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Keyword: ‘corporate income’

(I’m irked and encouraged by the) anger and confusion, even among libertarians, over ‘Capitalism’

June 19th, 2011 2 comments

Yesterday I stumbled across a blog post by Joel S. Hirschhorn, a self-described libertarian who is author of Delusional Democracy, the Chair of the Independent Party of Maryland and co-founder of Friends of the Article V Convention (, one of the first of the growing movements to rally citizens at the state level to seek to check excesses by the federal government.

While I think Joel is right to be angry about the state of ‘capitalism’ and of our politics, he doesn’t quite have his finger on the problem and thus his proposed solutions seem quite a bit off.

Joel’s post is here: Two Capitalisms; he urges that we learn from Germany; I abjur. I quote below key passages:

Maximizing financial returns to reward corporate bigwigs and stockholders even though the actions greatly harm the US economy and society results from US companies practicing bad, immoral capitalism. Think of this development as the conquest of Wall Street over Main Street, of those who make money over those who create and make products, of those who promote economic inequality over those who value the middle class.

The power elites that have succeeded in perverting capitalism have also succeeded in making much of the American public so dumb and distracted that they no longer function as informed and effective citizens, which has allowed the government to be hijacked by the rich and powerful through a two-party plutocracy.

Selfish capitalism was exemplified by the role of Fannie Mae in creating the economic disaster by perverting the housing market, as conservative David Brooks correctly concluded; he noted “the leadership class is fundamentally self-dealing;” it practiced “shameless self-enrichment” which produced disastrous results.

To be clear, the conflict is not between capitalism and socialism, the way right wing ideologues talk, but between the good and bad kinds of capitalism, which those on the left need to learn how to talk about. Bad, greed-driven, too-big-to-fail capitalism has ruined the US for all but the rich which have sucked off much of the nations wealth.

A fine analysis by Harold Meyerson on the difference between the highly successful German economy and the dismal US one drives home the crucial differences between the two forms of capitalism. The need is for the US to learn from the more successful German, good form of capitalism and develop policy reforms that could rejuvenate the US economy by curbing the bad form of capitalism. The ideas that Republicans keep advocating are all wrong because all they want to do is promote bad capitalism, which only serves the interests of the rich and powerful, not ordinary Americans, not the middle class, and not workers. Peter Coy has also assembled great information on what can be learned from other nations.

The German economy makes the US one look like it is on its deathbed. The German tripartite system has business, labor and government working together. Faced with the same competition from low wage developing countries and the entire globalization condition, Germany has a booming manufacturing sector that constitutes almost twice the share of the economy than that in the US. And even in the current global economic recession German unemployment is 7 percent. The tripartite system has kept German labor unions strong and, therefore, protects the middle class whose pay has risen at roughly the same rate as top incomes. This is in stark contrast to the rich-getting-richer and unionbusting situation in the US. Indeed, the top 1 percent in the US are seeing their proportion of total income rise dramatically, even as their German counterparts are seeing their share of total income shrink. German corporate boards are required by law to have an equal number of management and employee representatives. By law! Germany’s stakeholder capitalism benefits the many unlike the US where selfish capitalism benefits the upper class and brutalizes everyone else. Corporate power has not captured the German government the way it has hijacked the US government.

While I agree with Hirschorn that corporations (shareholders and executives) have slipped from responsibility to the communities  in which they operate and have captured government, this is a consequence of initial favors given by governments to corporate shareholders, and subsequent and consistent pressure both by corporations and those whom they affect for greater central controls on corporations. In smaller societies like Germany, Singapore and Japan, a sense of strong social responsibility by corporations remains, but the broader US market has allowed gamesmanship and moral hazard to flourish (with the ultimate game of using government to build barriers to entry, guarantee markets, and to shift risks to shareholders and society as a whole).

Our answers cannot lie in more government, but on rolling back the government interventions that insulate corporations (and their shareholders and executives) from markets, communities, and from the adverse consequences of their behavior. What interventions?

  • The whole regulatory state, which substitutes political battles and micro-management for stricter enforcement of private and community property rights;
  • Public company regulations, which raise barriers to capital markets (and thus barriers to entry) and which substitue a busybody by inept and corruptible government for shareholder vigilance;
  • Deposit insurance, that substitutes a card-house of prudential government regulations – that encourage moral hazard and games by bankers, traders, investment bankers and rating agencies rather than prudence – for oversight by depositors and their proxies; and
  • The initial government grant of limited liability to shareholders, which not only encourages shareholders not to worry to closely about the risks that ‘corporate’ actions pose to third parties, but has fuelled the growth of the regulatory state and external pressure by advocates of the ‘precautionary principle’.

Anger over our perverted ‘capitalism’ is perfectly fine and appropriate – nay, essential. But let’s have some clearer thinking, please.

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An honest view of the rotted State of the Union: "Egyptians Ready, Americans Unready"

February 12th, 2011 No comments

Joel Hirschhorn, author of a clear-sighted post of the above title, gave me permission to cross-post it here. More about Hirschhorn, an evil lefty enviro technocrat professorial egghead type who is the Chair of the Independent Party of Maryland and co-founder of the“Friends of the Article V Convention” (a movement to amend the Constitution to constrain the President and Congress) here and here.

The emphasis is mine:

As I am glued to cable stations showing the street battles in Egypt all I keep thinking about is how Egyptians have mustered the courage to fight their government’s tyranny while Americans remain unready to revolt against the peculiar American brand of tyranny.

Of course, the dictatorship in Egypt is far different than what the vast majority of Americans face. Despite liberty and freedom, our tyranny exists within an electoral, constitutional republic. But with a two-party plutocracy thoroughly corrupted by corporate and wealthy interests most Americans are victims of a dysfunctional, inefficient and unfair democracy. How ironic that in the nation with monumental gun ownership among its citizens there is no hint of people giving up on meaningless elections and taking to the streets in massive numbers to protest their corrupt government.

Just this week to the new report by the U.S. Department of Agriculture, a new report documented this: Nearly a year and a half into the economic recovery, some b, just another result of stubborn high unemployment and low incomes among the employed. According to the new report by the U.S. Department of Agriculture , compared to a year ago the number of people receiving food stamps was up 14.2 percent. Many other Americans are getting food at various kinds of charities and food banks. Add to this real unemployment approaching 20 percent in most areas and huge numbers of Americans going homeless and facing home foreclosure. Does this sound like the best country on Earth that politicians like to jabber about? Of course not. [Hirschhorn misses that food stamps and unemployment insurance themselves hinder job creation.]

The US is in terrible shape, but President Obama lied in his recent state of the union address. It was not his first time, nor will it be his last time. But it was one of the biggest possible lies. The state of union is absolutely not strong. Anyone with a smidgen of intelligence and critical thinking capability knows that in almost every conceivable way the US is in awful shape for a large fraction of its citizens.

Imagine if the President of the USA stood up in front of Congress, the whole nation and the world with the courage to tell the truth: the state of the union is terrible, about the worst in over 100 years. And that is why Americans have to wake up, pay attention, sacrifice and join together in rebellion to make things much, much better and the hell with conventional politics driven by the worst special interests and the rich.

By telling the lie that the state of the union is strong, Obama removed the necessary motivation for Americans to get their distracted and delusional minds oriented in the right direction. The nation needs to shift into revolution mode. Watching the Superbowl will not improve our government.

What Americans must face is the ugly truth that China and other nations are beating the crap out of the US and nothing the US is currently doing has the ability to change this situation and win the global competition. In just about every objective way that nations can be judged the US is losing the present. Our educational system for children is a joke; data keep showing that American children are far behind those in many other countries. Our industrial sector has lost an incredible amount of manufacturing and most large companies now make more money from foreign operations and invest money abroad for that reason. That explains a huge loss of jobs with no reversal possible. Our financial sector is awash with corruption, greed and dishonesty. Our health care system no longer produces healthy citizens, compared to many other nations, despite costing much, much more. Our physical infrastructure is a disgrace, crumbling and threatening public health and safety. Upward mobility has largely disappeared and the middle class continues to sink into a lower class. Economic inequality has skyrocketed with the rich becoming richer and everyone else suffering more and more. The large number of homeless, hungry, poor and imprisoned Americans defines a nation that has lost its glory.

Just as Americans have watched once great companies disappear (Remember Polaroid?), they need to wake up to the downfall of their own country. All the talk about jobs is just another monumental deception, because there is no way that millions of new, good paying jobs will be created for many years. Even more and more Americans face hunger and homelessness as well as joining the working poor.

In stark contrast to the empty rhetoric of Obama, at about the same time a remarkably honest report by the Financial Crisis Inquiry Commission that provides incredibly honest criticisms and explanation of exactly what caused the economic meltdown that millions of Americans are still suffering from. If President Obama respected its findings, he would use them as the basis for detailing his actions against the entities responsible for the Great Recession. Here is a sample of the report’s important views:

The crisis was the result of human action and inaction, not of Mother Nature or computer models gone haywire. The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand and manage evolving risks within a system essential to the well-being of the American public. Theirs was a big miss, not a stumble.”

The financial industry has gotten away with murder and ended up profiting enormously. No mystery because it and groups affiliated with it spent more than $3.7 billion on lobbying and campaign contributions from 1999 to 2008.

And imagine if the President would have had the guts to talk openly about the incredibly awful financial predicament of most states! Many more people will lose their jobs as governments cut spending.

Nothing defines our delusional democracy more than a president providing delusional thinking to mostly delusional citizens. Make no mistake; this is an epidemic of bipartisan delusion. This is what makes America exceptional. A once great nation is sliding down the toilet and most everyone, especially politicians, are lying endlessly as it does, as if the nation’s decay should be ignored rather than honestly combated by its citizens.

Obama said “We do big things.” Once, the country did big things, but not now. The best is behind us, the worst is now with us. The US is stuck in a quicksand of corrupt politics that has been killing the middle class as the elite and rich upper class gets more and more wealth and power. Republicans like to talk about US exceptionalism; it is a farce. There is no longer anything exceptional in a positive sense. That is a terribly bitter and painful truth to acknowledge, but if we do not do so, then how can we possibly fix the many things that are broken? We cannot. We are in a massive national state of delusion, hanging on to the fantasy that the nation is still great. Yes, we need to do big things to restore greatness to the nation, but for that to happen we must first admit the ugly truth and fight American tyranny.

Winning the future, the hot new slogan from Obama, only has meaning if he acknowledges that the nation is losing the present. Yet Americans remain unready to revolt. And the Tea Party movement puts its faith in Republicans! What a disgrace, especially for a nation built on revolution.

