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James K
My Thursday Blognado post is a guest post at Mindless Diversions wherein I explain why I abandoned miniature wargames produced by Games Workshop, and why Warmachine is my favourite wargame.
When I was drawing up topics for blognado I item on my list was political speech and campaign finance, so when I saw that Elias and Dan post, I decided it was fate, or whatever equivalent we soulless materialists believe in.
I’ll start by talking about what I think is wrong with some of the common left-wing criticisms of the level of political contributions permitted by the Citizens United ruling, then move into where I see legitimate concerns and end with some (hopefully useful) suggestions as to how to untie this Gordian knot.
First off, Citizens United. The two most common arguments I hear against this ruling from a constitutional standpoint are 1: Corporations aren’t people so it’s foolish to suggest they have rights and 2: Money isn’t speech so no-one’s right are being violated anyway.
I’ll start with the second argument first, it’s true that money isn’t speech no-one thinks of buying a hamburger as an expressive act, and for good reason. But that’s not the end of the story. If political speech is to mean anything it must be possible for it to be heard. In his book The Pig that Wants to be Eaten Julian Baggini draws out a thought experiment where a repressive regime grants people licence to say whatever they want – provided they do so in a soundproof booth. I think we’d all agree this would not be free speech in any meaningful sense, free speech means the freedom to be heard (provided someone cares to listen) or otherwise, what’s the point? Money may not be speech, but in some contexts is is a necessary condition for speech, and therefore restricting it restricts speech.
If you’re still not convinced, let me offer you an example. Let’s say Citizens United went the other way, and then in 2012 somehow an evil genius Republican gets elected president. The new president then set out to hoist the left by its own petard by effectively eliminating abortion. Banning abortion directly wouldn’t pass constructional muster so instead he outlaws paying for an abortion, or any goods or services that are used to perform an abortion. That means all abortions must be offered for free, that charity offering them can’t pay for clinic space or medical tools, they have to be donated to them and the doctors must provide their services to the charity pro bono. This would eliminate legal abortions, but it would circumscribe them very heavily. When the law gets dragged in front of the Supreme Court, the Attorney General argues that money isn’t abortions then invokes the commerce clause and SCOTUS upholds the law in a 5-4 decision. Thus Roe vs. Wade is effectively disembowled. Money is one of the vital lubricants of a modern commercial society. Any good that is produced outside of a household is almost certainly going to be paid for and making it illegal to pay for such a good is very similar to making that good illegal.
OK, you might say, maybe it is a violation of people’s rights, but corporations aren’t people so there’s still no problem. Well not so fast. First off, let me stipulate that corporations are not people in any meaningful sense. The law treats them as people for some purposes for policy reasons (reasons I generally consider valid), but not in others. After all corporations can be owned and can’t vote, which would be illegal if corporations were actually people. They are machines made out of law and contract, they can no more be said to have rights than any other inanimate object. So what’s my problem? Well, like I said, properly understood a corporation is really a kind of machine, it’s a tool for aggregating capital in a systematic way so that a group of people can do something none of them could raise the funds to do individually. The reason tools don’t have rights is because they don’t have agency, when you get out your lawnmower to mow the lawn, we don’t say the lawnmower mowed the lawn, we say you mowed the lawn. The lawnmower was just the means to that end. Equally, every decision or action that a corporation takes was really performed by the owners of that corporation, either directly or via delegation. Those owners are what the law calls “natural persons”, which is to say people. Not virtual technical people, but real flesh and blood people. People who have rights. It may have been Citizens United that sued, but the rights that were violated were not those of that legal fiction, but rather the rights of the people who created and funded Citizens United, and they are definitely people.
Furthermore I think the idea that people shouldn’t be allowed to exercise their rights through corporations has some unfortunate implications. Pre-Citizens United, the law was that you could fund all the political advocacy you liked if you were an individual, but you were limited through a corporation. The point of a corporation is to allow a group of people to do something they couldn’t fund individually, the richer you are the less helpful the fewer things you need to create a corporation to do for you. As such, the pre-Citizens United rules would have the effect of giving really rich people better access to political expression than not-really-rich people (or at least making the difference greater than it would be otherwise). That strikes me as an odd position to take for someone who’s worried about the concentration of power in American society. In fact, if I were trying to capture the political process for a cabal of millionaires I’d use a rule just like that one as part of my Evil Plan.
