"He's a snake in the grass, I tell ya guys; he may look dumb but that's just a disguise; he's a mastermind in the ways of espionage." Charlie Daniels, "Uneasy Rider" Comment to Bob Murphy on whether "Cap and Trade" is a "market solution" - TT's Lost in Tokyo

Comment to Bob Murphy on whether "Cap and Trade" is a "market solution"

I copy below comments I made on June 11 (Tokyo time) on Bob Murphy's June 4 blog post, Cap and Trade Is Not a "Market Solution", that have apparently been held up for moderator approval (perhaps because my three links triggered the blog's spam defenses?):

Bob, I thank you for posting your piece from IER, which has stimulated a relatively even-tempered and productive discussion.

But allow me to express a little disappointment.  Even as I agree fully with the gist of your post (the largely self-evident and unsurprising point that politicians prefer, as an alternative the more honest, open and politically less-palatable approach of direct Pigouvian taxes of the type supported by a wide range of mainstream economists, to address the concerns of scientists, economists, business leaders and others about man's contribution to ongoing climate change by dressing up such taxes as a "market approach" involving a cap and trade program), I think that:

(1) you unfairly conclude that, since it will be government that will be implicitly pricing carbon emissions, such pricing "won’t reflect genuine economic scarcity" at all, when Austrian approaches do not deny that lack of property rights will result in economic actors ignoring external costs, but simply indicate the government pricing of resources can only imperfectly reflect economic factors;

(2) you've gone to a bit of unjustified rhetorical excess with your statements that:

- "[t]his is no more a “market price” than if the government decided to sell people permits giving them permission to sneeze":  rather, it's more like the government trying to price grazing rights, resources extraction rights or other user fees on "public lands"- yes, such prices are not market prices (and are perhaps more likely to be underpriced rather than overpriced), but that does not mean that they do not represent or at all reflect valuable resources.

- "Cap and trade is not a market-based solution" - while not a true market solution, a cap and trade approach is clearly one that makes use of markets.

- "Cap and trade ... can therefore be justly viewed as a tax, stealthy or otherwise, on energy - the lifeblood of our economy" - this not only overbroad, as it would only tax certain types of energy, and overdramatic, it completely ignores the point that certain activities (a wide array not limited to combustion of fossil fuels, including release of other GHGs) are perceived as adversely affecting (now and in the continuing future) many within the country as a result of externalities involving an open-access and unowned and unmanaged commons, which is precisely what expressly motivates (actually or allegedly) so many - including many in your profession - to support Pigouvian approaches;

(3)  surprisingly, you failed to take the opportunity to add to the discussion by informing your readers of Austrian concerns, including the following:

- the calculation problem;

- whether, as you note it posting here, there is any reasonable basis to "trust governments around the world to implement the scheme 'properly'" (by exploring problems with rent-seeking and bureaucratic incentives);

- whether it is desirable for the government to presume that it should act as the owner of the atmosphere in creating emissions rights (as opposed to citizens generally or long-standing/homesteading users of fossil fuels), and the related ethical issue of creating rights to emit that cut off those who may be harmed from any direct remedy (such as a share of the proceeds of the sale of rights); and

- the underlying institutional problem of lack of clear or enforceable property rights (for which past interferences by government have some responsibility); and

- whether growing concerns (and private responses) regarding the shared global issue (affecting nations with different circumstances and legal systems than ours) of increasing GHG emissions might be addressed less expensively and more rapidly by voluntary actions and national and international litigation rather than by coordinated action by various governments and implemented by individual nations.

None of these points is easily addressed, but they would help to provide a Austrian framework that may be useful to your readers. 

(4)  Finally, it is disappointing that you completely failed to take on any of your mainstream colleagues (such as those in Gregg Mankiw's "Pigou Clubhttp://en.wikipedia.org/wiki/Pigou_Club) who support either carbon taxes or cap and trade approaches. 

I understand that you've got a paper in the works addressing Nordhaus, but he's hardly the only one writing specifically on climate change; I hope you will also be looking at Marty Weitzman at Harvard, Richard Tol and a few others noted here and here:




Published Thu, Jun 5 2008 4:02 PM by TokyoTom


# re: Comment to Bob Murphy on climate change policy

Wednesday, June 11, 2008 9:34 AM by Person

Yeah, I was surprised you didn't join in at the time, I said a lot of what I think you would have (though because it was my opinion, not yours), modulo a little frustration at the complete stupidity of his remarks.

# Bob Murphy acknowledges that implicit carbon pricing may reflect genuine economic scarcity

Tuesday, November 4, 2008 2:32 AM by TT`s Lost in Tokyo

In June, I made a number of comments to Bob Murphy in response to his blog post entitled, Cap and Trade