Thursday, April 29, 2010

Income inequality

Here's a good blog post from the great Gary Becker about why there's so much inequality in the US these days and what can be done about it. I like that he finds a solution, or at least the beginning of a solution, that would make the country both more prosperous and more equal. In many cases policymakers need to choose between equality and efficiency. This trade-off is famous in economics.

Monday, April 19, 2010

Unemployment benefits

This looks to me like a pretty classic case of economics telling us to do one thing and pity seemingly telling us to do something else:

Cap and dividend

A reader brought cap and dividend to my attention. It is like cap and trade, but the revenue would go straight to US citizens rather than to the government.

Here are my thoughts, which are similar to what I said in the comments section.

Cap and dividend sounds tolerably good to me, but there are three problems:

1) If we want to base energy policy on some sort of "cosmic justice", maybe we should use the revenue from cap and trade to reduce the deficit. Think about it: Why are we being compensated for CO2 emissions? It doesn't hurt us much as far as I can tell. It might hurt the people living 50 or 100 years hence. Maybe we can compensate them by lower the deficits and preventing them from having to shoulder a crushing tax burden.

2) There might also be a political economy argument against cap and dividend. What if it turns out that a very large % of CO2 emissions come from a small number of people, say people working in manufacturing? There might then be an incentive for the rest of us to vote for pushing the price of carbon up to very high levels: past the "socially optimal" level. Then we get dividends and the emitters pay the bulk of the price.

3) This scheme is not so different from the policy that Mankiw and others support of using the revenue to lower other taxes. Arguably that's better, because lower taxes would incentivize people to work, save, and invest more. Whereas, just handing out money to people regardless of their behavior is not optimal from an economic perspective. But maybe cap and dividend is more politically doable.

Friday, April 16, 2010

"Nationalize the American Energy Industry"

I'm not quoting Chairman Mao, believe it or not, but rather Brad Delong's blog. It's possible that this is hyperbole, but I'll take this literally for now, since he has a paragraph that elaborates this idea.

What bothers me is not so much that he is suggesting something economically harmful, though he may be doing that, but more that his justification for this policy is authoritarian in the extreme. He sums up his view thus: "So nationalize—not to expropriate or to penalize the shareholders, but to get this particular selfish and destructive political voice out of American governance." Let that marinate for a little while. If you can justify doing that, imagine all the other things you could justify. What voice is not selfish? Any political voice will eventually be considered destructive by someone, somewhere. Isn't one of the central tenets of liberalism that we tolerate opposing viewpoints in the political sphere even if we vehemently disagree with them? How can Delong continue to claim to be a liberal in any non-Orwellian sense of the word?

This is one of the things that bothers me about the environmentalist movement. They seem to see an existential threat around every corner, and so they can justify just about anything, no matter how extreme. And this didn't start with global warming. Fears of overpopulation have led people to advocate some absolutely unconscionable policies over the years. I hope that one day textbooks will refer to the period we live in as the Green Scare.

This is not to say that global warming isn't real or that there's no reason to do anything to fight it. But there has clearly been an enormous amount of exaggeration. I'm actually quite open to a carbon tax, but it might be nice to see some sort of demonstration first that warming does more harm on net than good. Or at least do a back-of-the-envelope calculation about this, somebody.