Consequently I don’t think the big arguments against Citizens United stand, the rules were badly constituted and should have been cut down by the Supreme Court. But does that mean everything’s fine? Not necessarily. For one thing I take Elias’s point very seriously:
Because a Citizens United polity is one in which the vast majority of participants rightly feel themselves to be superfluous. And like a civic broken windows, the appearance of legitimacy is no second-order concern for a democracy. There is therefore a patent state interest in upholding the integrity of the political process, regardless of whether or not one is focused on the end-results of elections.
This reminds me of something that was drilled into me when I first joined the public service. When you start working for government they explain the Public Service Code of Conduct, and why it exists. A critical point is that it is not enough for public servants to avoid corruption. That is necessary of course, but it is not sufficient. The public service must also avoid the appearance of corruption. This is because the degree of corruption in a society is driven by social norms i.e. what people will put up with. Morality and the Social Contract are about defeating the remorseless logic of the Prisoner’s Dilemma. The idea is to get everyone to choose co-operate even though they would benefit from defecting. But if you think everyone else is defecting you’d be a fool to do any different. If you think the government is just a way to divert money to politicians and their cronies why wouldn’t you cheat on your taxes? A society that gets caught in that logic ends up in the hole Greece is currently in, because that’s how Greece ended up in the hole it’s in. Even if unrestricted campaign finance doesn’t influence elections (and I’ve seen research suggesting it doesn’t), the perception is a real problem.
OK, so where I gotten to so far is 1: There is a real problem with campaign finance 2: Limiting political speech is a bad solution. So if I don’t like speech restrictions, what should we do?
One idea is public funding of elections, which is Dan’s position. This is certainly better than restricting speech, but still problematic for me. For one thing, how do you decide who gets funding? If you open the doors to everyone you create a colossal rort (people can run as candidates, use public money to give money to their friends and buy themselves campaign-related things they can use in their own life like fancy clothes. If you curb that by limiting it to “legitimate” candidates then you have the government deciding who is legitimate, which just entrenches existing power structures. If you turn the funding decision over to the popular vote in some way (like letting people donate some of their tax money to a particular party or candidate) you also reinforce existing structures by making artificially difficult for new ideas to propagate into the political system (after all new ideas are too new to be popular yet, but it’s hard for a idea to become popular if people find it hard to hear it). So I’m not sure that’s a good solution either.
My proposal is two-fold. One aspect deals with campaign contributions, and the other deals with PACs, super and otherwise. Oddly enough one part of the solution involves requiring disclosure while another part prevents it.
For campaign contributions I’d go with an idea proposed by Megan McArdle:
I’ve long toyed with the notion that we should go the other way: allow unlimited donations, including from corporations. But force them to go through an institutions which strips off the names and pools the money, so it’s impossible to see who donated, or even the size of the individual donations. Once a month, you get a check from the campaign finance bank, and that’s it.
This wouldn’t prevent people from saying they supported a candidate, or even saying that they donated. But it would prevent them from proving it. Without the ability to credibly donate to a campaign doing any kind of quid pro quo deal would be difficult if not impossible. In this special case maybe darkness is the best disinfectant.
As for PACs, I’d go the other way. I firmly believe that people have a right to advocate for a policy independent of any political candidate. To suggest otherwise is to effectively state that people can only engage in political speech with a politician’s permission and I regard that as unconscionable. But I think it is fair for people to know who they are listening to. So I’d suggest a requirement that all PACs or PAC-like entities have to have an authorisation statement on their correspondence showing that the advertisement or other communication is authorised by a specific natural person (you could require a statement like this from every donor above a threshold, or if the donor is a corporations, an officer of the donor corporation). That should give journalists enough information to dig out who is really behind any given advertisement.
I’ll freely admit that this isn’t a perfect solution, but I think this is one of those situations where there are too many competing factors to balance to make a perfect solution viable. I think this would at least go some ways to preserve the integrity and perceived integrity of the electoral system. Beyond that, I’d suggest looking at your ridiculously elaborate primary system. No wonder your politicians need so much money when they have to run in 2 elections.
