There are a number of lessons to be learned from our current financial hurricane.
1) Yesterday I had a very thoughtful recent Princeton graduate ask for comments on his analysis of carbon markets, carbon tax, and the potential of water markets. His analysis was insightful and smart. I only had one concern and I related it to him as follows:
One personal comment on your thought process….you logically try to consider the impact of speculation and market manipulation on the conceptual analysis. Unfortunately, speculation and manipulative market practices inherently lead to irrational and illogical decisions that degrade any economic logic (as evidenced by our current banking crisis). Therefore, speculation and manipulative market practices are bad for economies and markets (…given all the speculation and manipulation we currently accept as common market practice, it creates an analytic headache).
2) I know I’ve said this before….but….if we can successfully measure environmental assets and services, then we can create markets/exchanges that build resilient wealth. Logical and responsible measurement, and timely monitoring/auditing, is key… (Who could possibly want to sort out the measurement black hole that exists with current mortgage securities?).
3) We need to attract environmental “investors”….folks that trust and respect our new markets and assets…and want to see their investment grow over the medium to long term. In order to do that, we need to construct very transparent securities, credits, etc. with strong scientific underpinnings.
4) Markets need to develop from local community needs. The more responsive environmental markets can be to local economic, political, and conservation needs, the more sustainable they will be. Creating big abstract systems without local oversight (think mortgage brokering over the past 10 years) the more risky the assets.
5) Governments manufacture money…businesses do not. One of the goodnesses of business is that bad practices create failures. Our government is currently lending and investing using debt…we increased the national debt to do the bailout. One of the best assets to rescue the financial debt of the U.S. government is a well-managed environment. Numerous economic studies show the value of our environmental assets are very large, and responsible enhancement of our ecosystem services…in a market environment…will go a long way toward restoring confidence in our country’s financial health.