The debate on cap and trade, which we detailed a year ago, is predicated on the so called Pigou Tax and externalities.
Th principle is that if the actions of a person has a cost external to a specific transaction and that costs impacts society as a whole, as this CO2 mania, then the Government taxes the person as a disincentive to use less.
Well frankly that is just a tax. If the person has no alternative, then other than freezing to death in the winter, yes I said winter for despite the Al Gore's of the world, as we have shown recently, it is getting wetter and no warmer! At least the data for the north east shows that. But alas, facts, they always confuse things.
Let me give another example. Take the carb tax. That is something I favor. An obese person, and there are quite a few in the current Administration, except those who smoke, has a cost to society which can be statistically calculated to the penny. Type II diabetes and its sequellae cost $325 billion in 2010 alone. To solve that but still allowing people to est and have the resulting morbidity associated with it we can use a Pigou Tax but put the money in a Fatty Fund to pay for the added costs. I can actually calculate by grams of carbs what the tax should be! One can still pork up but now the costs are covered. It costs those not indulging nothing and in fact saves them by having the fattys pay!
Now back to cap and trade. Here there is no alternative to heating or driving to work. The Government just taxes and spends! What stupidity.
As Prof Glaeser at Harvard in the NY Times, another one of our great minds in economics states:
Following the great English economist Arthur Cecil Pigou, economists have long argued that such externalities can be treated with a tax equal to the size of the externality. In this case, the right tax would equal the worldwide economic damage wrought by emitting carbon or other greenhouse gases. So why is the Kerry-Lieberman climate change bill, the grandly named American Power Act, 987 pages long?
Th principle is that if the actions of a person has a cost external to a specific transaction and that costs impacts society as a whole, as this CO2 mania, then the Government taxes the person as a disincentive to use less.
Well frankly that is just a tax. If the person has no alternative, then other than freezing to death in the winter, yes I said winter for despite the Al Gore's of the world, as we have shown recently, it is getting wetter and no warmer! At least the data for the north east shows that. But alas, facts, they always confuse things.
Let me give another example. Take the carb tax. That is something I favor. An obese person, and there are quite a few in the current Administration, except those who smoke, has a cost to society which can be statistically calculated to the penny. Type II diabetes and its sequellae cost $325 billion in 2010 alone. To solve that but still allowing people to est and have the resulting morbidity associated with it we can use a Pigou Tax but put the money in a Fatty Fund to pay for the added costs. I can actually calculate by grams of carbs what the tax should be! One can still pork up but now the costs are covered. It costs those not indulging nothing and in fact saves them by having the fattys pay!
Now back to cap and trade. Here there is no alternative to heating or driving to work. The Government just taxes and spends! What stupidity.
As Prof Glaeser at Harvard in the NY Times, another one of our great minds in economics states:
Following the great English economist Arthur Cecil Pigou, economists have long argued that such externalities can be treated with a tax equal to the size of the externality. In this case, the right tax would equal the worldwide economic damage wrought by emitting carbon or other greenhouse gases. So why is the Kerry-Lieberman climate change bill, the grandly named American Power Act, 987 pages long?
This bill is a behemoth for three reasons. First, it tries to do far more than just charge for carbon emissions. The bill starts by providing “incentives for the growth of safe domestic nuclear and nuclear-related industries.” It supports carbon capture in coal plants, expands offshore drilling, establishes an Office of Consumer Advocacy and promotes “clean energy career development.” Standard economics suggests that many of these interventions would be unnecessary if we had the right tax on carbon emissions; if companies pay the full social costs of their actions, they have the right incentives to invest in greener technologies without any further help from Uncle Sam.
The second reason that the bill is so big is that it uses a complicated cap-and-trade system rather than a simple Pigouvian tax. In theory, a permit system can be identical to a tax. Selling permits to emit carbon at $50 a ton is equivalent to taxing carbon emissions at $50 a ton. But tradeable permits, typically and as promulgated in the American Power Act, differ from a tax for two reasons: the quantity of permits is relatively fixed, and many permits will be given away rather than sold.
Well this is no surprise. The Markey-Waxman bill of a year ago which we went through in detail then had the same problems. It gave credits to a whole swath of friends to be doled out by Congress!
The solution to this CO2 problem is alternative sources of energy not taxing those who cannot pay to begin with. Demand will not decrease, at least for energy! It is akin to rationing water. This makes no sense. The solution is improved efficiency and better technology. Can the Government do this? Frankly the Government qua Government has shown no ability to ever do so. One need look no further than the DoE electric car project of 40 year duration or even better the ancient air traffic control system.
On the other hand there have been successes in the past, look at the MIT Rad Lab in WW II or the Manhattan Project. The common thread, focus and non Governmental employees.
So where is there a focus on achieving new alternatives? No where, they are swamped with favors for friends as Glaeser says, though no very well.
Will this travesty of a tax, the Pigou Tax, work? No, not really, it will just get added to the VAT, the inheritance, the rich persons tax and whatever else is added on. Pretty soon we will be taxing at a rate above 100%. Another Harvard idea perhaps?
To summarize, the Pigou approach works if the externalities are quantifiable, if there is an alternative, and if the fees charged pay for the costs of the externalities and no more or less. This is the Coase argument. In a transaction costless environment, one should let the parties clear the market. The railroad should pay the farmer for the loss of the crops caused by sparks from the train. The Government should not have its hand out in the process and take from both parties.
Well this is no surprise. The Markey-Waxman bill of a year ago which we went through in detail then had the same problems. It gave credits to a whole swath of friends to be doled out by Congress!
The solution to this CO2 problem is alternative sources of energy not taxing those who cannot pay to begin with. Demand will not decrease, at least for energy! It is akin to rationing water. This makes no sense. The solution is improved efficiency and better technology. Can the Government do this? Frankly the Government qua Government has shown no ability to ever do so. One need look no further than the DoE electric car project of 40 year duration or even better the ancient air traffic control system.
On the other hand there have been successes in the past, look at the MIT Rad Lab in WW II or the Manhattan Project. The common thread, focus and non Governmental employees.
So where is there a focus on achieving new alternatives? No where, they are swamped with favors for friends as Glaeser says, though no very well.
Will this travesty of a tax, the Pigou Tax, work? No, not really, it will just get added to the VAT, the inheritance, the rich persons tax and whatever else is added on. Pretty soon we will be taxing at a rate above 100%. Another Harvard idea perhaps?
To summarize, the Pigou approach works if the externalities are quantifiable, if there is an alternative, and if the fees charged pay for the costs of the externalities and no more or less. This is the Coase argument. In a transaction costless environment, one should let the parties clear the market. The railroad should pay the farmer for the loss of the crops caused by sparks from the train. The Government should not have its hand out in the process and take from both parties.
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