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Day 2 of Blognado is upon us (or upon me anyway, I’m never sure where your day boundaries are relative to mine), so to keep people interested I thought I’d discuss something light and easily relocatable like the intricacies of tax policy.
Now I’ve done one post on taxes before, but that post wasn’t about tax policy per se. As far as I’m concerned ”how much tax revenue should we collect?” isn’t a valid question. You answered that question when you set the government’s budget (and determined your fiscal policy settings if you’re doing the Keynesian thing). So for me the magnitude of taxes is a fiscal policy issue, not a tax policy issue. Tax policy is about how you raise the tax revenue you need: what gets taxed, how progressive rates should be and what breaks or exemptions will be permitted. In this post I’m going to outline how I think tax policy should be run generally and what implications that has for the US.
Terminology
Before I wade into the details, I want to define a couple of terms that are important to this type of policy. There are the names I’m familiar with, though you may have other terms you use for similar concepts.
Tax Rates: There are two tax rates any person faces, and each matters for different reasons. The most obvious one is your average tax rate, which is what % of your income you pay in taxes. This reflects the effect taxation has on your standard of living. It’s also the most useful rate to use when examining how progressive or regressive a tax is. Your marginal tax rate also matters, but for different reasons. Your marginal tax rate is calculated as the % of your next dollar of income that is taken as taxes. If your income increased by $1, how many cents richer would you be after tax? This rates reflects the effect of taxation on your incentives to earn more income, which is why it’s the rate economists care most about. The negative economic effects of taxes are caused by high marginal tax rates more than high average tax rates.
Purpose of Taxation: There are two main reasons why governments tax. The first is to raise revenue, which is what I’m talking about in this post. Government’s don’t tax income because they think people are pathological workaholics who need to be encouraged to take it easy, the do it because they need cash. The goal with revenue taxation is to change behaviour as little as possible while collecting as much revenue as possible. Those goals are in tensions, as I’ll explain later. The other sort of taxation is pigouvian taxation where you’re trying to correct a failure in the market by discouraging an activity. The goals in pigouvian taxation are reversed from revenue taxation, the goal is change behaviour and any money raised is incidental.
Incidence of Taxation: The incidence of taxation is who actually ends up paying a tax, as opposed to the person or party the tax is officially levied against. For example, corporate taxes could be paid in three ways: the shareholders could accept lower dividends (in which case the owners are bearing the incidence), the company’s employees could end up receiving lower wages over time (this would be the workers bearing the incidence), or the corporation could raise prices (the consumers are bearing the incidence). How much of each happens will depend on how the labour, goods and financial markets react to prices changes. Incidence is very important when considering how progressive a tax really is. If a corporate tax ends up being paid by workers and consumers it’s probably not as progressive as it might appear.
Principles
When designing an ideal tax system the first thing you want emphasize is neutrality. Neutrality is ensuring that your tax changes people’s behaviour as little as possible. In the absence of a market failure any change you make to people’s behaviour is impairing allocative efficiency, and so you should do as little of it as possible. Practical tips for neutral taxation include:
Use taxes that are hard to avoid. Capitation taxes (i.e. tax everyone $X) are the best for this since you have to be really dedicated to Going Galt in order to commit suicide just to avoid paying taxes. Of course capitation taxes are problematic for other reasons (I’ll talk about progressivity below), so other good choices are income taxes, consumption taxes and capital value taxes. Of these land taxes are the best because the incidence of the tax falls entirely on people who owned land at the time the tax is implemented, making avoidance effectively impossible. But you don’t want to jack the rates on any one tax too high as that gives the tax accountants too much of an incentive to start finding loopholes (and works to not work quite so hard), so the ideal tax regime will consist of several taxes each with modest rates (how modest depends on your budget of course). Note also that the more complex your tax system is (with multiple rates, deductions and so on) the less neutral it will tend to be.
The second principle is progressivity, which is how the burden of the tax falls on the poor vs. the rich. Now how progressive taxes should be is a subjective question, so I won’t take a position on this while I have my policy hat on, though I will say that at regressivity should probably be avoided. When it comes to measuring the progressivity of a tax I recommend using average rates and not marginal (though check to make sure welfare isn’t making marginal rates too high for the poor or you’ll create a poverty trap), account for the incidence of the tax as well as you can and don’t forget to net welfare spending out of the average tax rate so you can compare the net effect of government on the poor vs. the rich.
