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1. The Wealth Around Us - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - This book is about your inheritance, my inheritance and our children's inheritance. I'm not talking about the money our parents may or may not have given us. If you were lucky enough to have been born to rich parents, then you started life with a big advantage. That's your individual inheritance, and if you got one you should be grateful for it, because in truth, you did nothing to earn it. The inheritance I'm talking about is much larger, and at the same time, less obvious. It's our inheritance of gifts we don't normally think we own. Things like air, water and forests. These gifts are very valuable, perhaps even priceless. They're valuable for basic biological reasons—we can't live without them—and they're also valuable in an economic sense... How much is our shared inheritance worth? While it's impossible to come up with an exact price tag, it's safe to say it's worth trillions of dollars. And even though we're physically destroying much of this wealth, its economic value—which derives in large part from its scarcity—is actually rising. Think about it: the more we pollute our free-flowing water, the more we pay for bottled clean water. Well, you may ask, what good does this wealth do us if we never see it in cash? One answer is: this wealth is the basis for all we hold dear, including life itself. Even if we never see a penny in cash, we must preserve and protect it for creatures yet unborn. But that's not my point in this book. My point, without belittling the previous one, is that we can and should turn some of our shared inheritance into cash. This can be done by (1) charging market prices for using our inherited assets, and (2) paying dividends to ourselves as their rightful inheritors. We should do this not out of greed, but out of concern for protecting these assets and passing them on, undiminished, to future generations… The key is to realize there's wealth right in front of our noses, if we would but see it and claim it. This book shows how we can do that. back to top There were two questions I contemplated [after leaving Working Assets]. First, how can we make markets respect the boundaries nature is signaling us not to cross? In particular, how can we make markets recognize there's only so much carbon dioxide the sky can safely absorb? Second, how can more Americans—in fact, every American—have the good luck of birth that I had: a little inherited capital to help with education, first home purchase, or starting a business (if not all three)? I imagined the answers to these two questions might intersect, but I wasn't sure how. Soon, however, a line of thinking emerged. If we limit emissions into the sky, markets will see the sky as scarce. If markets see the sky as scarce, it will no longer be free. If polluters must pay to use the sky, the sky will become a hugely valuable asset. If the sky is a hugely valuable asset, who should own it? Is there a way all of us can own it—a way all of us can benefit from a valuable shared inheritance? The trick, it seemed to me, was to create a financial institution—perhaps
similar to a mutual fund—to own and manage the sky on behalf of
millions of owners. Maybe, I even mused, there's a business opportunity
here. I soon concluded, however, that the sky can't be managed for
profit. The sky is a sacred trust, a shared inheritance we must
pass on intact to our heirs. Hence the proper entity to own it is
a trust. There's nothing more fundamental to us than the sky—our sky, our unique sky. We're sky animals. We live on land but in sky. We inhale from and exhale into it about 15,000 times a day. We fly in airplanes and communicate with cell phones. We are to air as fish are to water... Here's a short list of what the sky does for us: o It shields us from asteroids, meteors and harmful ultraviolet rays. o It maintains the earth's temperature within a range suitable to life. o It continuously replenishes our supply of fresh water. o It delivers oxygen to our lungs and machines. o It cycles and recycles nearly all our nutrients. o It absorbs our exhausts and moves them somewhere else. o It carries radio signals and returns them to earth… Unfortunately, the sky's ability to keep doing these wonderful things for us isn't assured. Many of its services require a precise mix of gases in the air, and that mix is threatened by human activities… By the 1990s, governments had officially recognized that Chicken Little had it almost right. The sky isn't falling, but it is filling. It can safely absorb only so much ozone-eating chlorine, acid-brewing sulfur and heat-trapping carbon dioxide—and we're now reaching those limits. Putting it another way, it's not oil we're running out of, it's sky. The idea of buying and selling the sky is indeed strange. Many even consider it sacrilegious. Yet, given the logic of capitalism, drawing a line and then selling a gradually declining amount of sky below that line is the best way to save it. By the foregoing, I don't mean to suggest that the sky has no value other than its exchange value. The sky, in my mind, is a gift of creation, an utterly indispensable partner in sustaining earthly life. If anything we know can be called sacred, the sky is such a thing. It has much more than exchange value. It has incalculable intrinsic value. The trouble is, markets have no appreciation for intrinsic value. They're blind and dumb and stunningly mindless; they do what they're programmed to do with ruthless aplomb. That wouldn't matter if we could run our lives without markets. But we can't. We need to communicate with markets because markets determine how resources are used. All our preachings and sermons will be for naught if we don't inscribe them on tablets markets can understand. The very incalculability of intrinsic value is what makes it necessary to create an artificial value markets can understand. This artificial value then becomes a proxy for the incalculable value. It's not the equivalent of the intrinsic value, nor an editorial comment on it. It's merely