The Economics of Environmentalism
In the March 2008 issue of the MBJ, Ashley Griffith wrote “Loggers and Luthiers –the Drama of Not Going Green.” In it, she cited the alarming decline of Sitka spruce trees, the only domestic wood suitable for musical instruments, primarily caused by the export of wood for housing in China. As a response, the Musicwood Coalition was formed by instrument manufacturers and is asking Sealaska, the logging company controlling the Sitka spruce forest, to engage in more sustainable logging.
Sadly, the Musicwood coalition faces a curious feature of our economic system: resources are much more valued when they are scarce than when they are common. (This is sometimes called the “diamond-water paradox.”) In the case of natural resources that are available in much greater quantity than people need, such as sand, cheap softwood, and water in New England, a competitive economy emerges. The price reflects the cost to obtain the resource (dig and sift the sand, cut the wood, pump the water, etc.)
However, when a valuable resource is scarce, those who want the resource start bidding against each other, and the price goes far higher than the cost to obtain the resource. Examples include gold, gemstones, and, increasingly, oil. An economist would say that for many resources, the elasticity of demand is less than one. In other words, the percent change in the quantity demanded is less than the percent change in the price. A layperson would say that the demand for these resources is “inelastic” or “not price sensitive.”
An example of this in action was what happened to the price of oil after Hurricane Katrina in 2005. The hurricane disabled roughly 5% of refining capacity and the price of gasoline jumping by 35%. This resulted in record-high oil company profit. Additionally, in the early 2000s, Enron periodically turned off electricity generation in California so other utilities outside California (also, not coincidentally, owned by Enron), could sell power at much higher “emergency” prices.
Within the music industry, this is done as well. Have you ever heard of a “special, limited edition” CD or poster? Or of a band playing in a smaller venue than it could easily fill? In each case, the band may make more money by not selling the product at a reasonable price to everyone who wants one. Conversely, the increased availability of music over the last few years has made recorded music less profitable.
How, then, is Musicwood to ensure a sustainable supply of wood for instruments? The timber company stands to make a much greater profit if it “wastes” most of the precious old Sitka spruce trees than if it ensures a stable, sustainable supply of high-quality wood? I see three viable solutions.
One solution is for the Musicwood Coalition, or some other non-profit organization, to directly purchase sufficient forest acreage to ensure adequate wood supply. Existing timber companies could then be hired to harvest trees in a sustainable way. Sadly, I doubt the financial resources would be available to implement this plan, so I would not count on this happening.
A second, similar, idea could perhaps be more viable. Instrument manufactures could, individually or collectively, purchase tracts of the Sitka forest. This might require an excessively expensive investment, but would allow manufacturers to have direct control of the lumber supply.
A third solution is for the musical instrument industry and the environmental movement to appeal to the state or federal government to mandate sustainable logging of Sitka spruce. Government sanctions can be very effective, but they require funding and vigilance on the part of government regulators. That funding and attention sometimes tends to dry up over time and as new administrations comes to power. Creating the government regulations also require concerted effort and organization on the part of activists, along with strong popular support.
Ashley ended her article by listing various things individuals and business are doing to help protect the environment, such as replacing a 100-watt incandescent or halogen light bulb with an energy-efficient compact fluorescent bulb. I would like to add that, from an economic point of view, this is a no-brainer. If you use a light for an average of 1 hour per day, a compact fluorescent bulb, which costs $3 or less, will reduce your electricity bill by roughly $6 per year. This is an annual rate of return of 200%, which makes replacing your light bulb more profitable than what the most aggressive speculator hopes to earn in the stock market, and is about 50 times better than rate of return you get from a bank.
Remember that compact fluorescent bulbs work best when fit with a standard on/off switch, rather than dimmer switches. Keep that in mind when purchasing light fixtures, and don’t be afraid to ask your landlord for on/off switches if your apartment has dimmers.
By Kevin Block-Schwenk