The third principle is the laffer curve. Now the laffer curve is one of those subjects where a lot of nonsense gets written, so here’s the short version from someone who’s actually: yes taxation does experience diminishing returns, even to the point where revenue falls as marginal tax rates rise. But that revenue-maximising rate might be very high and it’s almost certainly not in the 30-40% range. However, that doesn’t mean the laffer curve doesn’t matter. For one thing the diminishing returns will feature all all points of the curve so you can’t expect a 10% increase in average tax rates to yield at 10% increase in revenue. Secondly, different revenue sources have different laffer curves. The reason most countries tax capital gains less sharply than other sources of income is that it’s much easier to hide your capital overseas than it is to move overseas yourself. That ease of avoidance makes taxing capital gains trickier than taxing other income. Third, the shape of the laffer curve is affected by policy. The simpler your tax system is, the more neutral the taxes are and the less corrupt the tax collection mechanism is the more revenue you can extract without diminishing returns causing you a problem. Finally, at some point you’re going to hit that laffer peak, and even before tax rates get that high, they can take a significant toll on economic performance. A government can noly be so big, given the siz eof the economy and it’s worth bearing that in mind, even if the limits are more expansive than some would suggest.
Advice for the US
So how does all of this translate into US tax policy? Here are some areas I’d suggest as good starting places for tax reform:
1: Simplify!
The key to a better-functioning tax system is to tax many activities a little, instead of a few activities a lot. That means clearing away exemptions, deductions, tax breaks and other fiscal bric-a-brac as much as possible. That allows for lower marginal tax rates without affecting average rates, in fact you can even end up with more revenue than you had before. Those deductions might look good one at a time, but taken together they render your tax system unmanageable. Think of all those tax accountants who will be freed up to apply their intellects to more positive-sum activities.
2: Take a second look at corporate taxes
The general opinion is that corporate taxes are paid by the 1% for the benefit of the 99%, but I think that assumption merits testing. I’d like to see some research done on the actual incidence of corporate taxes, and whether it actually makes sense to tax corporations at all. Corporate taxes add a lot of complexity to the tax code, and if that can be avoided I think it’s worth investigating.
3: What does “no tax increases” actually mean?
Many conservatives in the US, the Tea Party in particular, have stated strong opposition to tax increases. But what does that mean in practice? Is your opposition to higher marginal rates? If so, how do you feel about simplifying the tax system which will lower marginal rates even while raising revenue? Do you oppose average rate increases? If that’s the case I hope you have a brilliant plan to cut spending. The answer will be different for everyone, all I ask is that you figure out exactly what you will and will not support, and then state it clearly so any opportunities for cooperation can be identified. Because something has to change, and the sooner the changes begin the easier things will be for everyone.
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Welcome to the first day of Blognado – an experiment where I try to shake myself out of my blogging drought (admittedly I’ve never been all that prolific, but still I’d like to try and get the juices flowing a bit) by writing a blog post each day, just to see if I can. If you have any suggestions as to what I should cover, do let me know.
Today I’m going to riff off a comment I made as an aside in a post last year where I said in passing:
is there a feasible upper a limit to a functional state, given existing information and institutional technology, and if so how big is it? Maybe some countries would be better off breaking themselves up or at least delegating their decisions down a bit so as to avoid clogging up the system. Maybe I should run a regression analysis of population size against the corruption index (probably a decent proxy for quality of governance) some time.
Well, today seems as good a time as any, so I did exactly that, using population data from Wikipedia (my data will be a few months out of date now, but that won’t change things much) and Corruption Perceptions Index data for 2010 (the 2011 results hadn’t been announced when I grabbed the data) from Transparency International.
Now before I get into the results, a couple of extra disclaimers on top of my regular set. I obtained this data from public sources as a private citizen. I analysed the data using software licensed to me personally on my own computer in my own time. Just to be clear – government resources were not used to obtain or analyse this data in any way.
