People often complain that government isn’t spending enough money fighting pollution. Even many economists repeat this complaint. That’s very odd, because standard market failure theory tells us that governments don’t need any money to fight pollution.
Why not? Simple: In standard market failure theory, governments are supposed to tax pollution! Such taxes simultaneously reduce pollution and collect revenue. As a result, fighting pollution is one of any efficiently-managed government’s top profit centers.
If you object, “Virtually no government pays attention to standard market failure theory,” I couldn’t agree more. But I still don’t understand why activists keep asking for taxpayer money instead of loudly advocating the negative-cost remedy that appears in every intro econ textbook.
READER COMMENTS
Zach W
Jan 29 2019 at 1:34pm
Monitoring & enforcement aren’t costless.
Neither is calculating the efficient tax on pollution.
Pigouvian taxation isn’t appropriate for all pollutants.
Thomas Firey
Jan 29 2019 at 10:23pm
You first two sentences are true, but I don’t see how they’re a problem for Caplan’s argument. Am I missing something?
I am skeptical of your third sentence, unless it implies that some pollutants should not be addressed by policy at all. Can you say more on this?
Fazal Majid
Jan 29 2019 at 2:54pm
Also carbon taxes cover huge swathes of the population, and hit the poor hardest, which is why California’s gasoline tax increase is so unpopular and why France is paralyzed by the “yellow vests” movement.
Matthias Goergens
Jan 30 2019 at 8:25am
How do they hit the poor hardest?
Fred_in_PA
Jan 30 2019 at 12:46pm
You ask, “How do they [carbon taxes] hit the poor hardest?”
I suspect that the answer is that the wealthy suffer less (from almost any generally imposed cost). The poor have no surplus beyond their monthly costs of living — indeed, many cannot even meet the minimum for a “decent” standard of living. So reducing their disposable income / ability-to-consume by the amount of an imbedded carbon tax shoves them even further “underwater”. The wealthy do have such surplus funds — surplus beyond what they need for their current standard of living. (Since they don’t consume those funds, they necessarily save / invest them.)
A carbon tax (like any other tax on the “rich”) won’t cause them to change their lifestyle. Rather, it will simply reduce the amount they have left over to save / invest. The rich are as comfortable as ever. The poor suffer more. And the rest of us see lowered future income growth because of reduced savings / investment.
john hare
Jan 31 2019 at 5:22am
Everything hits the poor the hardest. I think it would be difficult to find any expense that is not harder on the poor than the well off. Car insurance would be cheaper across the board if there were no expensive cars to be damaged as an example. So people driving high end cars are involved in making some poor people a little worse off. It’s a sound bite with some truth that can be applied almost everywhere.
Thaomas
Feb 3 2019 at 2:04pm
This looks like an additional argument for progressive taxation or redistribution.
Thaomas
Feb 3 2019 at 1:58pm
This objection does not seem to apply to a zero revenue net CO3 emissions tax if the revenue were returned with say a higher EITC or lump sum per person or exemption of the first $x of the wage tax
Suburbanist
Jan 29 2019 at 6:16pm
You would think that government wouldn’t need money to be a bookmaker either, but they lost money on off-track betting in NY.
https://www.nytimes.com/2010/12/09/nyregion/09otb.html
Benjamin Cole
Jan 29 2019 at 7:16pm
Remember, we should tax pollution, except for carcinogens in my neighborhood, which should be banned.
Matthias Goergens
Jan 30 2019 at 8:26am
I think there’s a finite price at which I would accept bacon and bbq in my neighbourhood.
J Scheppers
Jan 30 2019 at 9:50am
I am no fan of Pigouvian taxes. The standard text book misses that while even if successful priced PTs charges the polluter the “proper price”, the tax revenue in excess of the reduced pollution externality is simply another externality waiting to happen. The harmed individuals from the pollution remain with close to the same harm.
Eli
Jan 30 2019 at 11:38am
Yes, most people agree about carbon taxes, but the EPA’s mission is broadly defined to be more than carbon taxes. Large existing EPA cases include: government created superfund sites, superfund sites for companies that no longer exist for industries that no longer exist (who do you tax? have to spend on legal fees), interstate arguments about chicken poop water pollution from food infrastructure, and environmental and economic costs of continued disasters like Salton Sea (continued problems for bird populations). A lot of these taxes would be tied to food production infrastructure (in the case of chicken poop and the Salton sea run-off), and clean-up might well cost more than the taxable externalities over the time of the cleanup. So yes, you should tax bad outcomes and subsidize good outcomes, absolutely, but I think saying this is a silver bullet and then we’ve solved environmental problems seems… idk, not quite right?
