Is graffiti an art? Is alcoholism a disease? Is economics a science? Is bombing cities during wartime terrorism?
Who cares? Art, disease, science, terrorism are just words. How I feel about graffiti, alcoholism, economics, and bombing doesn’t depend in any way on how society labels those activities. Words are just words.
I base my judgment on other factors. Do I like graffiti? How do I believe alcoholism should be addressed? Do I believe economics is useful? Do I support bombing cities during wartime? Labeling those activities one way or another does not in any way influence the way I evaluate those things.
David Henderson has an excellent post on the question of whether we are subsidizing the fossil fuel industry. I agree with the post, but have a slightly different take on the final sentence:
Note: There is an issue, especially for libertarians, about whether preferential tax treatment constitutes a subsidy. I’m always a little torn about this.
Yes, it’s unclear whether the term “subsidy” is appropriate for a tax preference. I’d add that it is also unclear as to whether the sort of tax preference David describes is appropriate. But I don’t believe the issue for libertarians is whether the activity should be called a subsidy. As with bombing cities during wartime, the real question is whether it is a good or a bad thing. I’m not going to let the way Webster defines “subsidy” in a dictionary determine how I feel about a particular public policy. (Or how Webster defines art, disease, science, terrorism, etc.)
Consider the following information in David’s post:
The biggest single item (see his Table 5-1) is $13.9 billion over 10 years for oil drillers being able to expense, rather than depreciate, intangible drilling costs. But the 2017 tax cut permitted expensing for investments in short-lived assets such as machinery and equipment. So the preference for the oil industry suddenly fell. That would make the $13.9 billion for, say 2021, fall, possibly all the way to zero.
In my view, all investment should be immediately expensed. So in one sense the oil industry preference is a good thing; this is how the tax code should work. But we’d also like to see each industry treated equally. So the favoritism shown to the oil industry before 2017 distorted the flow of capital, directing it to uses less productive than in other industries. Does the good outweigh the bad? I don’t know, but I’d say the answer does not depend on whether we decide to apply the term “subsidy” to this sort of tax preference.
[Of course there’s also the question of externalities from burning fossil fuels, which makes the issue even more complicated. But I’ll ignore that complication, as the main point I’m making applies even if there are no externalities involved.]
The Atlantic has a very good article on the problems faced by electric car companies that try to sell directly to consumers. They point out that New York has lots of subsidies for electric cars, whereas Florida does not. But electric car sales are far higher in Florida, partly (not entirely) because Florida’s car dealership rules are far less restrictive.
Even if New York’s subsidies and restrictions in some sense were to “balance out”, neither favoring nor impeding electric car sales, the policy regime would still be quite inefficient. It’s not a zero sum game. Both the purchase subsidies and the dealership restrictions are costly policies, considered in isolation. It seems crazy to spend public funds that are raised by distortionary taxes in order to promoting electric car sales, while at the same time restricting those sales with barriers to direct sales to consumers. It’s like driving with one foot on the accelerator and one on the brake pedal. That wastes gasoline (or electricity.)
PS. The Atlantic article is worth reading. I especially liked this paragraph:
“If you want to see more rapid market penetration of electric vehicles, then prohibitions on direct sales are a major barrier,” he said. Crane frequently testifies on Tesla, Rivian, and Lucid’s behalf, but he says that he’s never accepted money from any of them. He wants to make clear that this is a no-brainer issue. “Whether you’re free market or pro-consumer or pro-environment or pro-competition, there’s something here for everyone,” he said. One of his proudest moments was getting the Sierra Club and the Koch brothers to sign a letter opposing the same law.
PPS. Taxation is theft? Affirmative action is discrimination? OK, but what do you think about the policies? Utilitarians spend more time enjoying eating tomatoes than worrying about whether they are a fruit or a vegetable.
READER COMMENTS
Peter Gerdes
Jan 22 2022 at 2:05pm
Great post. Nothing to disagree with.
Daniel
Jan 23 2022 at 9:27am
Indeed!
Roger Sparks
Jan 22 2022 at 2:52pm
Each word a writer uses to describe something is chosen for a reason. The word “subsidy” starts the reader down path of undesirability, particularly tax undesirability, and triggered your reaction.
If, in your example, “subsidy” was replaced with “good policy”, the reader would have been started down the path of thinking about the wisdom of government policies. I, for one, think that the issue of climate change can only be corrected if government policies are rethought holistically. We need to discontinue our national tendency to fund tax payments with subsidies to those paying taxes.
Jose Pablo
Jan 22 2022 at 4:59pm
Government intervention is always a mess. Trying to sort it out is just a fool’s errand.
There are government direct subsidies (sending you money for doing what you do), there are tax breaks and there are the absent of costs internalization for your activity. Which governments do, for instance, for tobacco and alcohol but not for fossil fuels … well, maybe for this one too, who knows).
For instance, once you take into account the amount of taxes included in gasoline prices, ¿is the government still subsidizing fossil fuels?. Who knows? Trying to properly sort this out is an impossible exercise that can only drive you to melancholy.
Governments are design to be a mess from a rational perspective and they sure deliver.
I think that in the great scheme of things, governments are “net penalizing” the fossil fuel industry (big time) just by holding growth significantly down.
Cochrane is right:
https://johnhcochrane.blogspot.com/2022/01/institute-for-progress.html#more
Thomas Lee Hutcheson
Jan 23 2022 at 9:05am
Great. The best thing to do, then, is to just identify and denounce the principle that supposedly lies behind the intervention, but leave the intervention itself in peace, rather than to embark on a “fool’s errand” of actually trying to make things better?
