Problem

Resource consumption exacerbated by price distortions

Other Names:
Deflated market prices promote unsustainable resource use
Resource depletion due to market price anomalies
Unsustainable development due to failure of price signals
Incidence:
The world market prices for primary commodities, such as iron ore and steel, are maintained at an artificially low level in order to inflate national export trade against competitors. This is possible because primary resources are treated as unlimited, low value goods in an international market with heavy competition between countries.

External costs are a major reason that price signals are unreliable. A good example is the price of gasoline, which in the USA carries a social cost of at least $4.00 a gallon but is sold to Americans for $1.20. Another source of unreliable price signals is perverse government subsidies.

Claim:
Today's prices reflect an unsustainable economy. Market efficiency is not the only measure of economic health, and left to itself can allocate resources at ridiculously undervalued prices. For 60 years economists have built models describing the optimal allocation of resources over time. All the models implicitly assumed that the current generation holds all the rights, and it will conserve resources if it can sell them to its children at a profit. How can we be concerned about the long term if we are using a 5 or 10, or like the World Bank, 15% discount rate ? Such massive discounting of the future is one of the causes of artificially low valuation of our current natural assets. Sustainability is matter of intergenerational equity, a matter of transferring assets to the next generation, redistributing rights to future generations, to the poor, to other species on this planet. When objectives such as preserving biodiversity are added to the economic scenario, currently undervalued resources raise in price enormously.
Related Problems:
Consumerism
Problem Type:
E: Emanations of other problems
Date of last update
30.05.2000 – 00:00 CEST