It's all in the incentives
Posted by aogThursday, 16 July 2009 at 14:19 TrackBack Ping URL

Ian Murray writes

I’m hearing that the popular reaction to the passage of the Waxman-Markey electricity tax bill in the House has blown House members away. The public outrage is really hurting those who voted for it […]

Should I have filed this under “We’re in the best of hands”? How can Congressmen not have anticipated this reaction to passing a massive tax and regulation in the middle of massive economic crisis? Probably because the latter is less real to them than the “crisis” of global warming climage change making Gaia cry. After all, one thing an economic crisis does is make Congressional fiefdoms grow and prosper. Astute observers can see how this all comes out in the end, the only puzzlement being why it’s tolerated by voters and supported by people who won’t be getting a slice of the action.

Comments — Formatting by Textile
Bret Thursday, 16 July 2009 at 15:04

Congress lost sight of the fact that “everyone is an environmentalist - unless it costs them something.” This was particularly exacerbated by the election of Barack “Spread the Wealth Around” Obama. I think the confusion is very understandable.

In fact, as much as I dislike it, I thought for sure the general public would be behind it. They’ve never minded destroying the economy before if they weren’t convinced their livelihoods would be directly affected.

Annoying Old Guy Thursday, 16 July 2009 at 15:24

I disagree. I don’t think the American Street has, since the neo-Luddites became powerful, actually thought for a moment that legislation like this would destroy anything. After all, they were told over and over that it creates jobs and with the steadily growing economy since the Carter years, it was plausible. Now that it’s not so plausible, there’s no support.

Bret Thursday, 16 July 2009 at 18:00

OK. Disagree away. Those I’ve observed have been perfectly aware that government actions have damaged or will damage the economy but have been all for it since the impact to them was marginal. From what I observe, a significant majority has been all for sticking it to “the rich” and looting what they can for themselves and as far as environmental stuff goes, as long as the rich would bear the brunt of it, it was wonderful.

It may be a liberal state (CA) versus conservative state sort of thing, so we may well be observing radically different attitudes.

Ali Choudhury Saturday, 18 July 2009 at 07:16

The fad will die once people get hit in the wallet.

As for CA, it seems as if the productive class is leaving for Texas.

Harry Eagar Saturday, 18 July 2009 at 15:06

Well, they certainly noticed that government inactions damaged them in the wallet. Obama was elected because the Bush let-the-markets-decide regime had such bad results.

As usual, a lot of other issues got dragged along with that. To the extent anyone thought the election provided a mandate to go green, theh were hallucinating.

Waxman-Markey barely passed the House and never had any chance in the Senate. I am not a conspiracy theorist, but Locke’s suggestion that each American pay the share of three Chinese on the environment, as well as his own share will stand objectively as a surefire move to torpedo cap-and-trade.

It keeps alive the question that bedeviled Bush: stupid or dishonest?

AVeryRoughRoadAhead Sunday, 19 July 2009 at 08:49

If one truly believes that climate change is both occurring and the largest problem facing humanity over the next century, AND one believes that human activity is causing it, then OF COURSE Americans have to pay for the cost of carbon-neutralizing goods purchased from highly-polluting nations. Since the problem is global, so too must be the solution. Thinking that it will solve the problem to pay someone in a foreign land to pollute, instead of doing so in the good ol’ U. S. of A., is at best asinine.

On the other hand, if as an American one is concerned about the potential rise of Chinese economic and military power, then why not ship the polluting behavior to China and let the oceans rise? Let them die of air and water poisoning, instead of us. Also, America will do fine if the oceans rise twenty feet; we can afford to build extensive dikes around any coastal real estate that we really want to keep. China, not so much.

Annoying Old Guy Sunday, 19 July 2009 at 11:36

If one truly believes that climate change is both occurring and the largest problem facing humanity over the next century, AND one believes that human activity is causing it, then OF COURSE Americans have to pay for the cost of carbon-neutralizing goods purchased from highly-polluting nations.

