The list of Summers’ gaffes is long.  A key early entry occurred when he was the Chief Economist at the World Bank.  In a memo, it was suggested:

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.

(It turns out that the memo was written by an underling and Summers just signed it.)

This policy prescription is being followed illegally in Europe.  Recycling laws impose high costs of disposable in Europe and it is cheaper to export the waste to China, India and elsewhere.   The old memo made a point based on efficiency.   If transactions costs are low, the efficient solution is also the solution to decentralized voluntary trade (the Coase Theorem).  Ships arriving in Europe or the U.S. with goods from China have to go somewhere afterwards anyway.  Why not send them back full of waste?  Transactions costs are low and the solution the World Bank identified gives firms the incentive to transfer the waste, sometimes illegally.  Sometimes the dismal science’s dismal predictions turn out to be right.  Now, we have to think of whether we can design a better solution.  I’m going to look at Jeff’s intermediate micro notes to see if  I can come up with something.  Don’t hold your breath.

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