The Big Trade
As we continue our exploration of who rules the earth, we find that the economy, once you look inside it, relies on a vast system of rules and regulations, its cogs and wheels spinning day and night to enable the countless transactions that make up a modern economy. The relation between markets and rules is a fascinating one, far more complex than is suggested by the usual debates over government regulation versus free enterprise. Markets rely on rules. But increasingly, the reverse is also true: Some of our most innovative environmental policies and regulations have embedded within them market incentives designed to promote pro-environment behavior. To appreciate the stakes, let’s begin by considering what is arguably the greatest environmental tragedy—and biggest environmental success story—of all time. The removal of tetraethyl lead from gasoline has had a profound impact on human health and well-being worldwide. The change began in the United States in the late 1970s, soon spread to Europe, and over the next two decades diffused throughout the entire world. This shift was prompted by an innovative set of rules that actually assigned property rights to poison—and in the process created incentives for widespread changes in corporate behavior. Under the Clean Air Act of 1970, the US Environmental Protection Agency had the legal authority to regulate tetraethyl lead, which had been added to gasoline since the 1920s to boost engine performance. The original decision to add “ethyl” to the chemical mixture sloshing around in our gas tanks took place despite dire warnings from health experts. Foremost among these was Alice Hamilton, Harvard’s first female professor and the country’s leading expert on the health impacts of lead, which she knew intimately from her studies of worker exposure in the largely unregulated “dangerous trades” of the time. In 1925, the US Surgeon General convened a special meeting to decide whether ethyl production could proceed despite the known health risks. Hamilton argued that it would be reckless to deliberately disperse throughout the air a substance whose toxic effects (notably damage to the human nervous system) were well known for centuries.