a proxy, a useful numerical substitute. And it's much better than the proxy markets currently use—namely, zero. Who owns—or should own—the sky? In the coming era of scarce sky, the answer will affect every American's pocketbook. The answer will determine to whom we and our children—and every generation of Americans thereafter—pay sky rent. It's nothing less than a trillion dollar question. Practically speaking, there are three possible beneficial owners of America's chunk of the sky: private corporations, the federal government, and citizens through a nationwide trust. Corporate ownership isn't as far-fetched as it might seem. U.S. history has been marked by numerous giveaways of common assets to private corporations, from the enormous land grants to railroads in the 19th century to the recent gift of spectrum to broadcasters. The standard argument used to justify such largesse is that, in exchange for common assets, the receiving corporations deliver a quid pro quo of public value: they build railroads, extract valuable minerals, or transmit sharper TV images. Whether past in-kind investments of this sort were good deals for the public is debatable. But there's no doubt a future gift of carbon storage capacity to private corporations would be a terrible investment. There's nothing we'd get in return. Such a gift would be a pure handout, like giving away offshore oil for free. Fortunately, there's another way to own the sky—a citizen's trust fund similar to the Alaska Permanent Fund. My proposal can be boiled down to this: what Alaska did with oil, the whole country should do with sky. Why is Alaskan-style citizen ownership of the sky preferable to corporate or government ownership? One reason is essentially religious. It rests on a belief that the sky is a gift from our common creator. It wasn't given to a government, and certainly not to private corporations. We, the meek, are its inheritors. If it turns out this gift is worth real money, well, that money belongs to us and our heirs. A second reason has to do with values and priorities. Federal ownership of the sky would strengthen the apparatus of the state; citizen ownership would strengthen families and children. If we truly believe that families and children are the bedrock of our society, we should design our institutions and allocate our resources accordingly. A third reason is that the sky is nothing if not the ultimate commons—we all inhale from it, exhale into it, and use it daily in many other ways. On the theory that use implies ownership, or simply that commoners own the commons, the sky should be our common property. back to top The Sky Trust is a cap-and-trade system in which the initial emission rights are given to a trust, which sells them to polluters and distributes the revenue to all citizens equally. You can look at the Sky Trust as both a civic institution and
a mechanism for recycling scarcity rent. As a civic institution,
it would embody our common ownership of a shared inheritance. Its
trustees would have three legal responsibilities: (1) to issue carbon
permits up to a limit established by Congress; (2) to receive market
prices for those permits; and (3) to distribute the income equally.
In the event of a conflict between these responsibilities, preservation
of the sky would take precedence. Think of it this way. If carbon emissions are limited, the effect is the same as limiting the supply of fossil fuels. That's what OPEC did in the 1970s, and you know what happened. Without a Sky Trust, the higher prices from limiting carbon emissions would be a windfall for oil companies and their shareholders. With a Sky Trust, we'd return the scarcity rent to its rightful owners—ourselves. Also remember this: though everyone will receive an equal share of scarcity rent from the Sky Trust, not everyone will pay the same amount. Those who burn more carbon will pay more than those who burn less. If you drive a sports utility vehicle, you'll use more sky than if you ride a bus; hence you'll pay more scarcity rent. Since your dividend is the same no matter what, you'll come out ahead if you conserve and lose money if you don't. In other words, money will flow from over-users of the sky to under-users. Economizers will be rewarded, squanderers will pay. This isn't only fair; it's precisely the right incentive to reduce pollution. ADD SKY TRUST DIAGRAM HERE back to top When I began writing this book, the question "Who owns the sky?" was like a Zen koan—a seemingly innocent query that, upon reflection, opens many unexpected doors. Thus, if you accept the notion that the sky belongs to all of us, you soon wonder if there's a practical way to structure common ownership. (Answer: yes.) Likewise, if you start with the premise that the sky is a valuable asset that shouldn't be given away free, you soon pose the question, "Are there other assets like this?" (Answer: yes.) You then ask whether there's a whole class of hidden assets—like the dark matter of the universe—that should be owned by all of us. And you go on to inquire, "If this were so, what difference would it make?" Such musings have occupied me for several years. They've also led me to propose several thought experiments for 21st century economists. Thus: (1) Imagine waste sinks are scarce. Ideally, what we'd want is a mechanism like the governor in a steam engine—a device that automatically slows a system when it runs too fast or too hot. An analogous mechanism for the economy might work like this. As the economy fills a waste sink with pollution, market forces lift the price of the sink's remaining capacity. Demand for the pollutant then falls, reducing the amount that enters the economy. (2) Imagine externalities are large. At the moment, externalities are just out there, floating in space, on no one's balance sheet. There are no property rights attached to them, hence no owners, hence no one to pay. But if we turn them into assets and attach owners to them, then self-regulating markets can run the show. (3) Imagine multiple paths to happiness. This is where new property rights come in. Property, if you happen to own any, is a wonderful