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Robert Reich is Right … about "The Secret Big-Money Takeover of America"

October 9th, 2010 No comments

And since Robert Reich has invited readers to “send this post to your friends”, I’ve taken the liberty of cross-posting it below.

Before we start, let me remind my readers that I’ve done a fair bit commenting on what I regard as the profoundly mistaken and wrong-headed Citizens United decision. I post this not to aggravate, but to point to a possiblity of reaching a shared agreement on problems.

Here’s Reich (my emphasis and comments in brackets)

The Secret Big-Money Takeover of AmericaThursday, October 7, 2010

Not only is income and wealth in America more concentrated in fewer hands than it’s been in 80 years, but those hands are buying our democracy as never before – and they’re doing it behind closed doors.

Hundreds of millions of secret dollars are pouring into congressional and state races in this election cycle. The Koch brothers (whose personal fortunes grew by $5 billion last year) appear to be behind some of it, Karl Rove has rounded up other multi-millionaires to fund right-wing candidates, the U.S. Chamber of Commerce is funneling corporate dollars from around the world into congressional races, and Rupert Murdoch is evidently spending heavily.

No one knows for sure where this flood of money is coming from because it’s all secret.

But you can safely assume its purpose is not to help America’s stranded middle class, working class, and poor. It’s to pad the nests of the rich, stop all reform, and deregulate big corporations and Wall Street – already more powerful than since the late 19th century when the lackeys of robber barons literally deposited sacks of cash on the desks of friendly legislators.

Credit the Supreme Court’s grotesque decision in Citizens United vs. the Federal Election Commission, which opened the floodgates. (Even though 8 of 9 members of the Court also held disclosure laws constitutional, the decision invited the creation of shadowy “nonprofits” that don’t have to reveal anything.)

According to FEC data, only 32 percent of groups paying for election ads are disclosing the names of their donors. By comparison, in the 2006 midterm, 97 percent disclosed; in 2008, almost half disclosed.

Last week, when the Senate considered a bill to force such disclosure, every single Republican voted against it – thereby revealing the GOP’s true colors, and presumed benefactors. (To understand how far the GOP has come, nearly ten years ago campaign disclosure was supported by 48 of 54 Republican senators.)

Maybe the Disclose Bill can get passed in lame-duck session. Maybe the IRS will make sure Karl Rove’s and other supposed nonprofits aren’t sham political units. Maybe pigs will learn to fly.

In the meantime we face an election that marks an even sharper turn toward plutocratic capitalism than before – a government by and for the rich and big corporations — and away from democratic capitalism.

As income and wealth has moved to the top, so has political power. That’s why, for example, it’s been impossible to close the absurd tax loophole that allows hedge-fund and private-equity managers to treat much of their income as capital gains, subject to a 15 percent tax (even though they’re earning tens or hundreds of millions a year, and the top 15 hedge-fund managers earned an average of $1 billion last year). Why it proved impossible to fund expanded health care by limiting the tax deductions of the very rich. Why it’s so difficult even to extend George Bush’s tax cuts for the bottom 98 percent of Americans without also extending them for the top 2 percent – even though the top won’t spend the money and create jobs, but will blow a $36 billion hole in the federal budget next year. [Not that I endorse all of Reich’s agenda.]

The good news is average Americans are beginning to understand that when the rich secretly flood our democracy with money, the rest of us drown. Wall Street executives and top CEOs get bailed out while under-water homeowners and jobless workers sink.

A Quinnipiac poll earlier this year found overwhelming support for a millionaire tax.

But what the public wants means nothing if our democracy is secretly corrupted by big money.

Right now we’re headed for a perfect storm: An unprecedented concentration of income and wealth at the top, a record amount of secret money flooding our democracy, and a public in the aftershock of the Great Recession becoming increasingly angry and cynical about government. The three are obviously related.

We must act. We need a movement to take back our democracy. (If tea partiers were true to their principles, they’d join it.) As Martin Luther King once said, the greatest tragedy is “not the strident clamor of the bad people, but the appalling silence of the good people.”

What can you do?

1. Read Justice Steven’s dissent in the Citizens United case, so you’re fully informed about the majority’s pernicious illogic. [link added]

2. Use every opportunity to speak out against this decision, and embarrass and condemn the right-wing Justices who supported it.

3.  In this and subsequent elections, back candidates for congress and president who vow to put Justices on the Court who will reverse it.

4. Demand that the IRS enforce the law and pull the plug on Karl Rove and other sham nonprofits.

5. If you have a Republican senator, insist that he or she support the Disclose Act. If they won’t, campaign against them.

6. Support public financing of elections.

7.  Join an organization like Common Cause, that’s committed to doing all this and getting big money out of politics. (Personal note: I’m so outraged at what’s happening that I just became chairman of Common Cause.)

8. Send this post to your friends (including any tea partiers you may know).

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A few thoughts on David Korten's "10 Common Sense Principles for a New Economy"

August 27th, 2010 2 comments

I refer to David Korten, a Stanford-trained economist, former professor at Harvard Business School, former adviser to the Ford Foundation and the US Agency for International Development. Korten, a prominent critic of corporate globalization and official aid, is co-founder and board chair of the Positive Futures Network, which publishes the quarterly YES! Magazine, a board member of the Business Alliance for Local Living Economies, and is author of  When Corporations Rule the World (1995 and 2001).

Korten recently published in YES! Magazine his thoughts on how we need to re-organize our economy. Since YES! publishes under a Creative Commons License, I take the liberty of reproducing the article below, with my comments interlaced.

I find hope in the fact that millions of people the world over are seeing through the moral and practical fallacies underlying the Wall Street economy and—by contributing to the creation of a New Economy—are taking charge of their economic lives.
[So far, so good!]

Here are ten common sense principles to frame the New Economy that we the people must now bring forth:

1.  The proper purpose of an economy is to secure just, sustainable, and joyful livelihoods for all. This may come as something of a shock to Wall Street financiers who profit from financial bubbles, securities fraud, low wages, unemployment, foreign sweatshops, tax evasion, public subsidies, and monopoly pricing. 

An “economy” has NO purpose; it is simply shorthand for the interactions of people, acting as individuals and in groups. Securing just, sustainable, and joyful livelihoods for all is indeed a worthy goal for a society to have, among other goals that individuals, groups within the society (including those within government) and the society as a whole may have – which goals cannot all be achieved due to scarce resources and conflict between goals.

While the identification of “Wall Street Financiers” is vague, certainly it is fair criticize our financial system and those who profit from it while generating ill for the rest of society.

2.  GDP is a measure of the economic cost of producing a given level of human well-being and happiness. In the economy, as in any well-run business, the goal should be to minimize cost, not maximize it. 

Korten’s definition of GDP is idiosyncratic and not helpful. GDP is the chief measure of economic performance used by policy makers (determined either as the sum of Consumption (C), Investment (I), Government Spending (G) and Net Exports, or as the sum of income and depreciation). It is certainly a very flawed measure of economic performance, as it fails to measure damage to private and social capital (including damage to the environment), and treats wasteful government spending on wars, pork-barrel spending and building a police state on the same basis as it treats expenditure by the private economy. It does not even attempt to measure of human well-being and happiness, such as differences in income and wealth.

Maximizing GDP – especially as it is now defined – certainly should not be a public policy goal. Korten does not refer to the “environmental” cost of our economic activities; if he intended this criticism I would agree. In fact, GDP treats expenditures to deal with environmental harms as positive contributions to GDP!

3.  A rational reallocation of real resources can reduce the human burden on the Earth’s biosphere and simultaneously improve the health and happiness of all. The Wall Street economy wastes enormous resources on things that actually reduce the quality of our lives—war, automobile dependence, suburban sprawl, energy-inefficient buildings, financial speculation, advertising, incarceration for minor, victimless crimes. The most important step toward bringing ourselves into balance with the biosphere is to eliminate the things that are bad for our health and happiness. 

While I share many of Korten’s concerns here, he has completely failed to define what he means as the “Wall Street economy”, so it is difficult to have productive conversation. GOVERNMENT, not Wall Street, is chiefly or substantially responsible for wars, automobile dependence and suburban sprawl, for building a financial sector that encourages financial speculation, and for the ruinous “War on Drugs” that militarizes our police, keeps blacks in jail and undermines the growth of healthy inner cities. How is Wall Street responsible for energy-inefficient buildings or any other problem Korten identifies, other than financial speculation? Does Korten intend here simply to set up his later criticism of the “money system”? Libertarians would certainly agree that our screwed-up money system is the linchpin of many problems in our society/economy.

Nor is it clear what Korten means by “bringing ourselves into balance with the biosphere” or by a “rational reallocation of resources”, whether these are goals shared by all and are top priorities, or who is supposed to be making rational reallocation decisions. If he is suggesting that governments should have more power, I would disagree.

4.  Markets allocate efficiently only within a framework of appropriate rules to maintain competition, cost internalization, balanced trade, domestic investment, and equality. These are essential conditions for efficient market function. Without rules, a market economy quickly morphs into a system of corporate monopolies engaged in suppressing wages, exporting jobs, collecting public subsidies, poisoning air, land, and water, expropriating resources, corrupting democracy, and a host of other activities that represent an egregiously inefficient and unjust distribution of resources.

“Markets”, loosely defined, are evolved and devised cooperative institutions for interpersonal and inter-group exchange. To maintain efficient cooperation, markets typically employ rules that enforce agreements, provide clarity, limit cheating. Cost internalization (limiting costs shifted to others) and fair sharing of collective costs are a purpose of the rules, but market participants generally have no personal interest in, and markets generally have no rules regarding, “balanced trade” or domestic investment.

Sure, there are a host of problems that can be identified as relating to “corporate monopolies”, but corporations are NOT creations of markets, but creations of governments. It is governments that incentivize moral hazard and risk-shifting, by allowing people to form limited liability business firms that – unlike individuals and partnerships – have unlimited lives and whose owners have no liability for the damage that such firms may do to others. Government action creating corporations has been the trigger fuelling corrupt and damaging behavior, that in turn has fuelled citizens’ demands that government get bigger and create more “rules” to constrain their Frankensteins, who are now bigger and more powerful than government, and far more influential than REAL “persons”. 

Well, it’s not working out very well, is it? The only path I see ahead is to gradually end “limited liability” in corporations, on a number of different fronts.

