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Saturday, January 09, 2010

''Of Individual Liberty and Cap and Trade''

Robert frank argues that libertarians ought to endorse government intervention to reduce the damage from greenhouse has emissions:

Of Individual Liberty and Cap and Trade, by Robert Frank, Commentary, NY Times: Some people oppose measures to limit greenhouse gases because they believe that global warming is a myth..., but their influence has been steadily waning.
The biggest remaining obstacle is disagreement over the legitimacy of proposed solutions. At the heart of attempts to curb carbon dioxide emissions are two related proposals: taxation of those emissions and a system of tradable emission permits... Both have been attacked as unacceptable restrictions on individual liberty. The attacks have ... been pressed with particular insistence by conservatives and libertarians.
It’s a puzzling objection, because both proposals are squarely consistent with the framework advocated by conservatives’ patron saint regarding ... private actions that harm others. That would be Ronald H. Coase, professor emeritus at the University of Chicago and the 1991 Nobel laureate in economics, who will turn 100 this year.
Mr. Coase ... summarized his framework in a 1960 paper titled “The Problem of Social Cost”... He stressed that actions with harmful side effects — negative externalities, in economists’ parlance — are ... best solved ... not by chanting slogans about rights and freedoms, but by steering mitigation efforts to those who can perform them most efficiently. ... Mr. Coase argued that whenever it was practical for affected parties to forge private agreements among themselves, they would have strong incentive to use the least costly solution...
His paper provoked a firestorm of criticism, based on the impression that he was claiming that government didn’t need to regulate activities that cause harm to others. As a closer reading makes clear, however, this could not have been his view, especially with respect to activities like global pollution. ... Because of the wide variety of activities involved and the large number of people affected, there is no practical way to negotiate private solutions. In such cases, Mr. Coase suggested, government regulators should try to mimic solutions that people would have adopted on their own if negotiations had been practical. ...
I chatted with Mr. Coase briefly last week, and he is still following these issues. He agreed that both taxes and tradable permits satisfy his criterion of concentrating damage abatement with those who can accomplish it at least cost. ... Although both proposals pass muster within the Coase framework, conservatives remain almost unanimously opposed to the cap-and-trade proposal approved last year in the House... Much of this opposition is rooted in a passionate distaste for “social engineering”...
But social engineering is just another term for collective action to change individual incentives. And unconditional rejection of such action is flatly inconsistent with the Coase framework that conservatives have justifiably celebrated. ...
In the case of global warming, markets fail because we don’t take into account the costs that our carbon dioxide emissions impose on others. The least intrusive way to have us weigh those costs is by taxing emissions, or by requiring tradable emissions permits. Either step would move us closer to the conservative/libertarian gold standard — namely, the outcome we’d see if there were perfect information and no obstacles to free exchange. ...

    Posted by on Saturday, January 9, 2010 at 03:33 PM in Economics, Environment, Regulation | Permalink  TrackBack (0)  Comments (24)

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