"But We Must Do the Wrong Thing!": Understanding the "Economic" Arguments Against Dealing with Global Warming: The market-based economics that I was brought upon had four principles:
- It is important to get the distribution of wealth right, or as right as you can, so that household willingness-to-pay properly represent social marginal values.
- It is important to get aggregate demand right--for the government to create the right amount of safe and of liquid assets to match shifting private sector demand and so make Say's Law true in practice if not in theory--so that the problems economic policy is dealing with are Harberger Triangles and not Okun Gaps.
- Then you can let the competitive market rip--as long, that is, as...
- You have also imposed the right Pigovian taxes and bounties to deal with externalities.
"But the Coase Theorem" you say? The Coase Theorem is three things:
- An injunction to carve property rights at the joints--to bundle powers, rights, obligations so that you have to impose as little in the way of Pigovian taxes and bodies as possible.
- A powerful way of thinking about whether the proper Pigovian taxes and bounties are best imposed through Article I processes (legislation) or Article III processes (adjudication).
- A thought experiment that, as Ronald Coase complained until the day he died, was seized by George Stigler for his own purposes and is much more often misinterpreted than applied.
The self-deluded who don't know what they're doing and the vested interests that fear they would be impoverished when we to do the right thing dealing with global warming are still holding on to their first line of defense: that global warming is not happening. They have, however, built a second line of defense: that global warming was happening until 1995, but then something stopped it, and it will not resume. And behind that is the third line of defense that they are now building which we are here to think about today: that we cannot afford to do the right Pigovian tax-and-bounty thing, for dealing with global warming will cost jobs and incomes.
This is the fifth policy-relevant case I have seen in recent years of the political right that claims to love the market system denying and abandoning the basic principles that underpin the technocrat judgment that the market system can and often is a wonderful social economic calculation, allocation, and distribution mechanism. It is almost as if their previous advocacy of the technocratic case for the market system was simply a mask for their vested interests. We have seen this in opposition to doing the right thing in financial regulation; in the management of aggregate demand; in the provision of the right level of social insurance in the long run; and in shifting the policy mix to partially offset the medium-run rapid rise in inequality. Milton Friedman and George Stigler always used to say that you were better off relying on market contestability rather than capture of old regulatory bureaucracies like the interstate commerce commission to deal with the market failures created by private monopoly, but the problems like excessive inequality and poverty on the one hand and pollution on the other required government action--a negative income tax in the first case, and a market-based antipollution policy via Pigovian taxes and bounties in the second. That is now, largely, out the window.
It is important to recognize what is going on here. ...
There's much, much more in the full post.