5.  A proper money system roots the power to create and allocate money in people and communities in order to facilitate the creation of livelihoods and ecologically balanced community wealth. Money properly serves life, not the reverse. Wall Street uses money to consolidate its power to expropriate the real wealth of the rest of the society. Main Street uses money to connect underutilized resources with unmet needs. Public policy properly favors Main Street.

Korten is very right about his last three sentences; the first is spot-on: Wall Street uses money to consolidate its power to expropriate the real wealth of the rest of the society. If one understands modern “fiat money”, it is easily seen as a form of fraud. While I do not see this as a deliberate intention of those working in finance, expropriation of wealth is a natural consequence of the “fiat currency” system that banks developed and that the US government has captured (though governments often deliberately expropriate by inflating their currency – this is clearly seen in Zimbabwe). Until money systems were captured by banks and government, real money was nothing more or less than goods of various types that people found valuable and more convenient than direct barter as a means of exchange.

If fiat money was eliminated (a gradual process would eliminate “legal tender” laws and allow competing currencies), then the natural result would be a shift of power from government and Wall Street to people and local communities.

6.  Money, which is easily created with a simple accounting entry, should never be the deciding constraint in making public resource allocation decisions. This is particularly obvious in the case of economic recessions or depressions, which occur when money fails to flow to where it is needed to put people to work producing essential goods and services. If money is the only lack, then make the accounting entry and get on with it.

This is completely wrong-headed. First, wealth is not created, and long-run human needs are not addressed, simply by continuing to treat money as play money that can be created whenever one wants something – this simply hides the very real theft from the economy as a whole (particularly those least well-off).  If we want honest government that does not favor the wealthy over the middle class or the poor, then we need to end our fiat currency. But as long as we are NOT doing that, then the government should either borrow what it intends to spend, or raise it via donations or taxes – even during down times.

Second, economic recessions or depressions, while not happy times, are generally the product of government playing with money – “easy money” of the kind Korten seems to want – that leads to mal-investment. The recession is actually the process by which the economy “cures” the over-investment, as investments in unsustainable, over-heated sectors go bust and are reallocated to projects that more realistic.

7.  Speculation, the inflation of financial bubbles, risk externalization, the extraction of usury, and the use of creative accounting to create money from nothing, unrelated to the creation of anything of real value, serve no valid social purpose. The Wall Street corporations that engage in these activities are not in the business of contributing to the creation of real community wealth. They are in the business of expropriating it, a polite term for theft. They should be regulated or taxed out of existence.

Generally, agreed, with many quibbles and clarifications. Speculation as used in it’s negative sense is simply making a bet, backed with real money, that an asset (stocks) is worth more than or less than what others think. It sends a useful signal to everyone else that a particular corporations or government may be hiding its real financial and/or business condition. It is government AND banks that generate financial bubbles.

Of course risk externalization is bad, but not only is it inherent in the corporate form, but it is actually encouraged by our systems of financial and corporate regulation, and by government ownership of many resources. Government insurance of banks means government and not depositors must regulate and monitor the risks generated by banks, whose executives and traders are thus playing with “other peoples’ money”. The business models of securities firms and rating agencies has been to find ways around regulations, and to sell risky instruments to regulated entities. Likewise, the regulation of “public companies” has served to raise barriers to entry and to reduce the ability of shareholders to oversee management. The powerful “regulated” companies are always better positioned than consumers and possible upstart rivals to manipulate and take advantage of regulations.

“Usury”? Interest is nothing more than the recognition that a bird in the hand is worth two in the bush.

How to deal with Wall Street? First, end fiat money. While that is progressing, require banks and financial companies to be partnerships instead of limited liability corporations (tighten regulations on the first, relax them on the second), and roll back the counter-productive, easily corrupted effort by government to regulate risks, by limiting deposit insurance.

8.  Greed is not a virtue; sharing is not a sin. If your primary business purpose is not to serve the community, you have no business being in business.

I agree that sharing is not a sin (indeed, it’s necessary for societies to function well, particularly for common resources), but “greed” is a cop-out. While I would support whole-heartedly an effort to eliminate limited liability for corporate shareholders (it was once extremely rare, and required legislative approval on a case-by-case basis of a strong public purpose), people engage in business on an individual basis not expressly “to serve the community”, but to make a living – by providing goods and services that the community members want. If people and firms fail to do that well, they go out of business.

9.  The only legitimate reason for government to issue a corporate charter extending special privileges favoring a particular enterprise is to serve a clearly defined public purpose. That purpose should be clearly stated in the corporate charter and be subject to periodic review.

I have a very similar perspective, but my conclusion is that the government should not be issuing corporate charters at all, and certainly none that limit the potential liability of the shareholders. I don’t trust politicians who are easily influenced by the wealthy to be bestowing special favors to anyone. 

10.  Public policy properly favors local investors and businesses dedicated to creating community wealth over investors and businesses that come only to extract it. The former are most likely to be investors and businesses with strong roots in the communities in which they do business. We properly favor them. 

Muddled, but I largely agree. There are business that “extract wealth”, and damage the local community while benefitting others who have little or no stake in it. This can be addressed by insisting that states end limited liability corporations, which would allow them to apply different standards to corporations based in other states or countries, and finding ways to limit the damage done by Supreme Court decisions that say that corporations have Constitutional rights.

But rather than asking for government “favor”, communities and individuals should insist on reclaiming control over their own destinies, thus limiting the areas of “public policy” that government can screw up – a la BP and offshore drilling), in order to benefit a favored set of interest groups.

Let me conclude by saying that I share David Korten’s concerns about how screwed up our economic priorities are, and appreciate his efforts. However, his “common sense” principles miss the key factors at work in skewing our economy towards Wall Street and “extractive” corporations: fiat money, deposit insurance, limited liability for corporate shareholders, and government ownership of resources. 

David Korten author pic

David Korten is co-founder and board chair of YES! Magazine, co-chair of the New Economy Working Group, president of the People-Centered Development Forum, and a founding board member of the Business Alliance for Local Living Economies (BALLE). His books include Agenda for a New Economy: From Phantom Wealth to Real Wealth, The Great Turning: From Empire to Earth Community, and the international best seller When Corporations Rule the World.

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Sheldon Richman joins Gene Callahan in naively arguing that, IF man's activities are responsible for climate change, we need not government but simply louder and more obnoxious enviros

June 16th, 2010 3 comments

1. I noted in November 2007 Gene Callahan’s interesting post, entitled How a Free Society Could Solve Global Warming“, in the October 2007 issue of The Freeman: Ideas on Liberty, at the website of The Foundation for Economic Education (FEE). To reprise briefly, one of Callahan`s chief arguments is that public moral pressure is a perfectly appropriate way by which concerned citizens, acting in the market of public opinion, can influence behavior that generates externalities:

Even when economic transactions generate so-called negative externalities (activities that shower harms on third parties), I still contend that the free market is the best institution for identifying and reducing the problems.

One way negative externalities can be addressed without turning to state coercion is public censure of individuals or groups widely perceived to be flouting core moral principles or trampling the common good, even if their actions are not technically illegal. Large, private companies and prominent, wealthy individuals are generally quite sensitive to public pressure campaigns.

2. Sheldon Richman (editor of The Freeman and, and author of Tethered Citizens) has now joined Callahan in offering to libertarians the argument that coordinated, mass moral suasion is a viable, efficacious alternative to the use of the state to address global warming. I excerpt below portions of Sheldon’s argument in “Fixing Global Warming for Fun If Not Profit; Free-rider problem overcome” (June 04, 2010)(emphasis added):

[Some] free-market advocates … in effect throw up their arms and say there is no way voluntary efforts could address catastrophic global warming. It’s the standard case regarding public goods: Free riders and prisoner’s dilemmas would thwart voluntary remedial efforts. Each individual would rationally calculate that he can let others make the sacrifices necessary to bringing about the improvement while continuing to do what he has been doing. That way he’ll get the benefits for free. The problem is that if everyone, or most everyone, follows this strategy the public good is never produced.

To be specific, if we stipulate that catastrophic (but reversible) global warming is happening, why would anyone voluntarily change his behavior to mitigate it? One person’s effort would make no difference anyway, so why be the chump? Let the others do it.

We’re doomed.

Unless there’s something wrong with the public-goods argument, as I and others think there is. (See, for example, Gene Callahan’s Freeman article “How a Free Society Could Solve Global Warming.”)

What About Government Failure?

It’s really odd to hear a free-market advocate resign himself to a government solution to the supposed global-warming “market failure.” In every other area where government is proffered as the fix for market failure, free-market advocates immediately fire back that government is itself riddled with free-rider problems. There’s a growing if belated literature on government failure. How can government be the answer to a public-goods problem when it suffers the same defect that allegedly plagues the thing to which it is supposed to be superior? How can government solve the public-goods problem when it itself is a public “good.” (I mean that strictly in the technical sense, of course.)

All the goods that government in theory is said to produce are public in nature; they would benefit most everyone. But that means the benefits would redound not only to those who contribute to their production but also to those who don’t, the free riders. Therefore, special interests should never fail to trump the general interest, since smaller groups are less affected by the free-rider problem than larger groups.

Income-tax rate cuts, for example, would benefit everyone, even people who did nothing to help achieve them, say, by contributing money to taxpayer organizations. In theory, then, income-tax cuts should be virtually impossible to achieve.

But income-tax cuts have been enacted in the past. In fact, far bigger things that should have been fatally plagued by the free-rider problem have happened, such as revolutions. They should have been impossible according to the theory. Everyone should have been hanging back waiting for everyone else to overthrow the oppressor. It’s a great way to gain freedom without taking any risks—except if everyone thought that way, no revolution would have occurred. But revolutions have occurred.

So in the political realm the free-rider problem can be overcome. We know it. It’s in the history books. But if it can be overcome in that realm, why not in others? It seems hasty to say it can’t happen. In fact, it has, for example in the effort to end the slave trade, which required a change in public sentiment. So global warming might be amenable to purely voluntary remedies, perhaps not via the traditional for-profit business plan but rather through a voluntary social movement that promoted an ethic encouraging and pressuring people and firms to cease their destructive activities.

The key is ideology, the set of explicit or implicit beliefs that motivates people to act one way or another in public matters even though individually they may reap minimal if any concrete benefits from their own marginal efforts. People are capable of acting to achieve things other than personal monetary profits. Homo economicus is an inadequate picture of the human race, a gross and misleading oversimplification.

“Ideology therefore becomes the wild card that accounts for public spirited mass movements that overcome the free-rider problem…, for ideology can motivate people to do more to effect social change than the material rewards to each individual would justify,” Jeffrey Rogers Hummel wrote (pdf) in another context.