Hazel Meade
Jan 30 2019 at 1:24pm
I agree, although taxing pollution does entail an ability to measure pollution, which does require some amount of state apparatus to do with any degree of accuracy and fairness. So the government does have to invest some money in monitoring and reporting pollution amounts and in maintaining metrics and quality control to make sure that the monitoring is accurate.
Mark Bahner
Feb 1 2019 at 2:04pm
Federal, state, and local governments do almost no measurements and monitoring of emissions. Virtually all of those things are done by third parties paid by the facility owners (e.g., periodic measurements) or by the facilities (monitoring, with periodic QA by third parties paid by the facilities). The only part of measurements/monitoring that local/state/federal governments typically do is “ambient” monitoring…for example, measuring the ambient tropospheric ozone (smog) level at a particular location. So the government spending related to taxing emissions is comparatively small, relative to government spending to develop regulations.
Michael Pettengill
Feb 2 2019 at 2:58pm
So, to address the pollution problem that harms taxpayers, Congress just creates an agency, like the EPA, and tells it to make the air and water clean under the Clean Air and Water Acts?
Note HW Bush signed amendments that allowed pricing polllution.
Lots of lawsuits followed which took multiple trips to the Supreme Court where environmentalists won ruling by the Supreme Court directing the EPA to put a price on pollution to end the pollution.
History has demonstrated that those arguing for pricing pollution are associated with suing the EPA based on the EPA setting the price too high such that it will destroy the US economy, and then after the fact, the cost of reducing or eliminating the pollution was far below the price the EPA set on the harm of pollution. A price the Supreme Court agreed in multiple cases must be set, and that was reasonable under the law.
The specific target of the HW era law was acid rain and mercury that harmed libertarian New Hampshire. As well as Vermont, Maine, Mass, Canada, … The forest and waters have improved as the coal burning, and auto industry saw the writing on the wall, and cut pollution befoore opponents to pollution limits and taxes failed to end them at the Supreme Court and electing Congress and tthe President.
The EPA R&D funding provided the basic for pricing pollution, ie, harm to people and assets, buiilt annd natural. Plus the EPA provided funding to mostly private organization to demonstrate pollution could be substantially reduced by scrubbers or by substitutes.
Note, economists seem to have erased substitution from economics in the past few decades. Pollution reduction is almost entirely by substitution with new technology that becomes much cheaper from advannced research, funded in part by the government, but then by economies of scale in production.
Private investment is low at the beginning, because most substitutes require two to five decades of R&D plus manufacturing learning to end up substantially cheaper than the polluting system it replaces. The complex coal system that was built over several centuries will be largely eliminated in less than a century, but more than 50 years, by cheaper substitutes of wind and solar and storage and natural gas, which will probably eventually be produced syntheticly to feed the more than century investment in pipes to homes for cooking and businesses.
In physics, most equations include dx/dt, but almost never do economists include dx/dt in their equations or theory. The time scales in economics of interest are years, decades, centuries. So, investments need to be on the order of years, decades, centuries. So, economists need to argue that a good investment is one that produces a market return after at least a decade, if not a century, ie, you invest a billion dollars and your great grand children will beginn to see a return.
A great example is forest products. The private forests are on 60 year or less investment scale. Pulp wood, 30-40 years, stick lumber 60 years. Old time private forests are on 80-100 year cycles. But private forest product consumers want products with 120, 150, 200+ year invdstments, which come from governments. The currennt Brazilian president ran on selling off the government investment holdings in old growth forest held in trust for the people who have lived in and on old growth forests for thousands of years.
Note, old growth forests, the rain forests, are a critical part of limiting CO2 pollution. Estimates of as much as half the oxygen we breathe is produced in rain forests around the global. They are investments with returns on the scale of multiple centuries. Modest and diffuse returns to invested capital.
Has Bryan made investments that will benefit his tenth generation great, great,… grand child, not himself or even his grand child?
And answering, Bryan is trying to by making economic arguments on normative political economic policies which will only fully be tested in 200 and 500 and 2000 years, ie, based on positive or negative return on investment. What impact will pollution standards have on human life in 500 years?
Thaomas
Feb 3 2019 at 1:52pm
Well that is what I advocate for a revenue neutral tax on net CO2 emissions.
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