Through the Lens with Dr. Gordon Menzies Part 1 - Fundamentals, Factory Pollution and Environmental Economics

Geoff Miller - Politics and Economics

Factory Pollution

In our interview series, Through the Lens, we seek the foresight of experts on various issues to shed clarity on the muddy waters of our climate-changed future. What does science tell us? What can’t science tell us?

This week we turn to Dr. Gordon Menzies, Associate Professor of Economics at The University of Technology Sydney and recent author of Western Fundamentalism. Having created the subject Economics of the Environment at UTS to expose students to the indisputable overlap of economy and climate, I thought Dr. Menzies might shed some light on the uncertainties of our climate-changed future.

Western Fundamentalism

Having completed his doctorate in Economics at Oxford and joined the infamous Oxford Union student debating society, Dr Menzies is uniquely positioned to offer perspective on the three fundamental beliefs of Western Society; democracy, free market liberalism and sexual freedom. As we face the complexities of a climate-changed future, these fundamentals and their ensuing skepticism, is coming to the forefront of public discussion. In Western Fundamentalism, Dr Menzies explores the intricacies of these fundamentals and provides fascinating insights into how these fundamentals appear in our everyday life.

Can a free market economy successfully transition from fossil fuel powered energy systems to a renewable energy system? Exactly how democratic are Western governments in 2020 and how does that impact environmental policy? 

For answers and insights into our climate-changed future, we thought it best to ask.

Our Ideal Environmental Future, According to Dr. Menzies

As discussed in his book, the values we bring as we address environmental problems have profound implications for society. While it may be good for the environment to see humankind as simply another animal, this is an example of what Jean-Paul Sartre calls 'bad faith'. So much of what we value in human society is unique and differs from the animal world. To continue with our notions of being human yet assert in an unqualified way that we are 'just another animal' is to court profound and unwelcome changes, or to live with the lack of integrity Sartre talked about.

In regards to the politics of climate change, Dr. Menzies hopes for the best case scenario of holding the temperature increase to just 1.5 degrees. For a greater than 65% chance, this would necessitate a gradual reduction in emissions over two decades or business as usual for one followed but a cut to zero emissions. Dr Menzies hopes that coordinated, effective government policy can drive emissions down, yet whether it will be enough to limit the temperature increase to 1.5 degrees, remains to be seen.

And finally, ever the optimist, Dr. Menzies hopes to look back on the world's response to climate change seeing the best of science applied to the issue. In the same way we mere mortals marvel at medical technology, Dr. Menzies hopes to marvel at the power of science in fighting this crisis.

The Economics of Pollution and Consumption

While the common assumption may be that environment and economics are fundamentally incompatible, one field of Dr. Menzies expertise lies in the intersection of environmental and economic objectives. Having recently witnessed US Retail Sales plunge a record 16.4% in April 2020, I thought it time to better understand the economics behind consumption and pollution. As Alexander Barnstone has covered previously, material consumerism is an environmental threat at present. Any future success in environmental conservation will likely need to address policy options to reduce the environmental damage of material consumption.

When asked what can be done to remedy the environmental damage of consuming a good that an Economist would define as a ‘want’, Dr. Menzies obvious answer is to tax the externality, where increasing the price of some environmentally damaging good can reduce consumption and thus lessen the environmental damage. In some cases, this tax can begin to function as a social norm as ‘a signal of what is ethical’; lessening the consumption of it even more so. Dr Menzies points to Ireland’s 15c shopping bag tax as a case in which a small financial tax can generate a moral imperative that may even outweigh the financial penalty. When the tax was first implemented, Ireland’s plastic bag use dropped 94% in a matter of weeks. Though Dr. Menzies cautioned that while in some cases, financial penalties ‘crowd in’ the social norm, they can also ‘crowd out’ a social norm too; in one heavily referenced example, implementing a late fee on parents picking up their kids from daycare, actually increases the number of parents who arrive late.

Yet economics, and it’s interest in incentives, is not simply limited to taxing consumption pollution. In one fascinating case, a heavily polluting factory in Germany was directed by the government that they could only collect water downstream from their own factory. Safe to say, that factory cleaned up its act. 

Admittedly, Dr. Menzies continues, the discipline that defines goods as either ‘needs’ or ‘wants’, has ‘not been as helpful as it could have been in making the distinction between ‘needs’ and ‘wants’. While there may be an implicit distinction in the calculation of Poverty Indexes, it can be a difficult distinction to make in practice.

Should that be rectified? Well, Dr. Menzies sees a possible need to develop an ‘opulence index’, being the reverse of a poverty index, but that may be much more difficult in practice than it may seem. Individuals with lower incomes tend to consume most of what they earn, but that isn’t the case for higher income earners. ‘So how do you define opulence?’ Dr. Menzies asks, ‘Is it based on their income or their consumption?’

When asked whether the economic policy approach should differ based on whether the good in question is a ‘need’ or a ‘want’, Dr. Menzies stressed the difference in the ‘moral calculus’ of the policy. If a good is a ‘want’ and it’s environmentally very damaging, you’d be much more willing to tax it than if it was a need. An economy in which people don’t have adequate housing has a different moral calculus to those in which consumers are buying their seventh pair of shoes. Of course, you don’t ‘jettison all environmental concerns’, but it is a different issue.

I think this explains why in some countries it’s very difficult to get traction with environmental issues because many people are just so stretched to meet basic needs,’ Dr. Menzies adds.

Being an academic of many interests, I couldn’t possibly explore every topic covered in one short piece. Check back next week for Part 2 of Through the Lens with Dr. Gordon Menzies for more on the future of the social sciences, land management in a climate-changed future and an exploration of the politics of climate-change.

Written by Geoff Miller

Associate Professor Gordon Menzies joined UTS in 2003 after more than a decade working as an economist in the Reserve Bank of Australia. He holds a Masters in Economics from the Australian National University (where he won a prize for the best student), and was a Commonwealth Scholar to Oxford University, where he gained a PhD working on financial crises. His academic work has included the relationship between economics and ethics. On a recent UK sabbatical he worked on restoring trust in Finance, supported by the Institute for New Economic Thinking at the Oxford Martin School. At UTS he won the 2008 UTS individual teaching award, and, a 2009 Australian Learning and Teaching Council citation. He is one of a few contemporary voices exploring the cultural and moral significance of economics.

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