Obviously there’s much more to say on the matter, but for now be aware that serious global warming would be no reason to abandon economic (or other) freedom. We can have our scientific objectivity and our liberty too.

3. In response, let me make the following observations:

3.1  Callahan and Richman want MORE moral outrage and arm-twisting from the enviros that Austrians and other lovers of so-called “free markets” seem to love to hate? Sure, I can see all the libertarians and right-wingers signing up in droves, to lead enviro-fascists in a holy war against fossil fuels!

But even if were libertarians WERE to wish to lead such a voluntary movement, how likely is it, given the long hostility that libertarians have expressed towards enviros, that enviros would put any credence in what such libertarians have to say?

3.2  Given what we know (from Elinor Ostrom’s research, etc.) regarding the conditions for voluntary coordinated action, even though it is very clear that we see attempts at moral suasion at play in local, state, federal and international climate-change-directed regulatory efforts, it seems very unlikely that moral suasion alone can be expected to prove efficacious at an international or global scale. Far too many communities, nations and economic interests are involved.

3.3  Moral pressure via an ideology is likely to be blunt.  As Silas Barta noted on a comment thread,

public boycott/suasion campaigns will only give a very noisy signal to corporations of how damaging their activities are to the environment, and it will be skewed toward more visible ones.

You’ve seen environmentalists (like the “Green Lantern” on Slate) try to calculate which activity is “truly” more damaging to the environment.  It manifests in, for example, the debates over whether shipping organic food a long distance is worse than shipping factory farm food over a short distance.

The fact is, even for very basic calculations, it gets complicated, and environmentalists will almost certainly have biased calculations and use them for non-climate purposes when wielding their power — that’s what they already do.

3.4  I think that Callahan and Richman are very right that societies can and do address public goods/commons without using formal legal mechanisms. In this, both echo Nobel-Prizewinner commons-expert Elinor Ostrom, This is a point that Bruce Yandle (a “free-market environmentalist” who is dean emeritus and Distinguished Professor of Economics Emeritus at Clemson University, Distinguished Adjunct Professor of Economics at the Mercatus Center, a faculty member with George Mason University’s Capitol Hill Campus, and a Senior Fellow at PERC – the Property and Environment Research Center) made earlier and that I noted:

People can build institutions that take the edge off frantic commons behavior. People have unwritten and written constitutions that help to establish social order. People can and do accumulate wealth. People communicate, invent lines of kinship, and develop customs, traditions, and rules of law that limit anti-social behavior. People define, enforce, and trade property rights. People can and do avoid the tragedy of the commons. Indeed, instead of living with tragedies, people triumph over the commons. But the triumphs are never perfect or complete. There is always another commons to manage.

I wish to put forward the notion that encounters with the commons form the fundamental stimulus that yields, instead of tragedy, what we today call civilization. The ascent of man from a primitive existence with no wealth accumulation to life as we know it is fundamentally a story about triumph over, not tragedy of, the commons. Let me explain.

Our very existence as human beings is defined by evolved institutions for avoiding tragedies. We have names, which serve the economic purpose of identifying us as parties to contracts and agreements. Those names, first and last, form webs of communication that reduce the social cost of assigning responsibilities and liabilities. They enhance truth-telling and promise-keeping; they raise the cost of engaging in anti-social behavior. They limit a tragedy of the commons.

We have abstract symbols of ownership—deeds, titles, and contracts—that define spheres of autonomous behavior. We speak of our homes, our cars, our clothes, our families, and our pasture. Even language has evolved to provide a possessive form that accommodates triumph over the commons.

We write and observe contracts, wills, and marriage agreements that define relationships, identify turf, and conserve wealth. We accept evolved bodies of law and law-enforcement activities to assure the integrity of our agreements. We carry papers that enable us to acquire property, extinguish debt, cross borders, drive vehicles, and communicate effectively with strangers. And we have locks, keys, walls, fences, brands, and encryption devices, all this in an effort to avoid a tragedy of the commons.

Property rights define who we are and what we have. Property rights guard others from our unwanted advances and prevent us from contributing to a tragedy of their commons.

Avoiding a tragedy of the commons is costly. The benefits must be large. …

The tragedy is found where for reasons having to do with power, intolerance, or cost, human beings have not yet defined private property rights. Or, as we shall see, where evolving property rights encouraged by man the institution builder have been destroyed. What was once a triumph can become a tragedy. …

[At] very low levels of income, what might be called stage one, human beings cannot afford to do much about property-rights enforcement and the commons. They live in a world where custom and tradition sustain them. As incomes rise and losses from the commons expand, stage two is entered. Fences go up, and rules are set for protecting the commons. Finally, in stage three, markets evolve along with rules of law that define spheres of private and public action. Private rights replace public control, and the triumph replaces the tragedy of the commons.

3.5  What about statist corporations? What Callahan, Richman and Yandle all miss is that the current status quo is very much NOT a libertarian one, but one in there are powerful vested interests that profit from using government to shift risks to the rest of society. This is very visible in our financial crisis, Wall Street profiteering and bailouts, the elites running public companies, fights over publicly-controlled natural resources (such as oil) and the messes mineral extraction activities leave behind, and in the damages and risks created by the use of fossil fuels.

Very noticeably, all of these commenters are silent as to how likely any of the people who profit from the use of government – and who are both relatively faceless and face incentives peculiar to corporate ownership, management or employment (and not simply the same incentives that face our personal and extended local, state, national or global communities) – are going to worry very much about public opinion, as opposed to continuing to work actively to mold and assuage it.


Categories: Uncategorized Tags:

Bill Gates, Roger Pielke, Avatar & the Climate (of distrust); or, Can we move from a tribal questioning of motives to win-win policies?

February 13th, 2010 No comments

“Whhhaaat the heck is TT up NOW?” I can hear some of you asking yourselves. Bill Gates, Roger Pielke, the movie Avatar and climate?

Just what elusive illusions am I alluding to here? (Stop playing, you say.) Well, brace yourself, and bear with me.

Roger Pielke, Jr. has a post up regarding a interesting recent piece by Bill Gates on how to address climate issues (I will address Gates’ piece separately). The comment section at Roger’s predictably fell into into the usual patterns of questioning climate science, and a mutual questioning of motives and rationality. I just happened to run into it, and was moved to try to post a few thoughts there.

Libertarians ought to understand why suspicions run rampant on climate issues – even as they can’t seem to get past it (despite my annoying, incessant and level-headed ravings). But many others are so wrapped up in Climate KombatTM that they never think to even to question WHY – why all of the hostility, why all of the circling of wagons, and why the lack of interest in examining root problems and possible win-win approaches?

Well, that’s what my “Avatar” reference is intended to shorthand (pardon an archaic expression; maybe I shouldn’t telegraph my antiquity like this!): that movie was all about thefttheft that we can see all around us even today as I have noted in a number of posts (even as we may be blind to those that advantage us) –  group advantage, and communal responses to threats. Communal responses involve perceiving threats and banding together with brothers to defend all that is good, sacred, holy and OURS. This, I posit, is not only instinctive and reflexive, but EXACTLY what the climate discussion is about, on many levels.

It’s just that the disputants have entirely different views on who is trying to steal what from whom, and what or who is the threat, on who is an enemy, who is a brother, what is to be defended, and on strategy and tactics (as well as how to be advance personal interests).

I penned a few thoughts at Roger’s (I note that both Roger and his father. climate scientist Roger Pielke, Sr. , are in the thick of the climate wars, their own positions frequently being misunderstood in the fog of war). Being a bit inspired and prolix, the Muses ran a bit long. Roger is pretty good at letting comments through but I thought I post a copy here; perhaps you will be amused.

Here is what I tried to post (cleaned up slightly and with additional links and emphasis), in response to several who said to the effect, “Why should we agree to anything, until it is established to our satisfaction that CO2 reduction is important?“, and to others who questioned the motivations of Roger and others:

Those who do not agree now – with either the AGW thesis/science or the good faith, motives, intelligence or rationality of those who profess concern about a clearly changing climate and about whether man’s activities pose serious threats to human welfare and to things
that we value – still have lots to gain from plenty of win-win policies, policies that
would advance the interests of those who profess to love free markets but that are now just sitting about unused because practically everyone is too busy fighting, vilifying and mistrusting to actually step back from the emotional rush of partisan battle, sit back and to
exchange their armor and weapons for thinking caps (more on
these policies at end of this comment).

political economist Elinor Ostrom reminds us that one sine qua non for solving
any commons problem is TRUST [see my post here].

that lack of that trust – nay, distrust and active hostility – are what
characterize our “discussions” on modern-day politics, and especially
climate change (the “our” in this case being a complex one at many

DISTRUST is the natural product of many factors:

– the
lack of property rights in the atmosphere & of any legal recourse by
individuals against GHG emitters/albedo changers
, which together mean that –
unlike for other resources that can be bought, sold and husbanded – the
voluntary actions of individuals and firms via market exchanges simply are not
functioning, thus forcing climate concerns – and scientists and this discussion
– into the political realm;

 – in
the US, both parties have grossly MIS-governed and abused the public trust, via
political pandering, grasping for power at all costs (cynically sowing division
and cheapening discourse by selling war, hatred and suspicion, corruptly
selling favors to the highest bidders, and simply managing resources
incompetently). As a result, I think many people rightly feel that the US
government generally DOES NOT DESERVE our trust (this sentiment can be seen not
only in the TeaParty movement, but in calls by the likes of Larry Lessig for a
Constitutional Convention
to fix our corrupt, broken political system);

 – as
has been the case since corporations were created as the faceless profit-making
of wealthy investors whose liability for the damage they do and risks
that they shift to others is limited by statute (, those corporations that have
licenses to pollute under current law and whose climate-risk generating
activities are now FREE and unregulated work hard to protect their favored status
(via behind-the-scenes influence-buying of politicians and
“free-market” pundit/voice-pieces, and deliberate PR
smokescreen/mis-direction campaigns designed to GENERATE mistrust)

likewise, other corporations/investors have been busy working to buy climate
legislation that will help to put money in their pockets
– while those who act
as spokesmen have not been voluntarily taking actions that show they put their
money (and life-style) where their mouth

 – most
of the science has been funded by governments
, which makes it easier for
skeptics to dismiss it – and to ignore all of the sophisticated private
institutions and corporations that now strongly agree with the
(viz., notably virtually all oil & gas majors and
virtually all insurers);