No, that doesn’t follow. It might be that the USA has to pay for a technological fix (one of the various geo-engineering programs, for instance). One of the many fallacies of the AGW crew is that only self-mortification can solve the problem and that’s just not so. After all, the best solution to polluting technic societies we have seen in increasing wealth. There’s a tipping point at which people begin to be willing to pay for a better environment as a luxury good. This makes it a plausible argument that increasing development is the best solution.

Harry Eagar Monday, 20 July 2009 at 12:25

I pulled this comment from Hawaii’s best-known public critic of emissions:

The very last section of the 1200 page Waxman-Markey bill bans the EPA from considering Indirect Land Use Changes (ILUC). Thus the bill stifles the discussion about the impacts of biofuels. Some biofuels, such as used waste oil, are good, and others are far more destructive than coal. Indonesia and Brazil rank third and fourth in the world in GHGE, due in significant part to rainforest destruction to grow biofuels to fuel our energy demands. Ignoring this is one reason that Waxman-Markey needs to be significantly amended before passage.

AVeryRoughRoadAhead Monday, 20 July 2009 at 19:33

No, that doesn’t follow.

Perhaps I was overly-specific. What I meant was that one cannot avoid taking moral responsibility for one’s actions by making the action indirect: Paying someone else to kill one’s target, rather than doing it personally, does not mean that one isn’t a murderer.

If AGW is both real AND a danger, then we must ensure that our actions decrease both the direct and indirect effects.

This makes it a plausible argument that increasing development is the best solution.

I’d go along with that, but only if it included the “technological fix[es]”. Just dumping money into China’s grossly inefficient, terrifyingly polluting industrial sector would EVENTUALLY result in sufficient demand for a clean environment from China’s swelling middle class, but why dig a deeper hole for decades ?

If we believe in AGW and are serious about halting it, (the former being questionable even among the most ardent proselytizers e.g. former VOTUS Gore, and there being substantial evidence against the latter amongst the G-20), then we should ensure that the factories of the “Asian Tigers” are as efficient as possible, and employ American inspectors to keep an eye on things, with the power to bar any installation or sector’s goods from export to the U.S.

Annoying Old Guy Monday, 20 July 2009 at 21:08

We might want to do it indirectly because it’s the least worst solution. It’s easy to say “send American inspectors to keep an eye on things” but do you really think that be permitted, absent war? War that might well do more damage than waiting those decades. Moreover, there might well be technological fixes that solve AGW globally without requiring any cooperation from the developing world.

The reason I agree that the “true” believers aren’t believers at all is not that they don’t adopt my positions, but that it’s not even debated. Hair shirts for everyone or you hate Gaia.

Harry Eagar Tuesday, 21 July 2009 at 12:46

Welcome to globalized market solutions. If you let the market decide, then you can have jobs or you can have Chinese environmental standards, but you cannot have both jobs and American-level environmental standards.

Rough’s right. We are responsible for (eg) the deaths by starvation of people if we buy their food because we can pay more than they can. Welcome to globalized market solutions.

AGW is not real, but pollution is.

Annoying Old Guy Tuesday, 21 July 2009 at 13:08

We had both jobs and American-level environment standards until the Democratic Party took over Congress, and then the White House. One also notes that in the world today, the correlation is free markets, good environment. The more government control, the more socialist / despotic, the worse the pollution.

AVeryRoughRoadAhead Wednesday, 22 July 2009 at 02:53

We had both jobs and American-level environment standards until the Democratic Party took over Congress, and then the White House.

Not really. Remember in the Eighties how Japan was going to take over the world, and the U.S. was hemorrhaging manufacturing jobs, particularly in the steel and auto industries?

Well, Japan was China before China was1. Losing jobs to lower-cost producers has been a long process that has occurred during both Dem and GOP Congresses, and Dem and GOP White Houses. Basically, the American electorate has demonstrated over decades that it prefers low prices for goods over plentiful manufacturing jobs.

One also notes that in the world today, the correlation is free markets, good environment.

But that’s in mature economies. The historical record, at least in the States, is developing economy, bad environment. Why would we expect anything else from China, whether democratic or authoritarian?

