China’s Faux Pas
China just announced that they were putting a price halt (read control) on petroleum, water, and some food products. See: http://www.iht.com/articles/2008/01/09/business/yuan.php
This is a serious error on their part, and it will hopefully be short lived.
The benefits are:
Temporary political stability.
Consumption of these resources continues to rise, putting more pressure on the local environment and eventually on the politicians. De-coupling resource prices from market prices becomes very dangerous when the resources are dangerously close to running out.
For example, water tables in China are dropping at an astounding rate, and without strong reductions in consumption through prices (and taxes), cities will need to start importing water and people will suffer. Notably, China is so desperate for water that they will build a Canal from the South to the North to bring water, at a tremendous financial and ecological cost.
Two options for the development of environmental regulations exist:
1 People only start to ‘sacrifice’ quick wealth for the environment when they have enough wealth to live well (and other ways of making money). It is thus in our global interest for societies to become wealthy so that they become more environmentally friendly.
2 The other path towards environmentalism is when the price point of resources (set by the market of government) forces society to adapt. If we interfere with the price-point in negative fashion such as making gasoline artificially cheap, then we are retarding resource efficiency improvements.
By artificially reducing the price of resources, you are slowing down the progressive evolution of Chinese society towards environmental sustainability. And how long can you hold back 1.3 billion people?Published on January 9, 2008