 – the
fact that the chief “solutions” proposed by our Western governments
are coercive and ham-handed
, would serve to further drive basic manufacturing
to developing countries
that care even less than we do about respecting
human/property rights, would give further give domestic industry rights to
behave in ways that are seen as harmful, would provide benefits to a host of
favorite insiders while shifting costs to middle and lower income classes
, is being agreed behind closed doors (and written up
drafted by lobbyists in mind-mumbingly long and opaque legislation) and our leaders lack the moral and political courage to be straight-forward and transparent about the need and purposes of the legislative/regulatory actions;

Mistrust is not only NATURAL, it’s something that we LOVE to do; there is an
undeniable human penchant for viewing issues in a tribal, “us against
them” manner, which reflects a natural cognitive conservatism that means
we subconsciously ignore information that contradicts our pre-existing mental
map of reality, and to a strong tendency to reflexively support our tribal
brothers and “comrades” and to defend our pre-existing views against
what we tend to see as “attacks” by “enemies”;

– this
leads to group-think, black & white views, hostility, self-justification and to strawmen that
ignores the real issues
: you know, “they have a religion”, we are
right and act in good faith, they are stupid, irrational, are evil and want to
destroy all we hold dear, versus capitalism is evil, those against cap and trade are
all pawns, of Big Oil and a host of other mantras regarding “truths” that respective group-thinks requires its members to hold as “self-evident”;

– while our moral senses are essential for managing our in-group interactions, unfortunately that lends itself both to moral outrage and to intolerance of the moral preachings and inconsistencies of others;

 – the
“climate” is enormously complex, will never be fully understood or
predictable,  the changes that we
are  forcing in it cannot be simply and
convincing demonstrated or understood by anyone
, the system has many
inputs/outputs and displays tremendous variability, has great inertia that is
played out on scales of centuries, 
millennia and eons, and we have NO OTHER EARTHS to run ANY independently
verifiable “TESTS” on … just a number of computer models – again,
funded by governments, and with innards none of us has any real ability to
verify, much less understand;

finally, as climate change is a global issue, it cannot be solved unilaterally
by ANY single individual, group, community, corporation or government/polity;
the “community” that must address it is the community of nations, the leaders and citizens of which all having a welter of differing interests and priorities.

To be flip – Trust
me; it’s natural for you NOT to trust me! Don’t we ALL understand this? (Roger,
I’m pretty sure you – and Joe Romm – know what I mean.)

But the high we get from self-righteousness and group struggle is such an easy
evil, such an addictive self-drug.

it is a clear political tactic by many on the climate issue to treat it as a war, and
to deliberately sow mistrust and misinformation,
with the intention either to
defend turf previously purchased from government or to use government to cram
down preferred solutions. But I repeat myself.

Let me
end by noting that

those who are concerned about climate change risks would do well by
fostering not anger but trust, and by seeking to use hammers only to build

those who are concerned chiefly with the mis-use of government might do well to
re-examine how government has already been misused, and explore whether there
are ways to harness the passionate “delusions” of evil/stoopid
enviro-fascists to actually achieve goals that self-professed market cultists
(I’m one!) ought to desire

 – I
have humbly picked up my own hammer and started an exploratory
“task-force” of one, to look at the ways that corporate interests
have already mis-used government to lot in economic rigidity and market share,
and stand in the way of economic freedom and the massive wave of innovation,
investment and wealth-creation that would surely result if existing blockages
were removed. My
chief thoughts are here, intended initially as a plea to fellow libertarians
(who are deeply distrusting of enviro-facists like me who hope to disguise
their nefarious goals by falsely putting on libertarian clothing):

A few
related thoughts at (libertarians/climate) and  (delusion).


Readers, thanks for your indulgence!


A libertarian immodestly summarizes a few modest climate policy proposals

November 3rd, 2009 No comments

[Folks, I hope you do a better job than I do at saving draft posts before they`re finalized; I just lost alot of work. This will necessarily be shorter.]

I have on numerous occasions tried to point out, to posters on the Mises
Blog who have addressed climate issues, the stunning unproductive approach. Rather than simply reiterating my criticisms, let me get started with a
list of policy changes that I think libertarians can and should be
championing in response to the climate policy proposals of others.

The incessant calls for – and criticism of –
government climate change policies and government subsidies and mandates for “green/clean power” both ignore root
causes and potential common ground.  As a result, both sides of the
debate are largely talking past each other, one talking about why there
is a pressing need for government policy to address climate change
while the other is concerned chiefly about the likelihood of
heavy-handed mis-regulation and wasted resources. This leaves the
middle ground unexplored.

There are plenty of root causes for the calls for legislative
and regulatory mandates in favor of climate policies and clean / green / renewable power,
such as:

  • concerns about climate change,
  • the political deal in favor of dirty coal and older power plants under the Clean Air Act, 
  • the enduring role of the federal and state governments in owning
    vast coal and oil & gas fields and relying on the royalties, which it do not go to
    citizens but into the General Pork Pool, with an unhealthy cut to states), 
  • the unwillingness of state courts, in the face of the political
    power of the energy and power industries, to protect persons and private property from
    pollution and environmental disruption created by federally-licensed energy and power projects,
  • the deep involvement of the government in developing, encouraging and regulating nuclear power, and
  • the
    frustration of consumer demand for green energy, and the inefficient
    and inaccurate pricing and supply of electricity
    , resulting from the
    grant by states of public utility monopolies and the regulation of the pricing
    and investments by utilities, which greatly restricts the freedom of power
    markets, from the ability of consumers to choose their provider, to the
    freedom of utilities to determine what infrastructure to invest in, to
    even simple information as to the cost of power as it varies by time of day and season, and the amount of electricity that consumers use by time of day or appliance.

So what is a good libertarian to suggest? This seems rather straight-forward, once one doffs his partisan, do-battle-with-evil-green-fascist-commies armor and puts on his thinking cap.

From my earlier comment to Stephan Kinsella:

As Rob Bradley once reluctantly acknowledged to me, in the halcyon days before he banned me from the “free-market” Master Resource blog, “a
free-market approach is not about “do nothing” but implementing a whole
new energy approach to remove myriad regulation and subsidies that have
built up over a century or more.”
But unfortunately the wheels of this principled concern have never hit the ground at MR [my persistence in
pointing this out it, and in questioning whether his blog was a front for
fossil fuel interests, apparently earned me the boot

As I have noted in a litany of posts at my blog, pro-freedom regulatory changes might include:

  • accelerating cleaner power investments by eliminating corporate
    income taxes or allowing immediate depreciation of capital investment
    (which would make new investments more attractive),
  • eliminating antitrust immunity for public utility monopolies (to
    increase competition, allow consumer choice, peak pricing and “smart metering” that will
    rapidly push efficiency gains),
  • ending Clean Air Act handouts to the worst utilities (or otherwise
    unwinding burdensome regulations and moving to lighter and more
    common-law dependent approaches),
  • ending energy subsidies generally (including federal liability caps for nuclear power (and allowing states to license),
  • speeding economic growth and adaptation in the poorer countries
    most threatened by climate change by rolling back domestic agricultural
    corporate welfare programs
    (ethanol and sugar), and
  • if there is to be any type of carbon pricing at all, insisting that it is a per capita, fully-rebated carbon tax
    (puts the revenues in the hands of those with the best claim to it,
    eliminates regressive impact and price volatility, least new
    bureaucracy, most transparent, and least susceptible to pork).

Other policy changes could also be put
on the table, such as an insistence that government resource management
be improved by requiring that half of all royalties be rebated to
(with a slice to the administering agency).

I`m not the only one – other libertarian climate proposals are here:

Several libertarians have recently been urging constructive libertarian approaches to climate change:

These discussions and exchanges of view are also worthy of note:

  • The Cato Institute has dedicated its entire August 2008 monthly issue of Cato Unbound, its online forum, to discussing policy responses to ongoing climate change.  The issue, entitled “Keeping Our Cool: What to Do about Global Warming“, contains essays from and several rounds of discussion between Cato Institute author Indur Goklany; climate scientist Joseph J. Romm, a Senior Fellow at the Center for American Progress; and Michael Shellenberger and Ted Nordhaus, the co-founders of The Breakthrough Institute.  My extended comments are here.

  • Debate at Reason, October 2007, Ron Bailey, Science Correspondent at Reason, Fred L. Smith, Jr., President and Founder of
    CEI, and Lynne Kiesling, Senior Lecturer in Economics at
    Northwestern University, and former director of economic policy at the
    Reason Foundation.
  • Reason Foundation, Global Warming and Potential Policy Solutions September 7th, 2006 (Reason’s Shikha Dalmia, George Mason University Department of Economics
    Chair Don Boudreaux, and the International Policy Network’s
    Julian Morris)

Finally, I have collected here some Austrian-based papers on environmental issues that are worthy of note:

Environmental Markets?  Links to Austrians

One such paper is the following: Terry L. Anderson and J. Bishop Grewell, Property Rights Solutions for the Global Commons: Bottom-Up or Top-Down?

[Fixed] Exxon/Rex Tillerson: No longer willing to be "conservative" on climate risks, advocates carbon taxes and invests in carbon-lite tech

March 7th, 2009 No comments

most of my excerpts of Tillerson`s speech weren`t included in my first try; there`re here
this time.]

It may still seem novel to some, but Exxon
Mobil Corporation
began throwing its weight behind carbon pricing
than two years ago

Subsequently, Rex
Exxon`s Chairman and CEO, has
number of speeches
Exxon`s actions (and cost savings) in reducing its own GHG emissions, its
investments in energy technologies that further improve energy efficiency and
GHG efficiency, and Exxon`s views on climate risks and preferred policy
options.  Why is this worth mentioning?  Simply, Exxon is an
excellent, well-run company that knows the energy business and climate risks
well (its scientists have been sitting on the IPCC panels fromtheir inception),
so it has some credibility (in this vein, Rob Bradley`s MasterResource
“free-market” energy blog has a post up toda,
similarly remarking on Exxon`s credibility
as well-run, principled and
“the consumer’s friend and the taxpayer’s friend;” Rob just
conveniently fails to mention Exxon`s pro carbon-tax stance).

