Environmental Economics

Last week Treasury Secretary Steven Mnuchin insulted climate activist and Time Person of the Year Greta Thunberg by claiming that she shouldn't talk about climate policy before studying economics and college.  When asked about her suggestion for public divestment from fossil fuel companies, Mnuchin said:

Is she the chief economist, or who is she? I'm confused. It's a joke. After she goes and studies economics in college she can come back and explain that to us.

Many environmental (and other) economists were quick to pounce on Mnuchin's comment.  Their point was that in fact the theory of market failure is a central component to college economics courses, even introductory or Econ 101 courses.  Climate-change-causing pollution is a textbook (literally) example of a negative externality that causes market failure.  To claim somehow that taking a college economics class will teach you that we shouldn't regulate climate change is idiotic, goes this argument.  Paul Krugman even wrote a NY Times column on the subject: 

One can only surmise that Mnuchin slept through his undergraduate economics classes. Otherwise he would know that every, and I mean every, major Econ 101 textbook argues for government regulation or taxation of activities that pollute the environment, because otherwise neither producers nor consumers have an incentive to take the damage inflicted by this pollution into account.

By this account, it's climate activists like Thunberg who really understand textbook economic theory, while libertarian-right-wing-small-government zealots like Mnuchin don't (or won't). 

This is all true, and Mnuchin deserves his ridicule.  However, I think there is also a sense in which he is (accidentally perhaps) correct.  While market failures and externalities are taught in every Econ 101 course (I hope), they are often taught as an afterthought or an aside.  The main focus of intro econ courses is more likely the efficient functioning of the market.  Many students come out of Econ 101 (which for most is the only economics course they'll take) thinking that basically economics teaches us that markets are great and go a better job than the government can (with some minor exceptions that I can't really remember).  

The conservative bias in Econ 101 is real.  It's been called Econ 101-ism, or Economism – the idea that the simplest supply and demand, invisible hand, perfectly-functioning markets examples from Econ 101 actually describe the real world, and therefore that the proper policy solution to almost anything is to cut taxes and reduce the size of the government. 

So Mnuchin might actually not be wrong – if Thunberg took a college economics class, she might come away from it convinced of the power of markets (though probably not – she's smart enough to see through that I would think).  This all points to a problem endemic to all of economics (not just environmental economics), which starts with the way it's initially taught.