Tuesday, October 25, 2016

The New Grand Bargain Part 1: How To Address Climate Change in a Bipartisan Manner.

With our current circumstances, putting aside ideological preferences in favor of consensus based policies are our best chance of averting decades of skyrocketing debt, government spending levels similar to that of European social democracies (with far less services), virtually nonexistent GDP growth, etc. These issues cannot be fixed by simple grandstanding, government shutdowns, presidential vetoes, and more gridlock. Alternatively, the two parties need to work out a plan that will directly address these impending problems. While they are on opposite sides of the political spectrum, I do believe compromise is possible. They can, in fact, meet each other halfway. By conceding issues that are less important to the respective parties, in order to have their most preferential policies and policy outcomes implemented, both sides can have their values represented and addressed. 

Starting with the environment: the right's main goal is to downsize the EPA, in order to reduce mandates, spending, and the general economic inefficiencies resulting from these regulations. In contrast, the left's priority is to reduce CO2 emissions in order to slow global warming. These views are not irreconcilable, in fact, there is a very simple solution that can satisfy both parties. The right should offer a revenue-neutral carbon tax; that is, a tax on each ton of carbon emissions; offset by equal reductions in taxes elsewhere (if the current system remains, I'd recommend about half payroll tax reductions, half corporate/business tax reductions). The left should then agree to lower EPA regulations and cut the size of the EPA. Overall, this would reduce the deficit, as less bureaucrats and overhead would reduce the costs of the EPA. Further downward pressure on the deficit would be produced from a rise in GDP, as having less regulations and the shifting the burden of taxes from discouraging productive activities to discouraging a negative externalities. Businesses and individuals would cut back on their emissions until the marginal benefit of the last ton of CO2 emission is equal to it's marginal cost. Rather than across-the-board regulations, emissions would be reduced in the most efficient way possible. The rate of the carbon tax itself would be devised from climatologists and economists, but in general should probably be somewhat above what is considered the socially optimal rate of carbon emissions, in order to enable further tax reductions elsewhere. 

Libertarians and conservatives who attack this from ideological grounds should be reminded of Friedman's case for pollution taxes. Pollution taxes still leave choice up to the emitter, whereas regulations don't, and that negative externalities impose costs on unconsenting third parties, and thus violates their property rights. Liberals who oppose a revenue-neutral carbon tax should be called out for having an alternative agenda behind their environmental programs, such as enlarging government. After all, economists are in near unanimous agreement that a carbon tax would be the most effective way of reducing CO2 emissions. Essentially, those in the Pigou Club need to reveal the hypocrisy of legislators who oppose such measures until they have no choice but to pass a solution similar to the one proposed here. 

1 comment:

  1. I've advocated for a tax on extraction more generally instead of a pure carbon tax. I wouldn't mind creating a market for financial derivatives that we could do to reduce carbon emissions (we did this for sulfur dioxide emissions to reduce acid rain, which worked).

    I chose to do extraction instead of carbon cuz extraction creates economic rents, which do nothing to increase productivity and can destroy capital. I've linked the proposal in the link below.
    http://suvysthoughts.blogspot.com/2016/08/extractive-industries-economic-rent-and.html

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