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Markus Stocker

Between information technology and environmental science with a flair for economics, the clarinet, and the world of soups and salads.

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Recently, I stumbled across the Summers memo (Wikipedia). It is actually only an excerpt of the original. I think, this doesn’t matter as the excerpt is informative and provocative enough. The memo was written by Lawrence Summers in 1991 while he was Chief Economist of the World Bank.

A few days ago, I forwarded the Wikipedia article to a friend. His comment was just “OMG,” meaning Oh My God (or Oh My goodness, or Oh My Gosh). Perhaps he was in a hurry or perhaps it’s really how he could best express his thoughts. Now, I think it is best to ignore for a second religious dimensions because if you read the Wikipedia article (and what follows here) through a religious lens I argue you are likely not to find any sense.

What one needs to do to perhaps find some sense is to strip off all but one dimension of the personality of a prototype human being. Take off ethics, morality, empathy or just common sense, yes, perhaps even rational self-interest and wear the coat of homo economicus. What follows is an excerpt of the excerpt of Summer’s memo,

The measurements of the costs of health impairing pollution depends on the foregone earnings from increased morbidity and mortality. From this point of view a given amount of health impairing pollution should be done in the country with the lowest cost, which will be the country with the lowest wages. I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that. (Wikipedia)

If you read the statement only through the lens of economics and from the mentioned point of view, then the conclusion that “the logic to dump toxic waste in the lowest wage country is impeccable” is probably rational. After all, it is a statement of a former Chief Economist of the World Bank. I’m sure, any Chief Economist of the World Bank knows an awful lot more about economics than I do.

I would like to question the validity of the conclusion nevertheless. The first problem I have with the statement is that I need to dump all dimensions of my personality but the one of economics to have a chance to find some sense in it. I argue, this is a flaw in itself. But, as a thought experiment, I’ll give it a go. The second problem I have with Summer’s statement is actually mentioned, namely “from this point of view.” Not only I need to strip myself, but of the remaining dimension I need to consider only one point of view. Provided I’m almost naked and I’m looking at what remains from a single perspective, then, I might see the logic.

While it might be true that the cost of health impairing pollution depends on forgone earnings, I’m confident that forgone earnings are not the only factor affecting the cost of health impairing pollution. Even just through the lens of economics, by internalizing all the costs of health impairing pollution the conclusion is, I think, likely to be different. For instance, proper treatment of human health effects caused by pollution might be specific to and result in higher costs for low wage countries, e.g. due to the lack of proper infrastructure, education, human and capital resources. On a similar line, studies on the exposure assessment as well as preventive measures for workers and the general population, too, might be more demanding with respect to human and capital resources in low wage countries. Sure, Summers may argue low wage countries don’t have such services and we do not intend to provide them; thus, no costs. Right, I suppose at this point one needs to consider a few more dimensions next to economics to conclude that this reasoning most likely lacks at least justice.

I think this pealing off all dimensions, including plain common sense, until one hits a single point of view from which a statement can be argued to be rational is an example of an analytic ability driven to the extremes that, however, I’m afraid is completely “out of touch,” to the point that whatever one may conclude has essentially no value.

On a side note. The author of the memo, Lawrence Henry Summers is, currently, the Director of the U.S. National Economic Council under the Obama administration.