source of income. Unfortunately, most income-producing property is owned by a small percentage of the population. But what if we "assetized" externalities and assigned them to everyone through a set of trusts? Pollution and other forms of illth would go down. But just as importantly, everyone would have a source of property income. We could use this income to buy more time—and, I'd venture, more happiness as well. back to top These pages propose to define a new class of common property that lies somewhere between private property and state property. This class would include things the ancient Romans called res communes, plus many things the Romans never dreamed of. Broadly speaking, it would encompass a variety of assets we inherit together, as part of a community, as distinct from assets we inherit individually. The sum of the assets in this class—let's call them common assets—would constitute an intangible commons. Unlike the old commons, the new commons would be a patchwork of property rights rather than a plot of land. The distinguishing feature of the assets in the new commons is that they'd be held in trust for everyone equally, and for future generations. In many cases, beneficial ownership would be represented by non-transferable shares acquired at birth, like shares of the Alaska Permanent Fund. My thesis is simple. This new class of property is the missing piece that will save capitalism from itself. It's the proxy capitalism needs to start charging for externalities now priced at zero. And it's the trustee capitalism needs to discharge its responsibilities to future generations and those without private property income. What are some of these common assets? In addition to nature's gifts, we share a vast societal inheritance that makes private wealth possible, and thus itself has economic value. We inherit these assets not from the common creation, but from our common ancestors. The list of such societal assets is large. It includes our languages and cultures, our store of scientific knowledge, our legal, political and economic institutions, and even new-fangled things like the Internet. The exact value of this societal inheritance, like that of nature, is incalculable. Still, it's safe to say it's enormous… Just as social insurance was one of the great achievements of the 20th century, so building the new commons, out of various natural and societal assets, could be a legacy of the 21st. Whereas social insurance mainly helps people late in life, the fruits of common assets would help people throughout life. Such assets wouldn't just be safety nets, they'd also be ladders. They'd temper the maldistribution of private wealth without disturbing it, and provide hope and opportunity where those have been lacking… The new commons would be a set of wealth managing institutions,
governed by trustees and accountable to citizens. These institutions
would represent unrepresented ecosystems [and other common assets]
in real-time market transactions. And they'd let us—indeed, compel
us—to hold common assets in trust for future generations. Adam Smith wasn't often wrong, but he erred in thinking the invisible hand would work forever without updated instructions. The world has changed, and it's time for a software upgrade. If Bill Gates can do it every three years for Windows, we can surely do it every generation or so for capitalism… The operating system of capitalism isn't a bad one, except for
a few stubborn flaws. Bugs, you might call them. Because of these
flaws, common assets such as the sky are degraded. Because of these
flaws, one of five American kids is born into poverty, with slim
odds of escaping. Because of these flaws, species go extinct. Thus
the need for an upgrade. The big problem with graceful upgrading is getting it started. It's much easier to react to unexpected crises than to avert foreseeable ones. Almost by definition, gracefulness is anticipatory. It requires action while there's still time to be gradual, changing before we're forced to change. And this necessitates a leap of faith. I sense that, on the matter of stabilizing the climate, most Americans are ready to make a leap of faith, if the pain to them is minimized. Most Americans know, at some level, that we're playing with fire when we double the greenhouse gases in the atmosphere. The reason we dilly-dally is that we don't see how we can break our carbon-burning habit without pain. A Sky Trust gives us reason to stop procrastinating—it offers plenty of pain protection and dividends for everyone. But a Sky Trust does more. It opens the door to upgrades in capitalism which gracefully fix its software flaws. Here's how. Capitalism 2.0, as I envision it, would define the commons clearly,
with property rights and boundaries markets understand. It would
assign these property rights to trusts representing all present
and future citizens. These trusts, with their universal ownership
and multi-generational time horizons, would counter-balance the
short-term profit-maximizing of private corporations. They'd add
to our current economic formulæ a new set of calculations:
If you use the commons, you pay. As a co-owner of the commons, you
get dividends (or other shared benefits). If you're modest in your
use of the commons, you come out ahead. If you're profligate, you
come out behind… Appendix : Key Features of U.S. Sky Trust o Carbon emissions cap set initially at 1.346 billion tons, the 1990 level o Tradable carbon emission permits sold annually to energy companies at the top of the carbon chain. o All revenue from permit sales goes into a nationwide trust. o Trust pays equal annual dividends to all U.S. citizens (like the Alaska Permanent Fund). o Dividends can be placed tax-free in Individual Retirement Accounts or Individual Development Accounts for children. o Initial price ceiling on carbon emission permits of $25 a ton; ceiling rises 7 percent a year for four years. o Transition Fund to help those most adversely affected by higher carbon prices. Fund starts at 25 percent of permit revenue, declines 2.5 percent per year.
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