How can an economist save the Rain Forest?

Readers Question: Endangered rain forests, wild fish, elephants and more are examples of the tragedy of the commons. What would economists recommend to save, rain forests or fish stocks?

rainforest
Pic Rainforest – CC

 

Firstly, the tragedy of the commons  is a situation where there is overconsumption of a particular product / service because rational individual decisions lead to an outcome that is damaging to the overall social welfare.

The problem with rain forests is that people may feel an economic incentive to chop down trees in order to make a business, e.g. farming, wood for furniture. On their own – a decision to cut down a few trees don’t seem to make much difference. If you buy a table made with wood from a rainforest it doesn’t make that much difference. But, if everyone takes these decisions, we end up with overconsumption and eventually this precious resource is lost.

Economic policies to save the Rainforest

1. Laws and regulations by governments to make areas of rainforest protected.

This is the simplest and easiest. The Brazilian government can simply disallow firms from cutting down more trees, and legally protect rain forests. The problem is that governments may not want to do this because they see it as  viable economic resource they need to make use of.

2. Global co-operation. If we ban cutting down rain forests, some countries may lose economically – Brazil, Indonesia e.t.c. But, the world will benefit from reduced global warming and the benefits of saving rain forests. In an ideal world, all major economies could make a financial contribution to countries who promise to save their rain forests. Therefore countries like Brazil and Indonesia don’t feel like they are losing out. All countries are paying a small amount to gain the bigger long-term benefit of saving the rain forests.

For more ideas, I looked at this page: 10 things you can do to save the rainforest

Primarily these rely on trying to change consumer behaviour. But, how could an economist make the changes more widespread and not optional?

1. “Palm oil, found in half of all processed foods in the US, is a key contributor to rainforest deforestation”

In this case we could tax palm oil which is taken from land which used to be rainforest. Increasing the price of Palm Oil, would discourage consumption and encourage consumers to buy other oils.

The problem is that individual taxes on palm oil will have administration costs. It may also be difficult to know whether Palm oil has come from former areas of rainforest. but, in theory a tax will reduce demand. The money raised could be used to buy rainforest land to protect it.

Read moreHow can an economist save the Rain Forest?

Government spending cuts to 35% of GDP

Firstly, I thought it might be helpful to talk about the different types of spending cuts that people refer to.

  • An actual cut in government spending. e.g. one year we spend £39bn on defence, the next year that is cut to £38 bn. This is a nominal cut of £1bn. The real cut will be even bigger.
  • A cut in real government spending. If inflation is 3% and government spending on education rises by 1%, that is a real cut of 2%. Departments will still have to cut back on wages and spending because with inflation higher than spending rises, they can afford less spending. It is fair to call this a spending cut
  • A cut in % of real GDP government-spending-percent-gdp-obr-14 Note figures for 2018-19 are a forecast. The big issues is that the Chancellor has proposed reducing the size of government spending as a % of GDP to lowest since 1948. Real government spending will rise, but as a % of national income it will be lower.

    Suppose, real GDP rises by 3%, but one department sees a rise in real spending of 1%. In this case, the department has a smaller share of national income, but at the same time has a real increase in the amount of money. This isn’t a cut in government spending, but it is cutting the share of GDP spent on that department.

  • A cut in quality of services. This is even more subjective. Suppose economic growth is 3% a year, but we increase the NHS budget by 4%. This is a real increase, and we are spending a higher % of national income on health. However, some may argue the demand for health care is rising by 8% a year due to rise in number of old people, rise in obesity e.t.c. Therefore, unless we match the demand for rising health care, it will lead to a cut in the quality of service and a rise in waiting lists. It is disingenuous to call a 4% real rise in spending a cut, but people’s experience of the NHS may feel like they are experiencing a cut.

Government spending as a pie chart

UK-government-spending

Which piece of pie should be cut?

Read moreGovernment spending cuts to 35% of GDP

Benefit spending in the UK

A quick look at benefit spending in the UK. This is a follow up to  Social security spending. Thanks to HM Treasury for help in finding useful data set.

Source: Public Expenditure Statistical Analysis 2014 | Data Chapter 5 – 5.2

Social Protection spending

Firstly, there has been a modification to the category of government spending, now labelled – ‘Social protection spending’ – See: Social protection spending. This is not just welfare benefits. It includes personal social services, e.g paying for nursing, care in the community; (spending which could  perhaps be better included with health care).

Secondly, by far the biggest level of social protection spending is pension spending. This includes both state pension payments and (I believe) state occupational pensions to retired public sector workers.

social-protection

It is a very unwieldy sub-division of government spending, but if we look at whole budget it increased significantly during the great recession 2009-2013. This is partly due to the cyclical higher welfare payments expected during a period of unemployment and low income growth.

However, on closer examination, by far the biggest increase in spending from the social security budget is from pensions. Pension spending increased from £83bn in 2009/10 to £104.4 bn in 2013/14. An increase of £21 bn. In a period of so called austerity, that is a big increase in government spending.

  • Unemployment benefit payments fell in this period from £5.5 bn to £4.9 bn
  • Sickness and disability benefits rose from £30.6 bn to £37.5 bn
  • Income support, tax credit (both family and social exclusion) declined from (£45.8bn) to £ 43.9 bn)
  • Housing benefit from £22bn to £26bn (see: more on Housing benefit)

UK Pension spending

pension-spending-uk

Read moreBenefit spending in the UK

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