1 Actually, Japan still is China, in the sense that about half of all the factories there were financed by Japanese investors. China is Japan’s Mexico.

Annoying Old Guy Wednesday, 22 July 2009 at 07:09

Remember in the Eighties how Japan was going to take over the world, and the U.S. was hemorrhaging manufacturing jobs, particularly in the steel and auto industries?

Yes. My dad was a big proponent of that view. I laughed at the very idea. Turns out, I was right to dismiss those concerns. I think the same of China — I agree with Orrin Judd that China is going to come apart before it achieves economic dominance, if demographics doesn’t do it in first. Low priced goods means a higher standard of living.

The historical record, at least in the States, is developing economy, bad environment

Yes, that’s true. BUT India and China are already there. You can’t wish that away, so the only way out is through. I will also note that as bad as free market environmental protection was, the alternatives were even worse. I will be belabor this because I just don’t seem to be able to communicate it — free markets are relatively superior to other realizable alternatives. One can, of course, theorize about superior systems but no one has managed to actually make one work in the real world. Somehow many people translate this as “markets are perfect and always create optimal solutions” which just isn’t true. But I find a system that achieves, say, 80% everywhere to a system that is 100% for one case and 10% for everything else.

AVeryRoughRoadAhead Wednesday, 22 July 2009 at 08:18

You can’t wish that away, so the only way out is through.

But U.S. demand is responsible for perhaps half of all of that pollution, which gives us a mighty big lever, should we choose to bear the costs of using it. If it were about servicing their domestic demand, then all we could do is to point out to them that not too far in the future they might deeply regret not being more diligent about curbing pollution now.

You may be interested in this article, if you haven’t already seen it: Think Again: Asia’s Rise - Don’t believe the hype about the decline of America and the dawn of a new Asian age. It will be many decades before China, India, and the rest of the region take over the world, if they ever do. BY MINXIN PEI

Harry Eagar Wednesday, 22 July 2009 at 12:24

The default political status of China over the centuries has not been a unified state. It will be interesting, though I won’t live so long, to see whether the Party can change that.

Gerald Davis contends that increased productivity, not offshoring, has caused most of the loss of American manufacturing jobs. This is probably correct. But it is also true that starting with Reagan, the Republican policy has been to accelerate the removal of American manufacturing jobs.

This might not have been so bad if there were any countervailing policy to replace them, but there wasn’t; and the magic hand of the market didn’t respond: Why should it have?

It certainly is not true that market-based systems create optimal solutions, as I can test by living in one. But that is, in fact, the claim. Now that it has been shown to all to be a hoax, its former sponsors are trying to pretend that wasn’t what they meant, but I was there. I remember.

Besides, if the market sets the price, and any other pricing mechanism is suboptimal, then market price has to be optimal. But, as Davis says, was the market right about Bear Stearns in February($85) or March ($2)?

Annoying Old Guy Wednesday, 22 July 2009 at 12:49

The default political status of China over the centuries has not been a unified state. It will be interesting, though I won’t live so long, to see whether the Party can change that.

Let me state for the record that Mr. Eagar and I are in complete agreement on a topic.

that is, in fact, the claim

No. For instance, show me that claim in The Road to Serfdom, written in 1941.

Besides, if the market sets the price, and any other pricing mechanism is suboptimal, then market price has to be optimal.

No. That doesn’t follow. You might want to read about heuristics, a field which has many examples of a best mechanism but no feasible optimal one. It’s a common thing in information theory, of which pricing is an application.

Harry Eagar Thursday, 23 July 2009 at 12:54

The claim is that no intervention is superior to the market’s magic judgment. Whether that means the market is ‘perfect,’ ‘optimal’ or ‘something else’ is then irrelevant. You get what the market says you get, and you’d better like it. This is the Margaret Fuller theory of economics. (Fuller asked Emerson to tell Carlyle that she ‘accepted the universe.’ ‘She does, does she?’ said Carlyle. ‘By god, she’d better!’)

I claim that you can usefully interfere in markets by taking into account information that the market either cannot or will not include. So the claim that the market is ‘the best you can do’ is unproven and not even supported in general by experience.

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