Tillerson made another such speech on February 17, on the occasion
of a visit to the Stanford
Climate and Energy Project (GCEP)
, the world`s largest privately-funded
effort to conduct basic research on energy technologies that will further
reduce GHG emissions.  Exxon has has committed $100 million to
GCEP over ten years and has been the lead funder of GCEP since its
establishment in December 2002.  The punchline of Tillerson’s remarks?

is rare that a business lends its support to new taxes. But in this
case, given the risk-management challenges we face and the alternatives
under consideration, it is my judgment that a carbon tax is the best
course of public policy action. And it is a judgment I hope others in
the business community and beyond will come to share.”

full speech here
is worth a look; I excerpt a few portions below – climate
policy comments are largely at the end (emphasis added):

GCEP’s research program, like ExxonMobil’s, is shaped to fit the contours of what has been termed the “grand challenge” before us. It is, in fact, a dual challenge — supplying the energy essential to global economic growth, while at the same time reducing greenhouse gas emissions and managing the risks of climate change. …

However, the world economy will recover. History shows that human ingenuity and productivity cannot long be suppressed. And when the world economy recovers, so will world energy demand.

Growing populations in developing countries who are seeking higher standards of living will drive this increased energy demand, which is expected to be 35 percent higher in the year 2030 than it was in the year 2005, despite the current and temporary economic conditions.

Meeting this growing long-term societal demand requires that we develop all economic and environmentally sound sources of energy. This includes hydrocarbon energy sources like oil and natural gas, which are abundant, available, versatile and affordable.

Huge investments over many decades have enabled oil and natural gas to meet close to 60 percent of the world’s enormous energy needs today, and projections are that oil and natural gas will account for a majority of the world energy demand through at least the year 2030. They are simply indispensable and irreplaceable at scale.

This global energy demand challenge is matched by a global environmental challenge — curbing greenhouse-gas emissions and addressing the risks of climate change. Thanks to greater energy efficiency and growing use of cleaner energy such as natural gas for power generation, greenhouse-gas emissions levels are expected to decline in some developed economies. …

The challenge for developing economies is more daunting, where energy demand is increasing as growing populations strive for higher standards of living. For example, by the year 2030, China’s carbon-dioxide emissions will be comparable to those of the United States and Europe combined — even recognizing that China’s energy use and emissions will be much lower on a per-capita basis — rising from 4 metric tons per capita in 2005 to 5.8 metric tons per capita in 2030.

Nonetheless, the net effect of these countervailing trends will be a sizeable increase in greenhouse-gas emissions worldwide. Even with dramatic gains in efficiency, rising demand for energy will continue to push related carbon-dioxide emissions higher through the year 2030 — an increase of 28 percent from the year 2005. …


To develop these integrated solutions, we will need to find the best ways to unlock new technology. Energy innovation — led by private enterprise, furthered by independent research, spread by free markets, and supported by sensible and stable public policy — will be essential to enabling us to achieve each of these aims. It is the key to a more prosperous, more secure, and more sustainable energy and environmental future.

It is important to remember, however, that gains in efficiency and technology occur over time.

The most dramatic changes will not happen overnight, due to the sheer complexity of the technologies we develop and the enormous scale of the global energy market. Technological transformation takes time.

The history of energy over the last century helps put such transformation into perspective. For example, it is estimated that at the beginning of the 20th century, coal and wood provided more than 95 percent of the world’s energy needs. From that point, it took more than half a century for petroleum — a cleaner and more versatile alternative — to surpass coal as the world’s largest energy source. It took nearly 50 years more to develop the technologies and build the global infrastructure so that natural gas, an even cleaner-burning source, could play a sizable role in the world’s energy mix.

This reality about timeframes is another reason why we need energy policies that allow for long-term planning and consistent, disciplined investments that lead to technological advances.

National and state governments can play a helpful role in this vital enterprise.

By creating a stable, long-term policy framework for investment in academic and commercial research efforts, government can be a partner in the short-, medium-, and long-term technological transformations we need.

One of the areas where government can provide needed stability is by implementing simple, transparent, and predictable policies to mitigate greenhouse-gas emissions. Throughout the world, policymakers are considering a variety of legislative and regulatory options. In our view, assessing these policy options requires an understanding of their likely effectiveness, scale and cost, as well as their implications for economic growth and quality of life.

Consistent with that view, we believe that a carbon tax would be a more effective policy option to reduce greenhouse-gas emissions than alternatives such as cap-and-trade. Pricing carbon through a direct and transparent tax could incentivize the search for lower-emissions energy solutions while also providing the stability and predictability industrial companies need to make long-term, capital-intensive investments in equipment and research.

To ensure revenues raised from this tax are indeed directed to investment, and to assist those on lower incomes who spend a higher proportion of their income on energy, a carbon tax should be offset by tax reductions in other areas to become revenue neutral for government.

It is rare that a business lends its support to new taxes. But in this case, given the risk-management challenges we face and the alternatives under consideration, it is my judgment that a carbon tax is the best course of public policy action. And it is a judgment I hope others in the business community and beyond will come to share.

Categories: Bradley, carbon pricing, Exxon, Tillerson Tags:

255 Canadian economists say rebated carbon taxes are preferrable to cap and trade and to no action

October 15th, 2008 No comments

More here.

The signatories agreed to the following 10 principles:

  1. Canada needs to act on climate change now.
  2. Any substantive action will involve economic costs.
  3. These economic impacts cannot be an excuse for inaction.
  4. Pricing carbon is the best approach from an economic perspective.
    1. Pricing allows each business and family to choose the response that is best and most efficient for them.
    2. Pricing induces innovation.
    3. Carbon is almost certainly under-priced right now.
  5. Regulation is the most expensive way to meet a given climate change goal.
  6. A carbon tax has the advantage of providing certainty in the price of carbon.
  7. A cap and trade system provides certainty on the quantity of carbon
    emitted, but not on the price of carbon and can be a highly complex
    policy to implement.
  8. Although carbon taxes have
    the most obvious effects on consumers, all carbon reduction policies
    increase the prices individuals face.
  9. Price mechanisms can be regressive and our policy should address this.
  10. A pricing mechanism can allow other taxes to be reduced and provide an opportunity to improve the tax system.

Too bad they didn’t take any initiative in discussing other helpful policy measures, such as eliminating corporate income taxes (or allowing immediate write-off of new investments), deregulating the power industry and eliminating subsidies for particular technologies.

h/t James Calder


Categories: Canada, carbon pricing, climate change Tags:

Why top demagogues (Jim Hansen, Florida Power, RAND, Exxon, AEI, Margo Thorning, major economists, George Will) prefer rebated carbon taxes

June 27th, 2008 2 comments

[Note to first-time readers: the title is tongue-in-cheek.]

I have previously blogged on libertarian, non-state approaches to climate change; allow me to use this post to pull together for diligent readers various recent sources of opinion and information on carbon taxes – which are much more transparent, easier to implement and, if rebated, are much more likely to both be ethically fairer to citizens (and thus more poltically sustainable) and involve much less pork than cap and trade policy proposals:

–  Dr. James (“PublicTrials”) Hansen “Carbon Tax and 100% Dividend” proposal (dated June 6, 2008) (be sure to check out his many lucid posts on scientific aspects of climate change as well):

“Carbon tax and 100% dividend” is spurred by the recent “carbon cap” discussion of Peter Barnes and others. Principles must be crystal clear and adhered to rigorously. A tax on coal, oil and gas is simple. It can be collected at the first point of sale within the country or at the last (e.g., at the gas pump), but it can be collected easily and reliably. … The entire carbon tax should be returned to the public, with a monthly deposit to their
bank accounts ….

The worst thing about the present inadequate political approach [cap and trade] is that it will generate public backlash. Taxes will increase, with no apparent benefit. The reaction would likely delay effective emission reductions, so as to practically guarantee that climate would pass tipping points with devastating consequences for nature and humanity.

Carbon tax and 100% dividend, on the contrary, will be a breath of fresh air, a boon and boom for the economy. The tax is progressive, the poorest benefitting most, with profligate energy users forced to pay for their excesses. …

Special interests and their lobbyists … will fight carbon tax and 100% dividend tooth and nail. They want to determine who gets your tax money in the usual Washington way, Congress allocating money program-by-program, substituting their judgment for that of the market place. …  Helping Washington figure out how to spend your money is a very lucrative business.

I note that Hansen has drawn on Peter Barnes, who has long advocated the “Sky Trust” concept, which asserts that citizens are the owners of the atmospheric commons and involves the state in charging and collecting revenues.  Barnes has more recently backed similar proposals, such as Hansen’s “Carbon Tax and 100% Dividend” and the “Cap and Dividend” approach floated last winter by James Royce and Matt Riddle.

Spin analyst George Lakoff has recently examined and compared the moral and cognitive footings of the Warner-Lieberman-style cap and and trade and the Cap and Dividend approaches in “Comparing Climate Proposals: A Case Study in Cognitive Policy”

–  Lewis Hay, III, Chairman and CEO of FPL Group, Inc. – speech to the 2008 Florida Summit on Global Climate Change in Miami (June 25, 2008):

[It is] an undeniable reality … that global climate change is real, that human activity is one of the causes, and that we must take action to slow, stop, and reverse the emission of greenhouse gases into the Earth’s atmosphere. …
The United States has been debating climate change at least since the first congressional hearings on the topic were held in the mid-1980s by a little-known Representative from Tennessee named Al Gore. More than 20 years later, it is time for the country to take meaningful action. Every day we delay, another 18 million tons of CO2 are released into the atmosphere, most of which will remain there for close to a century. And with every year of inaction, the carbon reductions needed to deal successfully with climate change become larger and harder to achieve.

There are still a few global warming skeptics left in the world – often big emitters of CO2 – who continue to hope that the science is wrong and advocate taking little or no action toward reducing carbon. They want to keep freely emitting CO2 like there is no tomorrow. We cannot let these people have their way, or there might not be a tomorrow.

So how do we go about reducing the amount of carbon that our economy pumps into the atmosphere? … In the process of producing various goods and services – including electricity – carbon dioxide is released with potentially huge costs on society. But the producers and consumers of goods and services don’t pay those costs. They are external to the transaction, which is to say that society pays them. The goal of public policy toward climate change must be to push those costs back onto the parties responsible for carbon emissions. In short, we must “put a price” on carbon, which will create powerful incentives to emit less of it.

Will that price impose an undue burden on the U.S. economy? The global warming skeptics say yes, but I disagree. If we do nothing to reduce the amount of CO2 pouring into the atmosphere, we are not avoiding the cost. We are simply pushing both the cost associated with the growing consequences of global warming and the future cost of CO2 reductions down the road, onto our children and grandchildren. And if we do take action, I am confident the cost will be far lower than projected. America’s economy is driven by a fierce entrepreneurial spirit. Tell a capitalist there’s money to be made in finding cost-effective CO2 reductions, and watch the market burst with cost-effective solutions.

