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Policies pose as pro-market
David Frum
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TEXT OF COMMENTARY
Kai Ryssdal: It might not look like it at first glance, but the housing bill is apparently the latest American export. Treasury Secretary Paulson said today the package is "a very important message we're sending to investors around the world."
Sometimes what's important is not so much the substance of the message but how it's perceived. Commentator David Frum says that's especially true when it comes to government programs.
David Frum: It was Niccolo Machiavelli, I think, who suggested that while it was good to be virtuous, it was much more important to seem virtuous.
You can update this aphorism for modern Washington, D.C.: It's good for a policy to be market-oriented, but it's essential for a policy to seem that way. Two costly programs that otherwise might not have much in common at all share this "seeming" quality.
The first is cap-and-trade. That's the remedy for climate change endorsed by John McCain and Barack Obama alike. Cap-and-trade limits carbon dioxide emissions. Companies that can reduce their emissions below the caps are then authorized to sell their unused credits to pollute. As companies buy and sell these allowances, a market comes into being -- capitalism!
Except that almost everybody who has studied the system has concluded that this market-seeming approach is much less efficient and much more expensive than a straightforward tax. But taxes do not seem very market-friendly, so we'll do it the wasteful way instead.
Those now notorious twins, Fannie Mae and Freddie Mac, are the second bit of market-mimicry. Fannie and Freddie are arms of the government, exempt from taxes and backed as the whole world now knows by a federal guarantee. The only thing market-oriented about Fannie and Freddie is the staggering pay level they offer their senior executives.
John McCain's top economic adviser and many free-market economists argmue that if Fannie and Freddie are guaranteed by the government, they should be owned by the government. But Fannie's and Freddie's supporters on the liberal side resist this idea. They know that if Fannie and Freddie were perceived as government-owned, the two companies would never be allowed to compete with private firms. So the illusion that Fannie and Freddie are free-market entities must be preserved and the shareholders of these insolvent firms must be protected from consequences that no investor in a truly private-sector company would be allowed to escape.
That's a pretend market, not a free market.
Ryssdal: David Frum is a resident fellow at the American Enterprise Institute. His latest book is called "Comeback: Conservatism That Can Win Again."
(Moderators: feel free to delete my previous mangled post and this note.)
Joe, I must disagree with your assessment.
1) "According to an academic paper in the American Economic Review by Kearl and Vaughn, 78% of academic economists agreed with the following statement. 'Effluent taxes AND marketable pollution permits represent a better approach to pollution control than the imposition of pollution ceilings.'"
This particular quote doesn't address Mr. Frum's comments at all. The quote says that adding taxes to a system of cap-and-trade improves it, but it does not at all say that adding cap-and-trade to a carbon tax system improves it.
2) "However, a carbon tax does not provide relatively clean polluters with any incentive to look for innovative ways of reducing their own pollution still further,..."
That's not true. Every company and individual pollutes to some degree, so the carbon tax will of course give everyone incentive to reduce greenhouse gas emissions.
3) "However, a carbon tax does not provide relatively clean polluters with any incentive to ... [clean] up more of the dirty polluter's pollution with the same amount of resources."
Are you taking about carbon offsets? If so, there's nothing preventing carbon tax legislation from allowing companies to sell legitimate carbon-offsets to companies or the government, if the price is right. With a carbon tax the price is locked in each year, so a carbon-offset company would have to be able to lower there costs per offset to below the government price. But if we as a society reached that point, we would essentially be spewing no carbon from burning fossil fuels which would basically leave methane from livestock, forest fires and volcano eruptions.
4) What Mr. Frum has missed, and what is really surprising given his perspective, is that the private sector can come up with far more innovative and efficient solutions to a problem than anything that is likely to come form politicians and bureaucrats in Washington.
Putting aside the issues involved in the capital markets, this was actually his point. If we had a true carbon tax (and associated import taxes on products from unclean economies) then we wouldn't need CAFE standards.
~Josh
Joe, I must disagree with your assessment.
1) "According to an academic paper in the American Economic Review by Kearl and Vaughn, 78% of academic economists agreed with the following statement. 'Effluent taxes AND marketable pollution permits represent a better approach to pollution control than the imposition of pollution ceilings.'"
This particular quote doesn't address Mr. Frum's comments at all. The quote says that adding taxes to a system of cap-and-trade improves it, but it does not at all say that adding cap-and-trade to a carbon tax system improves it.
2) "However, a carbon tax does not provide relatively clean polluters with any incentive to look for innovative ways of reducing their own pollution still further,..."
That's not true. Every company and indivudal pollutes to some degree, so the carbon tax will of course give everyone incentive to reduce greenhouse egas emissions.
3) "However, a carbon tax doesJoe, I must disagree with your assessment.
1)According to an academic paper in the American Economic Review by Kearl and Vaughn, 78% of academic economists agreed with the following statement. "Effluent taxes AND marketable pollution permits represent a better approach to pollution control than the imposition of pollution ceilings."
not provide relatively clean polluters with any incentive to ... [clean] up more of the dirty polluter's pollution with the same amount of resources."
Are you taking about carbon offsets? If so, there's nothing preventing carbon tax legislation from allowing companies to sell legitimate carbon-offsets to companies or the government, if the price is right. With a carbon tax the price is locked in each year, so a carbon-offset company would have to be able to lower there costs per offset to below the government price. But if we as a society reached that point, we would essentially be spewing no carbon from burning fossil fuels which would basically leave methane from livestock, forest fires and volcano eruptions.
4) What Mr. Frum has missed, and what is really surprising given his perspective, is that the private sector can come up with far more innovative and efficient solutions to a problem than anything that is likely to come form politicians and bureaucrats in Washington.
Putting aside the issues involved in the capital markets, this was actually his point. If we had a true carbon tax (and associated import taxes on products from unclean economies) then we wouldn't need CAFE standards.
~Josh
I am absolutely shocked that someone who is a free market conservative as Mr. Frum, got the logic behind cap-and-trade so wrong, and misstated the consensus view of economists towards cap-and-trade.
According to an academic paper in the American Economic Review by Kearl and Vaughn, 78% of academic economists agreed with the following statement. "Effluent taxes AND marketable pollution permits represent a better approach to pollution control than the imposition of pollution ceilings." That's actually the minor beef I have with Mr. Frum's view on the superiority of carbon taxes over cap-and-trade. If you looked at the alternatives in a static sense, then perhaps a carbon tax would be a better approach. However, a carbon tax does not provide relatively clean polluters with any incentive to look for innovative ways of reducing their own pollution still further, or cleaning up more of the dirty polluter’s pollution with the same amount of resources.
What Mr. Frum has missed, and what is really surprising given his perspective, is that the private sector can come up with far more innovative and efficient solutions to a problem than anything that is likely to come form politicians and bureaucrats in Washington.
(I would really like the opportunity to respond at greater length to this misperception as to the efficacy of cap-and-trade in relation a carbon tax.)
