Oil Sands and Economics

Recently, the Pembina Institute and Equiterre released a report entitled Booms, busts, and bitumen: The economic implications of Canadian oil sands development.   The report opens with a foreword from University of Ottawa economics professor Serge Coulombe. His opening paragraph states that, “Environmentalists don’t accept gross domestic product (GDP) as a complete measure of well-being in the same way that economists do.”  This statement is astounding for its ignorance of the discipline, not to mention the irony of it having been written by an economist. Worse, it validates a trend among the environmental movement in Canada, spearheaded by David Suzuki, to dismiss economists as the enemy of the environment. I don’t know of a single economist who thinks this way.  We may disagree on the relative values of environmental amenities but I can’t think of anyone who would argue that they have zero impact on welfare or that GDP is the only relevant measure of well-being.

David Suzuki often talks about the Economics 101 course he took which ignored externalities. That certainly didn’t match with my recollection – the second half of my microeconomics 101 course was all about market failures due to monopoly, incomplete information, public goods, or environmental pollution.

If you look at Greg Mankiw’s Principles of Economics, likely the most widely used introductory text, you don’t even get to discussions of GDP until page 491 in the Sixth Edition. Externalities are covered over 200 pages earlier, on page 195. When you get to talking about GDP, there is a muti-page section which begins, “GDP is not, however, a perfect measure of wellbeing…” The section goes on to discuss things such as the value of leisure, the costs of pollution, the value of home production, etc.

On the environment, Mankiw writes that, “another thing that GDP excludes is the quality of the environment. Imagine that the government eliminated all environmental regulations. Firms could then produce goods and services without considering the pollution they create, and GDP might rise. Yet, well-being would most likely fall. The deterioration in the quality of air and water would more than offset the gains from greater production.”

Gee, that almost sounds like something David Suzuki would write himself. David Suzuki is also a strong proponent of evidence-based policy. If you agree, you might want to read this, from Fullerton and Stavins, on how economists really think about the environment.

Photo Credit: GDP and Economics/shutterstock