Now I happen to believe that the simplest and most effective way to start putting a price on carbon is with a continuously escalating fee – or a “tax” as the big carbon emitters like to call it. Under a carbon fee that starts modestly and rises steadily over time, companies will find it more and more expensive to use dirty fuels. And if there’s one way to get the attention of America’s CEOs and their boards of directors, it’s to hit them in the bottom line. Equally important, if there’s one way to get Americans to consume less high-carbon energy, it’s to steadily raise the price of goods and services produced with high-carbon fuels. Eventually, everyone will embrace conservation and switch to low-carbon energy alternatives. …

Under any cap-and-trade program that would give away most of the allowances to emit carbon based on historical emissions, the biggest emitters – the very same companies that have seriously harmed our environment and done nothing to reduce their carbon footprint – could reap unearned windfall profits, just as has happened in parts of Europe. To put it bluntly: They would be paid to pollute, turning cap-and-trade into what I call “cap-and-evade.” …

When carbon carries a cost, power companies will also work a lot harder to clean up their fossil fuel fleets. … Of course, the real gains are to be had by shutting down old, inefficient coal plants across the country. Those dinosaurs, which have operated way beyond their intended useful life, account for more than 480 million tons of the CO2 pumped into the atmosphere every year and should be taken offline. And if carbon is priced appropriately, they will be.

I refuse to believe that we are powerless to change the future. On the contrary, I believe that through commitment, effort and intelligence, we will not only come up with the right policy response to climate change, but that our innovation-driven economy will find the best technological solution to climate change – one that curbs emissions even as it controls costs. Some of us in the electric power industry are ready to lead the charge into a clean energy future. To those who stubbornly cling to a carbon-based past that cannot last, we kindly ask that you step out of the way.

Keith Crane, senior economist and James Bartis, senior policy researcher at the RAND Corporation, On Carbon Dioxide, a Better Alternative (Washington Post, November 29, 2007):

The only effective way to begin reducing greenhouse gas emissions and slow global climate change is to make it more expensive to emit carbon dioxide. Unless businesses and consumers pay a price for carbon dioxide, neither will make the investments in technology and changes in energy use needed to dramatically reduce emissions.

Most of the climate change legislation currently before Congress proposes a complicated “cap-and-trade” system. This would set a limit on emissions below current levels and then allocate permits to pollute that could be bought and sold. The alternative would be to impose a direct tax on carbon dioxide emissions. …

The attraction of cap and trade for its supporters is that the cap sets a limit on emissions of carbon dioxide. But it’s difficult to get the limit right. The cap may be set too high to induce firms to make the large investments needed to reduce emissions. Or it may be set so low that costs skyrocket and political support to combat climate change falters.

The major disadvantage to cap and trade is that the price tag for reaching the target is highly uncertain. In contrast, a tax on emissions provides businesses and consumers with certainty about costs, while leaving the size of the reduction less certain. …

Instead, we suggest a tax on carbon dioxide in which all the proceeds collected by the government would be returned to Americans each year when they file income taxes. In contrast to current congressional proposals for cap and trade, a tax on carbon dioxide refunded directly to individuals would cut emissions while cushioning the impact on the pocketbooks of American families. ...

A carbon dioxide tax with refund is fair because the people responsible for the most emissions would pay the most. The tax would also be progressive. Many Americans with lower incomes would find the refund would more than defray the higher costs of gasoline and electric power.

A tax is simple and can be phased in quickly. It encourages individuals and businesses to make long-term decisions with confidence, rather than trying to guess what the future price of permits will be. With a tax and refund, consumers would only pay the extra costs associated with carbon abatement measures.

A carbon dioxide tax with refund can be implemented easily. It can be collected at a few key links in the supply chain: refineries, power plants or pipelines. …

A carbon dioxide tax can be easily adjusted as lower-cost means of reducing emissions are tapped and new technologies become available to tackle more difficult sources. The tax could be started low, but with a clear schedule of increases so that individuals, local governments and businesses will begin now to make the changes and investments required to dramatically reduce emissions within 15 years. …

U.S. consumers and industry need to reduce carbon dioxide emissions. A refunded carbon dioxide tax is the best way to achieve reductions. It is simple, good for the planet, and imposes the least additional costs on the American economy as compared to any other policy alternative. Most importantly it can be crafted to ease the burden on families and protect industries from unfair competition in the global marketplace.

–  Ken Cohen, vice-president for public affairs, ExxonMobil“ExxonMobil’s top executives on climate-change policy” (February 14, 2007):

[T]here are two debates that one can be participating in right now. One is: is climate change real? What is the cause? Call it the blame game or whatever you want. And the other discussion is: what we do about it?

We prefer to be involved in the second discussion, which is what do we do about climate change – what policies make sense to both produce the energy which the world absolutely has to have and do it in a way that starts us on a path to reduce emissions associated with the production and use of energy. …

Some have said for instance that we need to stabilise CO2 emissions at 550 parts per million. But that is more of a political conclusion than a scientific conclusion. It may be that we’ll learn that 550 ppm is not an aggressive enough target. It may be that science will tell us that the target needs to be something lower than 550 ppm. …

So yes, the policies need to be adjusted. Or conversely, it could be that the anthropogenic contribution can be mitigated somehow by sinks or what have you as we learn more. So, what we are trying to convey is: we know enough now to say that we need to be on a path to start addressing anthropogenic emissions. But we also need to keep the science effort going and we need to keep in mind the economic impacts of the policies. …

We are believers in the market system as the most efficient allocator of resources. We believe for example that markets do a much better job of picking winners and losers on the technology side than governments. So we believe that when we design policies we need to harness the power of the market system as best as we can within the policy that we are designing. … We are not saying, ‘laissez-faire’, just let the market operate. …

Politicians know this very well, one of the elements on our first principles is not political attractiveness. You don’t hear much discussion for example about a carbon tax. Yet most economists who look at this issue say that the most effective way to address carbon emissions would be with a carbon tax.

In fact, from an efficiency standpoint, from spreading the cost of carbon across the economy in an efficient and uniform and predictable way, as a way to maximize the use of markets, as someone who studied economics, yes I think that a carbon tax ought to be looked at with equal force as the other options.

Now, as we said before, the devil is in the details and there are a number of questions. Whether it is going to be a regressive tax? What would the rate of the tax be and making sure you don’t exclude people from it; what is the revenue going to be used for; are we going to take out another regressive tax? Or are we going to take that money and use it for some other purpose? So there are major issues that would need to be addressed, but from an economist’s standpoint and in fact, this is the favored option.

Ken Green, Steven Hayward and Kevin Hassett of AEI (The American Enterprise Institute for Public Policy Research ), “Climate Change: Caps vs. Taxes” (June 2007):

Most economists believe a carbon tax (a tax on the quantity of CO2 emitted when using energy) would be a superior policy alternative to an emissions-trading regime. In fact, the irony is that there is a broad consensus in favor of a carbon tax everywhere except on Capitol Hill, where the “T word” is anathema. Former vice president Al Gore supports the concept, as does James Connaughton, head of the White House Council on Environmental Quality during the George W. Bush administration. Lester Brown of the Earth Policy Institute supports such an initiative, but so does Paul Anderson, the CEO of Duke Energy. Crossing the two disciplines most relevant to the discussion of climate policy— science and economics—both NASA scientist James Hansen and Harvard University economist N. Gregory Mankiw give the thumbs up to a carbon tax swap.

There are many reasons for preferring a revenue neutral carbon tax regime (in which taxes are placed on the carbon emissions of fuel use, with revenues used to reduce other taxes) to emissions trading. Among them are: [the following are paragraph headings only]:

–        Effectiveness and Efficiency
–        Incentive Creation
–        Less Corruption
–        Elimination of Superfluous Regulations
–        Price-Stabilization 
–        Adjustability and Certainty
–        Preexisting Collection Mechanisms
–        Keeping Revenue In-Country 
–        Mitigation of General Economic Damages

A cap-and-trade approach to controlling GHG emissions would be highly problematic. A lack of international binding authority would render enforcement nearly impossible, while the incentives for cheating would be extremely high. The upfront costs of creating institutions to administer trading are significant and likely to produce entrenched bureaucracies that clamor for ever-tighter controls on carbon emissions. …

A program of carbon-centered tax reform, by contrast, lacks most of the negative attributes of cap-and-trade, and could convey significant benefits unrelated to GHG reductions or avoidance of potential climate harms, making this a no-regrets policy. A tax swap would create economy-wide incentives for energy efficiency and lower carbon energy, and by raising the price of energy would also reduce energy use. At the same time, revenues generated would allow the mitigation of the economic impact of higher energy prices, both on the general economy and on the lower-income earners who might be disproportionately affected by such a change. Carbon taxes would be more difficult to avoid, and existing institutions quite adept at tax collection could step up immediately.  Revenues would remain in-country, removing international incentives for cheating or insincere participation in carbon-reduction programs. Most of these effects would remain beneficial even if science should determine that reducing GHG emissions has only a negligible effect on mitigating global warming. …

Coal-based energy prices would be affected more strongly, which is to be expected in any plan genuinely intended to reduce GHG emissions. A number of possible mechanisms are available to refund the revenues raised by this tax. On net, these tools could significantly reduce the economic costs of the tax and quite possibly provide economic benefits.

Margo Thorning, Senior Vice President and Chief Economist at the American Council for Capital Formation (November 1, 2007 interview on E&E TV):

Margo Thorning: I think Senator Lieberman and Warner are to be commended for their efforts to reduce greenhouse gas emissions, because I think we’re all united that that’s a goal we need to put a lot of resources into.

Q: One of the bill’s ideas is to set up a financial board of sorts that would oversee the new greenhouse gas market. What’s your take on setting up a board of regulators?

Margo Thorning: I think the idea of expecting regulators to know what the price of carbon should be is probably not very well grounded. It does serve as a backstop in that I assume if prices got so high that producers and households were experiencing severe economic pain they could say, well, just go ahead and emit. But it creates uncertainty, because for someone trying to invest in new equipment, if they don’t know what the price of carbon will be, that adds to the risk of the investment. That’s the problem with a cap-and-trade system and that’s what’s happening in Europe. Investors don’t know what the price of carbon will be from one month to the next or one year to the next and it’s been very volatile. So that makes the cost of capital higher, investment more uncertain, and produces less investment. An advantage of a carbon tax, if you want to impose some sort of penalty on carbon use, is that an investor knows, given the projected say set of increases in carbon prices from one year to the next, he knows what the carbon price will be and he can factor that in to what kind of capital equipment he buys, what sort of transport fleet he puts in place, and it provides more certainty. And it also, a carbon tax, provides a stream of revenue for the government to spend on new technology or to pay for offsetting the burden on low income individuals of higher energy prrevenue-neutralices.

