Burning fossil fuels creates so-called “external costs” because it contributes to ongoing climate change. This is a fancy way of saying that when I burn such fuels, other people become worse off than they would be otherwise, because I have increased the odds that they will suffer damages from anthropogenic global warming (AGW). This both seems unfair, and means that we will burn more fossil fuels than would seem to be socially optimal. It seems obvious to many people that we should therefore tax fossil fuels in order to prevent this. This is termed a Pigovian tax, and is sometimes referred to as “internalizing the externality”, or taxing fossil fuels to reflect the “social cost of carbon”.
Then pretty much just asserts it's a bad idea:
It’s not so obvious to me that this is good idea. To implement it would be little more than a re-labeling of the kind of comprehensive planning that Hayek attacked sixty years ago.
Well, that's not quite fair. Let's break this out.
Hayek basically argued that the price mechanism contains the accumulated information possessed by all the actors in the relevant market. It is impossible for a central planner to gather, analyze, and act upon this information as fast as consumers and firms in the market react to prices. Therefore, the price mechanism is a much better way to determine what goods and services to produce. Ergo, the market is superior to socialism.
What Manzi seems to be arguing here is that it is difficult-to-impossible for the government, or governments, to determine the "social cost of carbon." Therefore, "internalizing the externality" is difficult-to-impossible. Ergo, this is a bad idea.
While determining the exact, precise social cost of carbon is probably impossible, the real question is whether we believe that we can get close enough to mitigate the problem without creating too much additional and unnecessary inefficiency and dead weight loss with the tax. Hypothetically, I think a benign social planner could. The problem is the inevitable tinkering of politicians who see dollar signs and favors to be granted. Nevertheless, a tax is far superior to emission permits, for reasons that I've specified on several occasions.
So, I guess my question back to Jim Manzi is whether his objection is mostly economic or political?
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Thanks for, as usual, detailed and thoughtful comments. A few quick things:
1. I didn't eman those quotes as scare quotes, I was just tryign tod eifne terms for people who were not already part of the debate before getting underway.
2. I think the next sentence after the ones you quote where I just assert the answer was "Here's why.", and I then spent like 3,000 words trying to explain why.
3. My basic point wasn't so much that we ca't know the right carbon tax exactly (as you say, this isn't much of an objection), but rather that there's nothing magic about AGW. What we care about are the costs (people die, economic growth suffers, etc.). In order to argue that out of all these nearly infinite number of externalities that we could tax carbon I think that one has to argue simething like either (1) AGW has such a huge costs, that as a practical matter we should focus on it instead of just about everything else, or (2) that we should be charging taxes (positive or negative) on lots and lots and lots of activities. I was then trying to show that (1) is factually incorrect, and (2) either leads to tyranny if implemented seriously or (much more likely) is used as a rhetorical tool by political elites to seize resources and power.
Best,
Jim
Jim:
On point 2, sorry I completely missed that in my Google Reader. My apologies.
Well, you gotta tax SOMETHING. A carbon tax seems to me less distorting than, say, income, or a sales tax on big cars, or corporate income tax. And it discourages fuel consumption now, which lowers the money we are sending to Chavez, etc. Where would Jim prefer we get the money? dave.s.
Dave.s:
You tree-hugger you, of course you'd say that.
In all seriousness, you do raise a good point, but my guess would be that Jim is assuming all other things being equal, meaning as they are now, it's best to add a carbon tax. Although, if we could wipe out the income tax, then maybe you'd be onto something. But, alas, I don't see arguments that a carbon tax should replace the income tax, but in addition to it.
Beeches, I particularly like hugging beeches.
We are going to either massively degrade the currency or raise taxes to pay for current expenditures sluicing out of Treasury. Carbon tax seems to me the least worst way to do it. dave.s.
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