Now, having got that out of the way, here’s what I did (this gets a bit technical, so if you’re not familiar with the ins and outs of regression analysis you might want to skip the green text):
I regressed the corruption Index (a score out of 10 where higher means less corrupt) for each country where I had a population value and a corruption score by the population and a set of dummy variables: 1 for each region defined by Transparency International, except I have collected the 5 Anglosphere countries (USA, Australia, UK, Canada and New Zealand) into their own region. The point of using the regional dummies is to try and correct for the cultural differences in different parts of the world. All things being equal a typical country in sub-Saharan Africa will be more corrupt than a similarly sized country in Western Europe. The dummy variables mean that each region has a different intercept, but the same slope (I did try allowing for different slopes as well, but it turns out the differences in slopes between regions aren’t statistically significant).
I looked at three likely specifications: linear (Corruption index vs. population + the region dummies), quadratic (Corruption index vs. population and population squared + the region dummies), and linear-log (Corruption index vs. natural log of population + the region dummies). Of the three, the linear-log model has the best fit, and a good fit too, with an R-squared of 0.89.
OK, math over, here’s a graph of the relationship between population and corruption index for each region:
You can see a negative relationship between population and score on the corruption index: a 1% increase in population reduces the corruption index score by 0.002 out of 10. The regional differences aren’t all that surprising either: The Anglosphere is the star performer, followed by Western Europe, after a decent gap. After a similar gap you get the Americas, Asia-Pacific and Middle East & North Africa, then finally Sub-Saharan Africa and Eastern Europe in last place.
So we have some preliminary evidence (and it is preliminary, if I were doing this for real, I’d be running a battery of additional tests and checking for other confounds) that the governments of larger countries tend to be more corrupt than the governments of smaller ones. But how important is this effect? Well let’s compare the actual scores of the Anglosphere countries with the fitted scores from the model:
There seems to be a lot going on here aside from the size of the countries. While the best performer (New Zealand) may be the smallest and the worst (USA) may be the largest, there are unanswered questions. For one thing the US and UK seem to do worse than its size would suggest, while New Zealand, Canada and to a lesser extent Australia do better. Less than a quarter of the difference between the US and Canada can be explained by Canada’s smaller size. It gets hard to say more than that with only 5 points of data, but cultural or institutional differences within the Anglosphere are clearly still playing a big role.
So, to go back to the question that originally sparked this digression: How much good does federalism do for the quality of government decision-making? The answer would appear to be some, but not all that much. At the end of the day, centralising government functions may still improve decision-making so long as the new authority has a good institutional framework.
Now ensuring that it has a good institutional framework, that’s the tricky part.
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In the recent thread on Huntsman , BlaiseP, Tom van Dyke and I ended up in a bit of a digression of atheism and the burden of proof which I thought was worth teasing out, but not on that thread. The part of the exchange I want to focus on was between Tom and I and went like this:
Tom:
the atheists need better arguments. They don’t actually have an argument.
Me:
Epistemologically we don’t need one. Burden of proof is on the claimant. Occam’s Razor does the rest.
Tom:
I don’t follow you, but burden of proof is shared in any joint inquiry among persons of good will and lovers of wisdom and truth.
Now I’m not entirely sure what Tom means by sharing the burden, but I assume it means something like neither party has the burden of proof, but that each interlocutor should advance their case as best they can, rather than insisting that the other side should do all the work (tom, feel free to correct me if you meant something else).
This sounds like an eminently fair approach, and is the norm in a debate. But debates are really more oratorical contests than exercises in truth discovery. In science, the best truth discovery mechanism humanity has yet produced, the rule is different – if you wish to allege something exists it is up to you to prove it. The doubters get all the advantage, they need not even get out of their chairs until you’ve done all the work to prove your case, only then must your opponent lift a finger. This may sound like an unfair distribution of responsibility, but in practice there are several good reasons, logical and mathematical, why this should be the case.
Proving a Negative
It is commonly said that you can’t prove a negative, and while this isn’t quite true in all cases it is certainly true that actually disproving the existence of something is a lot harder than proving it. For instance, if tomorrow morning a massive glowing figure descended from the sky proclaiming in a voice heard round the world that it was God Almighty and then proved it had knowledge and powers beyond mortal ken that would conclusively prove it was God, (ruling out advanced aliens or similar deception would take some work) but it would certainly get my attention. By contrast, the failure of any being to do this in recorded history does not rule out the existence of a god or gods. Maybe they’re just not into tacky displays of power.