Q:So, if you were given the opportunity to sort of write your own proposal of how the U.S. should reduce emissions and not hurt itself economically, you’d go with the carbon tax?

Margo Thorning: I would go with the carbon tax and more incentives for new technology development. And I would change the U.S. tax code, because we have the slowest depreciation allowances for new energy investment of 12 countries that we compared recently. We have very high capital costs for new investment because depreciation is so slow and our effective tax rate is very high, because our corporate tax rate is the highest in the industrial world. So our companies are disadvantaged vis-à-vis our trading partners because of our tax system.

Q: So, if a cap and trade is not the way to go as you’re saying, why has the business community come out in support of a cap and trade?

Margo Thorning: Well, a significant portion of the business community would prefer a carbon tax and there’s beginning to be more discussion about that. So I think one reason some in the business community have supported a cap and trade is they expect to make money on it. They’ve maybe made emission reductions or expect to be able to make emission reductions. They expect to be winners. On the other hand, new companies or companies that are expanding that need more credits will be losers. So the winners under a cap-and-trade system, as is for example in Europe, the big electric utilities have been winners because they’ve been able to pass forward to consumers the price of the carbon credit even though they were given those credits by the government. So people who expect to make money on it naturally are supportive.

– major economists:

• Terry Dinan of the Congressional Budget Office’s Microeconomic Studies Division – “Policy Options for Reducing CO2 Emissions” (outside reviewers were Billy Pizer (Resources for the Future) and Martin Weitzman (Harvard)(Feb. 2008):

Given the gradual nature of climate change, the uncertainty that exists about the cost of reducing emissions, and the potential variability of the cost of meeting a particular cap on emissions at different points in time, a tax could offer significant advantages. If policymakers chose to specify a long-term target for cutting emissions, a tax could be set at a rate that could meet that target at a lower cost than a comparable cap. In addition, if policymakers set the tax rate at a level that reflected the expected benefits of reducing a ton of emissions (which would rise over time), a tax would keep the costs of emission reductions in balance with the anticipated benefits, whereas a cap would not. …

CBO draws the following conclusions:
A tax on emissions would be the most efficient incentive-based option for reducing emissions and could be relatively easy to implement.

Analysts generally conclude that a tax would be a more efficient method of reducing CO2 emissions than an inflexible cap. The efficiency advantage of a tax stems from the contrast between the long-term cumulative nature of climate change and the short-term sensitivity of the cost of emission reductions. Climate change results from the buildup of CO2 in the atmosphere over several decades; emissions in any given year are only a small portion of that total. As a result, limiting climate change would require making substantial reductions in those emissions over many years, but ensuring that any particular limit was met in any particular year would result in little, if any, additional benefit (avoided damage). In contrast, the cost of cutting emissions by a particular amount in a given year could vary significantly depending on a host of factors, including the weather, disruptions in energy markets, the level of economic activity, and the availability of new low-carbon technologies (such as improvements in wind-power technology).

Relative to a cap-and-trade program with prespecified emission limits each year, a steadily rising tax could better accommodate cost fluctuations while simultaneously achieving a long-term target for emissions. Such a tax would provide firms with an incentive to undertake more emission reductions when the cost of doing so was relatively low and allow them to reduce emissions less when the cost of doing so was particularly high. In contrast, an inflexible cap-and-trade program would require that annual caps were met regardless of the cost, thereby failing to take advantage of low-cost opportunities to cut more emissions than were required by the cap and failing to provide firms with leeway in years when costs were higher.

The efficiency advantage of a tax over an inflexible cap depends on how likely it is that actual costs will differ from what policymakers anticipated when they set the level of the cap. Given the uncertainties involved, such differences are likely to be large—and, therefore, analysts generally conclude that the efficiency advantage of a tax is likely to be quite large. Specifically, available research suggests that in the near term, the net benefits (benefits minus costs) of a tax could be roughly five times greater than the net benefits of an inflexible cap. Put another way, a given long-term emission-reduction target could be met by a tax at a fraction of the cost of an inflexible cap-and-trade program. …

Administering an “upstream” tax or cap-and-trade program for CO2 emissions would involve taxing or regulating the suppliers of fossil fuels—such as coal producers, petroleum refiners, and natural gas processors. Compared with a “downstream” design, which would tax or regulate users of fossil fuels, an upstream approach would have two administrative advantages. It would involve regulating a limited number of entities, and it would not require firms to monitor actual emissions. Rather, each firm’s tax payment or allowance requirement could be based on the carbon content of its fuel and the amount it sold.

An upstream tax may be somewhat easier to implement than an upstream cap-and-trade program because many of the entities that would be covered by either policy are already subject to excise taxes. A CO2 tax could build on that existing structure. …

With harmonized taxes, lax monitoring or enforcement by any one country could reduce the incentives for emission reductions in that country. But with linked cap and-trade programs, laxity in one area could undermine the integrity of allowances throughout the entire system. …

A tax would have significantly lower start-up costs than a cap-and-trade program with grandfathering provided that policymakers did not decide to grant exemptions based on historical production or emissions data. Further, implementing a tax would not require the government to set up a process for auctioning allowances.

• CLIMATE CHANGE: Expert Opinion on the Economics of Policy Options to Address Climate Change, US GAO (Government Accounting Office) (May 2008)

• Greg Mankiw, “One Answer to Global Warming: A New Tax” (September 16, 2007) (Mankiw also keeps a list of other economists who are in his pro-tax “Pigou Club”, for which the anti-statist “No Pigou Club” is a useful counter-tonic):

Using a Pigovian tax to address global warming is also an old idea. It was proposed as far back as 1992 by Martin S. Feldstein on the editorial page of The Wall Street Journal. Once chief economist to Ronald Reagan ….

Those vying for elected office, however, are reluctant to sign on to this agenda. Their political consultants are no fans of taxes, Pigovian or otherwise. Republican consultants advise using the word “tax” only if followed immediately by the word “cut.” Democratic consultants recommend the word “tax” be followed by “on the rich.”

Yet this natural aversion to carbon taxes can be overcome if the revenue from the tax is used to reduce other taxes. By itself, a carbon tax would raise the tax burden on anyone who drives a car or uses electricity produced with fossil fuels, which means just about everybody. Some might fear this would be particularly hard on the poor and middle class.

But Gilbert Metcalf, a professor of economics at Tufts, has shown how revenue from a carbon tax could be used to reduce payroll taxes in a way that would leave the distribution of total tax burden approximately unchanged. …
The case for a carbon tax looks even stronger after an examination of the other options on the table. … [T]he history of cap-and-trade systems suggests that the allowances would probably be handed out to power companies and other carbon emitters, which would then be free to use them or sell them at market prices. In this case, the prices of energy products would rise as they would under a carbon tax, but the government would collect no revenue to reduce other taxes and compensate consumers.

The international dimension of the problem also suggests the superiority of a carbon tax over cap-and-trade.

Robert J. Shapiro, chairman of Sonecon, LLC, “Addressing Climate Change Without Impairing the U.S. Economy: The Economics and Environmental Science of Combining a Carbon-Based Tax and Tax Relief” (June 2008):

This study examines one such approach: Apply a tax or charge to fuels based on their carbon content, at the levels required to reduce emissions sufficiently to move to a path that over time would stabilize GHG concentrations in the atmosphere at sustainable levels; and use most of the revenues to reduce other taxes for people and businesses. This strategy would change the relative price of different forms of energy based on their carbon content, so that people and businesses have strong incentives to shift to alternative and less carbon-intensive fuels, and more energy-efficient technologies. The consequent economic burden on individuals and businesses would be largely offset by reductions in payroll taxes or in their effective burden, increasing the public’s willingness to accept a carbon-based tax.

Our analysis found that this strategy can reduce GHG emissions in the United States to levels consistent with substantially lowering the risks and threats of climate change, without slowing economic growth or reducing gains in people’s incomes to a significant degree, or imposing a regressive burden on low- and moderate-income Americans. …

Many economists support this approach to climate change, because it would directly and predictably raise the relative price of goods and services based on their carbon intensity, and so directly encourage consumers to prefer less carbon-intensive fuels, and products and businesses to adopt or develop less carbon or energy-intensive materials, technologies, production processes and fuels. Economists and governance experts also note that a carbon tax would not create the new price volatilities, administrative burdens, and large opportunities for evasion and fraud that could characterize a cap-and-trade program. By setting a predictable price for carbon emissions, it also creates clear and known incentives to develop and deploy more climate-friendly technologies and fuels.

Critics argue that it would raise costs and prices, and would dampen economic growth. They further note that no one favors higher taxes or the economic distortions they can cause, and consequently voters will resist paying a substantial new tax simply to avert unknown, adverse effects decades from now. We propose to address these shortcomings by returning the revenues from a carbon-based tax to households and businesses through other forms of tax relief, so that economic growth and the incomes of most households would be much less affected.

This carbon-based tax policy design should be preferable economically and politically to top-down regulation or cap-and-trade programs. To begin, traditional regulation and cap-and-trade programs treat a plant or industry’s initial carbon emissions as effectively “free,” up to the point of the regulatory ceiling or cap, while a carbon-based tax extracts a cost for emissions from the first part per million. In addition to the economic costs of introducing new volatility in energy prices, cap-and-trade programs and regulatory caps would impose other administrative and monitoring costs on consumers and businesses that would be generally comparable to a carbon-based tax, only in less obvious ways and in many cases with no additional revenues that could be rebated to offset their effects. … [C]onsumers and businesses also will end up paying the billions of additional dollars required to administer, monitor and enforce a cap and trade or regulatory system. … Moreover, much as voters would likely oppose significant new, climate-related taxes without offsetting tax relief, they will likely resist climate change regulation or a cap-and-trade program when they recognize the actual costs. …

Using the NEMS modeling system, we test the proposition that applying a new tax package on energy sources based on their carbon content, and using 90 percent of the revenues to reduce payroll taxes or their equivalent could bring down projected CO2 emissions to a path that should stabilize their atmospheric concentrations at levels safe for the global climate, and without materially affecting most people’s incomes or the economy’s capacity to grow and create jobs. 

• others, as summarized by The Wall Street Journal(Feb. 9, 2007),

George Will (as previously blogged)