Sunday, March 25, 2007

A False Argument Against Reasonable Carbon Taxes

In his blog, David Friedman writes:

In earlier posts I argued that global warming is probably real, probably anthropogenic, and will probably impose real but not catastrophic, costs. This raises an obvious question: What, if anything, should we do about it?

If I were dictator of the world, the answer would be fairly obvious. Impose a tax on activities that create greenhouse gases designed to reflect the marginal cost they create. That's the standard economic solution, due to Pigou, for problems of negative externalities. Since the tax brings in additional revenue, combine it with a corresponding reduction in whatever taxes currently have the largest adverse effects.

I do not, in fact, support such carbon taxes. The reason is that I do not believe that, if imposed, they would fit the pattern described above.

To begin with, they would not be based on a realistic estimate of the marginal costs; insofar as they would be based on anything, judging by the ongoing arguments over Kyoto and similar proposals, they would be based on some target level of emissions. If, as seems likely, the level of taxes needed to substantially slow global warming was much higher than the marginal damage done, the result would be to buy lower temperature at a price much higher than it was worth, making the net situation worse, not better.

But this misrepresents the actual political process. Kyoto was expressed as target levels of emissions, but these targets emerged from a tension between the desire to mitigate global warming, or at least be seen as trying to do so, and the desire of the countries involved to keep costs to their citizens as low as possible. The targets of Kyoto may have been higher than marginal costs might dictate, but they rarely resulted in legislation at a national level that was as draconian as the targets would actually require. The actual level of expense US taxpayers seem to be willing to impose on themselves to reduce carbon emissions is closer to the Pigouvian or Lomborgian level than the harmful level that Friedman fears. It present, the level is closer still to zero.

I offer as further evidence the arguments I have been having over at Brian's "Backseat Driving" blog with people who are absolutely convinced that global warming would have catastrophic consequences but curiously unwilling to support that conviction with anything more than handwaving arguments. Judging by casual observation, they are the norm, not the outliers, of their movement.

That movement, however, does not occupy the center of gravity of the US political marketplace. They are no more representative of the median voter or legislator than do the people that claim for various reasons that no meaningful government action at all should be taken to address global warming.

Furthermore, I think it unlikely that income from carbon taxes would be used to reduce other taxes. The clear evidence here is the repeated pattern with regard to wars. New taxes are introduced as an emergency measure for a war, retained long after the war is over; there is always some politically profitable way to spend the money. In the case of carbon taxes, I am confident that they would be used as an additional source of revenue, perhaps with the argument that the money was needed to ameliorate the effects of whatever global warming continued to occur.

On the other hand, lower taxes are popular. Reagan didn’t wait for the end of the Cold War to cut taxes, nor did Bush wait until the end of his wars to do so. There are always politically profitable ways to cut taxes, even if you have to pass the bill on to future taxpayers to do it.

Finally, I suspect that widespread acceptance of the catastrophist view of global warming would result in quite a lot more than carbon taxes. It would provide a new justification for politically motivated interferences in a wide range of human activities. Anyone who questioned such policies would be labelled a denialist, accused of wanting Bangladeshis to drown and African children to starve. Again, look at the ongoing exchanges on Brian's blog.

Hence I conclude that serious efforts to combat global warming would have large costs, costs justified only if there were good reason to be confident that not taking such efforts would have catastrophic effects.

As I understand it, Friedman is arguing that a Pigouvian level of carbon tax: perhaps $10-20 a ton based on plausible discount rates, would be a good thing. However, he would not want to do this good thing, because it would enable catastrophists to sweep in and enact far more draconian levies, as well as giving them license to send the Energy Greenshirts in the middle of the night to tear our incandescent light bulbs from our cold dead hands.

He seems to be arguing that we should therefore prefer the status quo to a Pigouvian carbon tax, even though the result would be significantly greater economic damage to Bangladeshis and Africans than might be expected with a reasonable carbon tax. Given the level of poverty in those places, I would expect the economic damage to result in a higher death rate. I wouldn’t want to accuse David Friedman of wanting this outcome for Africans and Bangladeshis, but it seems to be the logical result of his argument.


Retired Tourneyer said...

Part of Dr. Friedman's problem here is that he is an economist - and economists tend to think the rules of economics apply to everything, or that anything not included in economic theories can be safely neglected. So if Bangladesh doesn't have much economic importance, it can be allowed to founder without much economic consequence.

But the arguments you quoted aren't even based on economics - there is no mention of the cost of the do-nothing alternative, or an economic cost/benefit analysis on various possible approaches. Instead it is a logical fallacy (the "slippery slope") followed by a Libertarian political rant: don't nobody tell me what to do.

Will McLean said...


I think you're being a bit unfair to economists. Good ones seem to be generally capable of taking broader and more humanitarian view than you seem to suggest.

David Friedman is a smart man with some unfortunate blind spots, one of which is an inordinate dislike of governments.

Retired Tourneyer said...

Maybe the good ones don't get quoted as much in the news, then. I keep seeing economists decrying the falling birth rate in Western countries: they see it as a big economic problem, I see it as a hopeful sign.

Economists rarely acknowledge the limits of economic theory, so they are often seen espousing the idea that we needn't worry about Peak Oil because supply-demand theory says it will all work itself out.

I admit to being harsh on economists. As a friend of mine says: That invisible hand always seems to be in my wallet or around my neck.

Cariadoc is indeed smart and clever, and can be fun to hang with. Everybody dislikes governments; but I accept the need for governance, which is what Dr. Friedman seems to dislike.