And that’s the problem in a nutshell. To actually disprove any god in the logical sense I would have to find something incompatible with the existence of that god. This is really hard to do when you’re talking about the Abrahamic God since he’s meant to be omnipotent. If there’s nothing he can’t do then there is no state of the universe that’s incompatible with his existence. As such there is no possible disproof of God’s existence, and expecting an atheist to come up with one is a bit much to ask for.
Even so, you might just conclude that God’s existence is too well-established to be doubted then. But this would be a mistake, as I will explain below.
The Law of Non-Contradiction
You see, the argument used above to prove God’s existence will work for the vast majority of gods. While some gods (like a sun god who rides across the sky in a flaming chariot) are disprovable, even most non-omnipotent deities are sufficiently poorly specified so as to avoid empirical falsification. I mean, how could you tell for certain that the Hindu gods didn’t exist? What about Ba’al or Ahura Mazda?
This may seem trivial, but it is anything but. There are thousands or religions in human history, and they can’t all be right, in fact they are almost all contrary – there is at most one true religion. To prove yours is right you have to demonstrate everyone else’s is wrong. And as I said, you can’t do that for a non-trivial set of religions. So you are left with three options:
A: Believe every religion that you cannot actively disprove is true. This violates the law of non-contradiction and is therefore one of the very few ways in the universe to guarantee you are wrong.
B: Believe whichever religion you want and handwave away the rest. In the logic business this is called Special Pleading. Needless to say, this is not an intellectually honest position.
C: Put the burden of proof on the claimant. Not all religions can be true, but all of them can be false. Refusing to believe in any religion without sufficient proof is the only option that is neither incoherent nor intellectually dishonest.
But, you may well say, isn’t atheism a claim of sorts? And it is mutually exclusive with other religions. So why does it get special treatment? For this we need to leave logic behind and visit my home ground: math.
The Law of Conjunction
The Law of Conjunction is one of the foundational rules of probability theory. I’ll skip the whole math lesson, but the short version is that the probability of a bunch of things happening together is less than the probability of any one of those events happening. The classic example is: “There is a woman named Mary. Is it more likely that she is 1: A bank teller or 2: A feminist bank teller?” The correct answer is 1, whatever the chances are of a given woman named Mary is either a feminist, a bank teller or both, it is mathematically impossible to construct a set of probabilities where Mary is more likely to be a feminist and a bank teller than just a bank teller.
The Law of Conjunction ties in well with Occam’s Razor. So long as you’re careful to define complexity correctly (I’ll leave off discussing Komologrov Complexity because that’s a little outside my area of expertise) the simplest explanation for a phenomenon will be the most probable. So if you want me to add a god to my model of the world, you are going to have to make up for the reduction in probability by adding explanatory power – in other words you need to show me that there are things in the world that make more sense if a god exists than not (this is another way of saying I want evidence). And since any god is a very complex phenomenon you’re going to need a lot of evidence to convince me.
But this is all a matter of probabilities, am I not admitting a chance that a god exists? Well, yes I am, but that means nothing. It is extremely difficult to be 100% certain of anything, and I would suggest most kinds of knowledge can’t be known with 100% certainty. If you’re willing to accept that it is OK to believe unlikely things in favour of more likely alternatives, you end up accepting things like it is perfectly valid to believe that exposing yourself to the Cherenkov radiation of a nuclear reactor will give you superpowers because, hey there’s a chance right? It’s not like any nuclear physicist can say there’s a 100% chance it won’t. Refusing to heed probabilities dissolves all knowledge into a postmodern fog where all ideas are equally valid, and we don’t want to go there, now do we?
I guess this is just a long-winded way of saying that if you want me to believe in your god or gods, I’m going to need you to show me evidence, and until someone does I don’t feel it at all unreasonable to assert that there is almost certainly no God, nor any other gods either.
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The environment is a tricky issue for libertarianism, in many ways environmental issues are “ideologically inconvenient” for libertarians – life would be easier if they didn’t exist. Of course that’s not sufficient reason to actually act as if they didn’t exist, something I don’t think enough libertarians are willing to recognise.
