Thursday, October 29, 2015

Almond Milk and Resource Prices

This week I read a few articles about the environmental impact of plant-based milk, specifically almond milk. Evidently, if you are thinking of drinking some almond milk, you might as well just kick in Earth's door and take an upper-decker in its toilet.

I wish these articles' writers would differentiate between costs borne by the consumer and uncompensated costs borne by society. To say that something uses a resource is meaningless; all items use resources. The question is, did the consumer pay for the resource used?

When a product uses a resource, that resource is no longer available for use in any other product. We use price offered to evaluate value of competing claims. I want to use the same gallon of water as you. I think it will bring me $2 in value. You think it will bring you $4 in value. So you outbid me and you get the water. This is desirable because it allows for our limited resources to go where they produce the most value.

If a single California almond takes over one gallon of water to grow, as claimed, this is not in itself evidence that almond milk is "bad" for the environment. Perhaps California is an inefficient place to grow almonds. The price of almond milk should reflect that. Consumers will stop buying as much almond milk if the price increases. More-efficient growing locations will begin producing almonds. Price does all this for us. No one has to write bombastic moralizing screeds to make this happen.

The more-likely problem is that the price of almond milk will not reflect the water used because water is a necessity and so is subject to price controls, because we live in a world where people think you're better off being able to afford something you can't find for sale than having to buy less due to a higher price. All of my students say poor people are helped when a price ceiling makes a necessity scarce. Funny, I thought poor people would be harmed by starving. But what do I know, I'm just an economist.

"But the problem is, smart guy, that we're using up resources that won't be left for our CHILDREN! Won't you PLEASE think of the CHILDREN?!" Okay, I'll think of the children. And so will the owners of the resources. They can pull the resource out of the ground now and sell it for money which they then invest at the prevailing interest rate, or they can allow the resource to sit unharvested until a future date when they pull it out of the ground and sell it to the children. They will do the activity that has the higher present value. That's why no one ever pumps all the oil now. There will be water for our children, because they will be willing to pay for it. When water becomes more scarce, future water becomes more valuable, meaning you will have to pay me more money to sell you water now. The current price of almond milk will increase and you will economize. Not because you love "the children," but because you love yourself.

Again, this only works if the price of water is the market price. Once we screw with the market price, we shouldn't be surprised that it no longer works as a motivating factor for us.

It would be great if everyone loved all unborn generations, but they don't and with price, we don't need them to. So instead of brow-beating you into drinking less almond milk, we should allow the price of water to do it for us.

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