Jose Pablo
Jan 27 2022 at 3:02pm
%” The best thing to do, then, is to just identify and denounce the principle that supposedly lies behind the intervention”
Yes, it is the best thing to do. The main problem are not “actual interventions”. The main problem is the idea that there is “the right kind of intervention”. Such a thing does not exists.
So trying to “design” the “rigth kind of intervention” is, indeed, a fool’s errand. Time should be, instead, devoted to expose the “principle” that “no intervention” is the best intervention.
Every single intervention (and taxes, subsidies and tax breaks on fossil fuels are a great example) are built uppon the (interested) assumption that the sponsors of the latest intevention are a better buch of illuminati than the illuminati sponsoring the previous ones. Most of the time (90%+) that’s a wrong assumption.
Mark Z
Jan 22 2022 at 5:10pm
“Labeling those activities one way or another does not in any way influence the way I evaluate those things.”
It certainly shouldn’t influence how anyone evaluates those things, but it often does, I’d guess for even the most rational person in certain circumstances. I think whether something is a ‘subsidy’ is sufficiently neutral that it doesn’t matter much whether the label is applied. But there are words that, are in theory, purely descriptive, but are so morally loaded that conceding a policy can be described by that word amounts to conceding that the policy is evil. So unfortunately arguments over definitions sometimes are crucial. E.g., anyone tempted to argue, “I”ll accept your definition of racism, and that this policy is racist, but that sometime racist policies are good,” may as well not even bother. If the moral connotations of a word are strong enough, it is easier to simply accept that the word has a ‘meta-definition’ which includes a moral corollary, e.g., that a word may imply that anything it describes is unjust, and therefore the question of the precise definition of the word and whether something that may or may not be described by it is just or unjust are the same question.
Scott Sumner
Jan 23 2022 at 11:48am
Yes, I sometimes argue that Hiroshima was almost a textbook definition of terrorism. Killing a massive number of civilians in order to terrorize the rest into agreeing to your political objectives. But was it justified? I don’t know. People find my argument to be confusing.
Philo
Jan 22 2022 at 10:12pm
About tax preferences for the fossil fuel industry, you write: “the real question is whether it is a good or a bad thing.” Well, that’s the real question for consequentialists (utilitarians and the like). But that’s not the question for the many libertarians who are not consequentialists: they have a concept of government *subsidy*, and they are opposed to government subsidies, regardless of other considerations.
Those libertarians who believe that the imposition of taxes is wrong (“taxation is theft”) would say tax preferences are not subsidies. Those who accept some taxation as legitimate might or might not consider a particular case of tax preference to be a subsidy, depending on how the resulting overall tax scheme compared with *legitimate taxation*, as conceived in their theory of legitimate taxation. (Of course, even a non-consequentialist libertarian who regarded a particular tax preference as *not* a subsidy might oppose it on other grounds–just not on general consequentialist grounds.)
Scott Sumner
Jan 23 2022 at 11:52am
“Those libertarians who believe that the imposition of taxes is wrong (“taxation is theft”) would say tax preferences are not subsidies. ”
So what’s the difference between these two policies:
A: Tax everyone in the country $1000, and then give Fred Smith a $600 subsidy.
B: Tax everyone in the country $1000, except Fred Smith who has a $600 tax preference and thus pays $400 in taxes.
It seems like you are saying that some libertarians only view Case A as a subsidy.
Philo
Jan 23 2022 at 1:17pm
By ‘subsidy’ I meant ‘net subsidy’. If the government takes $1000 from you by force and simultaneously gives you $600, that would not count as a (net) subsidy to taxation-is-theft libertarians. (But I should have said ‘net’ explicitly; it is normal to count a gross subsidy that is canceled by an expropriation as a “subsidy.”)
Thomas Lee Hutcheson
Jan 23 2022 at 8:50am
I feel the same way about descriptions of the stance of monetary policy. Whether or not monetary policy was “restrictive” from 2008-2020, inflation was below target and the Fed was not doing enough to get it onto target. We should be using verbs (what to do, “what it takes”) rather than adjectives.[Expensing business investment is second best. We ought not be taxing business income at all. Impute it to the owners and levy a progressive tax on their incomes, or better still, their consumption.]
DJ102010
Jan 23 2022 at 9:36am
I’m curious – what’s the argument against using depreciation?
Scott Sumner
Jan 23 2022 at 11:53am
That biases the tax system toward consumption and against saving and investment. You need immediate expensing to make the system neutral.
nobody.really
Jan 25 2022 at 9:18am
As far as I know, standard depreciation (typically straight-line) and amortization makes sense for accounting purposes: We want to compare a firm’s/household’s income to expenditures, but some income/expenditures are “lumpy.” Depreciation/amortization provides a means to make them comparable.
Maybe these same rationales don’t carry over to the tax environment. I hadn’t really considered that before.
Alabamian
Jan 23 2022 at 10:20am
Good post. The Discourse would be greatly enhanced if everyone spent more time discussing the object-level question and not the labels we apply to them.
Adjacently, SSC has a great post on labels, maps and territories, etc.
https://slatestarcodex.com/2014/11/21/the-categories-were-made-for-man-not-man-for-the-categories/
nobody.really
Jan 25 2022 at 9:38am
People who practice General Semantics try to structure their language in a way that better matches their understanding of the world, in order to avoid unnecessary impediments arising from language. To this end, some practitioners employ E-Prime: They avoid using the verb “to be.” Using this strategy, we avoid entirely questions such as “Is graffiti an art?” “Is alcoholism a disease?” “Is economics a science?” “Is bombing cities during wartime terrorism?”–and hopefully we re-phrase our sentences to better focus on the topics we care about.
David Henderson
Jan 23 2022 at 3:33pm
Thanks for the shout-out, Scott.
Comments are closed.