The perils of buy local

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How much carbon goes into the food we eat? Recently I've been beseiged by buy-local fanatics, claiming that if I eat Guatamalan raspberries, I'm killing the earth with the carbon needed to transport them. Interestingly, I've also been proffered this argument by people who are against major action on global warming; their argument is that I'm actually killing the earth by biking, because the food I eat consumes a great deal of carbon growing it and transporting it to my grocery store.

Now, color me sceptical about that latter, because despite what you might think, very few gas stations are sited atop natural gasoline springs; the gasoline has to be pumped out of the earth, refined, and then transported to your gas station. I would be very, very, very surprised if doing so consumed less energy than growing and transporting the single delicious Macintosh apple it takes to replenish the calories I expend biking 2 miles to work each day.

But this did cause me to try to figure out how much energy the various options consume, and frankly, the answer is, I have no clue. There are so many second, third, and eighth order effects that my brain is spinning. Oh, sure, you burn carbon transporting tomatoes from Chile . . . but the Chilean farmer who grew them probably consumes a lot less carbon than the tomato farm down the road. And don't ask the tomato farmer, either, because he doesn't know how much carbon goes into producing all of the various things he consumes in order to maintain his lifestyle as an American artisanal tomato farmer. Not only has no one done a good analysis of this subject; I don't think anyone could.

That's why if we're serious about cutting carbon dioxide emissions, we need a carbon tax, and not CAFE, or other sorts of piecemeal regulatory solutions.

Allow me to channel famous Austrian economist and libertarian hero Friedrich Hayek on the miracle of prices:

Fundamentally, in a system where the knowledge of the relevant facts is dispersed among many people, prices can act to coordinate the separate actions of different people in the same way as subjective values help the individual to coordinate the parts of his plan. It is worth contemplating for a moment a very simple and commonplace instance of the action of the price system to see what precisely it accomplishes. Assume that some where in the world a new opportunity for the use of some raw material, say tin, has arisen, or that one of the sources of supply of tin has been eliminated.

All that the users of tin need to know is that some of the tin they used to consume is now more profitably employed elsewhere, and that in consequence they must economize tin. There is no need for the great majority of them even to know where the more urgent need has arisen, or in favor of what other needs they ought to husband the supply. If only some of them know directly of the new demand, and switch resources over to it, and if the people who are aware of the new gap thus created in turn fill it from still other sources, the effect will rapidly spread throughout the whole economic system and influence not only all the uses of tin but also those of its substitutes and the substitutes of these substitutes, the supply of all the things made of tin , and their substitutes, and 50 on; and all this without the great majority of those instrumental in bringing about these substitutions knowing anything at all about the original cause of these changes. The whole acts as one market, not because any of its members survey the whole field, but because their limited in. individual fields of vision sufficiently overlap so that through many intermediaries the relevant information is communicated to all. The mere fact that there is one price for any commodity--or rather that local prices are connected in a manner determined by the cost of transport, etc.--brings about the solution which (it is just conceptually possible) might have been arrived at by one single mind possessing all the information which is in fact dispersed among all the people involved in the process.

The marvel is that in a case like that of a scarcity of one raw material, without an order being issued, without more than perhaps a handful of people knowing the cause, tens of thousands of people whose identity could not be ascertained by months of investigation, are made to use the material or its products more sparingly; i.e., they move in the right direction.

The most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action. In abbreviated form, by a kind of symbol, only the most essential information is passed on, and passed on only to those concerned. It is more than a metaphor to describe the price system as a kind of machinery for registering change, or a system of telecommunications which enables individual producers to watch merely the movement of of a few pointers, as an engineer might watch the hands of a few dials, in order to adjust their activities to changes of which they never know more than is reflected in the the price movement.

The price system is just one of those formations which man has learned to use (though he is still very far from having learned to make the best use of it) after he had stumbled upon it without understanding it. Through it not only a division of labor but also a coordinated utilization of resources based upon an equally divided knowledge has become possible. Its misfortune is the double one that it is not the product of human design and that the people guided by it usually do not know why they are made to do what they do.

I am convinced that if it were the result of deliberate human design, and if the people guided by the price changes understood that their decisions have significance far beyond their immediate aim, this mechanism would have been acclaimed as one of the greatest triumphs of the human mind.

Piecemeal regulatory solutions--or even the goodwill efforts of people to minimize their carbon consumption--will often fail because there are simply too many things we cannot know about how much the people and producers who provide for us consume. There are so many side considerations--did you factor in transport? What about crop heating for colder climates? Who has the more efficient tractors?--that there is simply no way to gather the relevant knowlege.

This is why economists prefer prices to regulations. Raising the price of carbon tells us everything we need to know. We don't need to perform elaborate calculations to determine whether farmers in Guatamala are more or less carbon-efficient producers of raspberries for American markets. We need only tweak a single price--the price of emitting a ton of carbon dioxide--and every single other price will quickly change to give us all the information we want about carbon consumption. Indeed, we won't even need to think about carbon consumption, except insofar as we want to monitor its absolute level in order to check that we've gotten the price right.

In theory, one can achieve the same thing with a cap and trade system. Indeed, in theory, cap and trade and a correctly set carbon tax are politically indistinguishable. In practice, however, a cap and trade system only starts working when the cap is sufficiently stringent; before then, it's useless. A carbon tax, however, scales; it starts working at the first penny, in however small a way.

(It looks like it isn't working--and hence makes environmentalists complain--because in the short run, carbon usage is inelastic. However, as we've seen with the recent gas price runup, in the medium-to-long term it's much more elastic; it just takes time for people to start shopping for more efficient big ticket items like cars and appliances.)

In the American political environment, a carbon tax is therefore preferable, because it can start small and be ratcheted up. A cap and trade system has to start big--and big is, IMHO, going nowhere in the next few years.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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