ (eg. the deal is on the table, close the deal, the deal is void, no deal) unrelated to card games, gambling, or betting on the stock market, earlier than the 1700-1800s?


John Quiggin 07.09.18 at 7:59 pm

@8 Thanks. I’ll email on the California action.

@11 Thanks. I mention some this in an earlier chapter


Gregory J. McKenzie 07.09.18 at 9:04 pm

Environmental policy is often compromised by labour policy issues. Often you see national Party elected representatives are more concerned about short term employment (and small scale job creation) than about long term ecological sustainability. This is also true of some right wing Liberal politicians. What this blinkered approach fails to appreciate is that you cannot rebuild a micro environment once it is destroyed by: an open cut mine; or deforestation; or even dumping of pesticides into rivers and the ocean. The term “fragile microenvironments” seems beyond their powers of comprehension. Jobs matter only if they can help people live in an sustainable environment. Soil degradation, soil salinity levels and water contamination needs to be addressed before short term employment is prioritized.


Peter T 07.11.18 at 1:44 am

Another Nick

Not an etymologist, but…

The Shorter Oxford gives noun usages of “deal” in the sense of “part, share” as early as Chaucer, with corresponding verb forms (to share out, apportion..). It derives, according to the OED and other sources, straightforwardly from Anglo-Saxon.


Another Nick 07.11.18 at 7:40 am

Thanks, Peter T. Sorry, I should have been clearer. There were many different earlier usages – the word is ancient.

I was referring specifically to ‘the deal’: a bargain, contract or arrangement. “The deal is on the table”.

Not ‘a deal’: an unspecified quantity, portion or share of something. “A good deal of time has passed”

I tend to think Veblen was correct. That the modern usage was derived from gaming.

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