So given that the environment creates complications for libertarian thought, it is incumbent on libertarians to find a way to reconcile libertarianism with environmental issues. Since my own brand of libertarianism is influenced heavily by my study of economics, my thoughts on how to create libertarian environmental policy are heavily influenced by environmental economics and therefore an understanding of what markets can an cannot do. As I mentioned in an earlier post, I think there are proper justifications for the government intervening when it comes to the environment. In this post I intend to be more specific, looking specifically at pollution.
Pollution is perhaps the classic case of an environmental issue requiring government intervention. The theory behind externalities goes back to an economist named Pigou in the 1930s, significantly before the modern environmental movement even existed. The basic principle here is that when an activity (say running a smoke-belching power plant) inflicts harm on others that cost is not borne by the owners of the factory, so they have no incentive to account for it when deciding whether to run the factory, or how they run the factory. This is a market failure in the formal sense in that it means the market is not properly accounting for all the costs of benefits of the activity. The economic prescription is a tax equal to the marginal cost to society of the pollution, these are known as Pigouvian Taxes, after Pigou. This tax realigns the factory owner’s incentives with wider society’s thereby restoring the market’s ability to manage the issue efficiently.
I think this is also a legitimate approach from a libertarian standpoint. What, a tax? You might object. Well, why not? First off, let me be clear that we are discussing a situation where one person’s action inflicts a tangible harm to others. By the standards of any non-anarchist libertarian this is a legitimate reason for the government to get involved. But what about the courts I hear you ask? Those of you conversant with the literature might even cite Coase’s work suggesting that private bargaining can substitute for direct government intervention. The important thing to bear in mind here is transaction costs. Sure when we’re talking about neighbours we can probably let people bargain, and let the government just adjudicate as necessary. But that’s not going to fly for a situation where thousands (or millions, or billions) are affected. If you require every affected party to sue for damages then in practice you have placed no restriction on a wide range of pollution, and if you require the polluter to get permission from every affected party then you have created an effective ban. By contrast, a Pigouvian tax scales the degree of intervention to the harm caused. Surely we libertarians care about proportionality?
As an aside, it is probably worth discussing climate change as it’s a big enough issue to be worth mentioning separately. First off, while I understand that a lot of people feel they are in a position to dispute the scientific consensus on this issue, I’m going to suggest that unless you actually are a climatologist you are not qualified to do so. In any case I’d rather not have that debate, so I’m just going to take it as given here. I’ll let them deal with the science, and I’ll take care of the policy implications: my side, your side.
While what I said in part 1 might lead you to think I support carbon taxes, this isn’t entirely true. Sure, my ideal first-best solution would be a global carbon tax starting small and then slowly ramping up over 20 years or so, I know full well that’s not going to happen. The level of coordination required (getting 100+ nations to sign up to an agreement and then continue to abide by it for decades) is simply beyond our global political structure. Even Europe has done less than you might think in dealing with climate change, and I still doubt it is possible to China to agree to any sort of abatement at all.
The best solution I can think of is government support for research into alternative energy (at the theoretical end, let’s not have a repeat of Solyndra), which I feel can be justified because of the positive externalities such research tends to generate. If necessary we may need to use geoengineering to buy ourselves some time, but we can hold off on that for now. This is not a great solution, but given the real world constraints it’s the best I can come up with. Ironically, the best technology we currently have to replace fossil fuels, nuclear fission, has been stymied by the very environmental groups that are loudest in their concern over climate change. Now that’s the law of unintended consequences.
In summary, I think there is a legitimate basis for the government intervening to restrain polluters. Libertarians should focus on pushing policy makers toward Pigouvian taxation and away from more direct regulations instead of claiming that there is no problem to solve because this is one case where the market won’t sole the problem by itself.
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I wonder if I might crave your momentary indulgence in order to discharge a by no means disagreeable obligation which has, over the years, become more or less established practice in government service as we approach the terminal period of the year — calendar, of course, not financial — in fact, not to put too fine a point on it, Week Fifty-One — and submit to you, with all appropriate deference, for your consideration at a convenient juncture, a sincere and sanguine expectation — indeed confidence — indeed one might go so far as to say hope — that the aforementioned period may be, at the end of the day, when all relevant factors have been taken into consideration, susceptible to being deemed to be such as to merit a final verdict of having been by no means unsatisfactory in its overall outcome and, in the final analysis, to give grounds for being judged, on mature reflection, to have been conducive to generating a degree of gratification which will be seen in retrospect to have been significantly higher than the general average.
Merry Newtonmas everyone!
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I thought I’d share with you my Christmas present to myself.
[click to continue…]
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Since I’m the member of the League who is furthest ahead in the time zones, it falls to me to welcome you to the League of Ordinary Gentlemen’s inaugural opposite day, in which we shall attempt to sincerely argue for a position we are opposed to.
So, to kick things off, let me introduce you to my more-evil twin Hamish, so he can give you his views on separation of powers:
The League has been debating the merits of democracy for months now, with opinions ranging from support to total scepticism. James, as is his wont tends to float around in the middle somewhere, knowing too much about how people think to trust democracy, but unable to think up a superior alternative. But this isn’t about democracy as such, but rather one particular aspect of it – separation of powers.
The intuition behind separation of powers is appealing enough – people can’t be trusted with power, so you split the power up across a couple of groups and then have each group act to restrain the other. Every form of liberal government uses separation of powers in some way, but standing above all of them is the United States, which doesn’t even let its executive declare war. The founding fathers ensured the President couldn’t do much of anything without he cooperation of Congress, and vice versa. And standing over both of them is the Supreme Court, holding a copy of the constitution like it was a rolled-up newspaper, ready to rap both of the other branches on the nose at the first sign of ultra vires actions.
Nice idea – a pity it doesn’t work. The legislative check on war powers has been nothing more than a technicality since WWII, and when Obama wanted to act in Libya he didn’t even bother going though the formality of asking congress to rubber stamp his actions. And congress did nothing. So much for mutual checks on ambition.
And as for the Supreme Court, their performance has been less than stellar. They may be technically independent, but they are still appointed by politicians, no judge who seriously wanted to restrain the government would be nominated or confirmed. No, the primary qualification for being a Supreme Court Justice is a gift for sophistry – so as to rationalise the Constitutionality of anything the elected branches want to do. I’m not saying the Supreme Court is useless, just mostly useless – the only amendment that hasn’t been at least partially undermined is the 3rd and that’s because building military bases is more of a vote winner than billeting soldiers in private homes.
And so with each passing year the executive takes power from congress, congress takes power from the states and the states take power form the individual. For good or ill this is clearly not what the Founding Fathers had in mind. And why hasn’t it worked? Because the whole system relies on the vigilance of an informed voter and the average voter can’t tell you how many senators there are, much less who should be blamed when something bad happens.
At the New Zealand Economists Association conference earlier this year I heard a very interesting argument from Canterbury University lecturer Eric Crampton. He pointed out that given the abundant research showing that voters lacked the knowledge and rationality to identify good policy the very best you could expect from voters is that they vote on a “is the country going in the right direction?” basis. If things are going well, then fine. If not – throw the bums out. But how can you throw the bums out if you don’t know which bums are in charge? Look at the Debt Ceiling Crisis – The President and Congress blamed each other and everyone believed whoever was ideologically convenient. And when that doesn’t work there’s always the spectre of Judicial Activism is frighten the public with. The multiple centres of power create multiple centres of responsibility. This actually makes government less accountable to the people, not more.
In a world where voters actually knew what they were doing separation of powers might make sense, but we don’t live in that world and barring extensive cognitive enhancement of the general population we never will. So I argue that we need to go in the other direction, turn the bug of power accumulation into a feature. Get rid of legislative bodies and judicial review. Just have one elected office – President, Chancellor or just call them the All-Tsar. This person has total legal authority for their term of office, which means they can’t wriggle out of blame if things go badly. With unitary power comes unitary responsibility. You may argue that government is too big a job for one person, and that’s true. But the elected office-holder will still be able to appoint as many assistants as they need, but the responsibility will still sit with the one elected official.
This is far from a perfect system, but at leas tit will finally be true that the buck stops there. We can only work with the world we have, not the one we want and for this world separation of powers is worse than useless as a check on government abuse.
I’m sure Hamish will be lurking around if you want to ask him questions.
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Kimmi 
Ryan Bonneville 
Elias Isquith 
Murali 
James K 
Alan Scott 
Patrick Cahalan 
Will Truman 
Will H.