Comments on: Global Warming vs. Medicare

By: M1EK

M1EK — Mon, 19 Mar 2007 16:57:52 +0000

Steve, Of course it's better to think it through - but the libertarians in question are using the requirement for an exact accounting as an excuse to avoid any action (because they simply don't want that action - i.e. on ideological rather than practical grounds). You've as much as said that you think replacing the payroll tax with a carbon tax is pretty close to "thought through enough", haven't you? i.e. "pretty good"? That's a position that the folks at Reason would tear apart because you haven't accounted for each penny of cost and made sure that those who suffered the cost got exactly the same amount of benefit. Of course, it's not coincidental that the standard they want to use makes it completely impossible to ever address any kind of externality. That's what they want.

By: Steve Verdon

Steve Verdon — Mon, 19 Mar 2007 16:44:58 +0000

M1EK,

Oh yes, much better to rush in with a half-assed policy than to actually sit down think about the issue and come up with a decent solution.

By: M1EK

M1EK — Mon, 19 Mar 2007 13:53:15 +0000

Gore's 'definition' is a snark at the self-identified libertarians who insist on an accounting down-to-the-penny of all such external costs before they'll agree to do anything about it. At least, that's what I read into it.

By: Steve Verdon

Steve Verdon — Sun, 18 Mar 2007 19:14:11 +0000

Sorry Edgardo, but my definition is the same one that guys like Jean-Jaques Laffont uses. It isn't always a question of whether or not we choose to internalize the costs, but that some costs (or benefits) simply can't be internalized. For example, please tell me how much I value clean air in Southern California? I don't see how the decision makers in S. CA can choose to internalize this cost without some sort of government intervention (cap-and-trade programs, pigouvian taxes, etc.).

As for the theory of the second best, my comment was about the politics of trying to get something like this implemented. If this is a good policy, and I think there are a variety of reasons to do it not just AGW, then if tying it too a specific expenses helps garner support then I'd be willing to take that risk/trade off.

By: Edgardo

Edgardo — Sun, 18 Mar 2007 14:41:03 +0000

Steve, Your definition in your post has two parts, the second one starting with "because we lack...". Now you refer only to the first part of your previous definition, that is, benefits and costs that are fundamentally external to the market. They are "external" to the decision-makers because markets are interactions of decision-makers; the opposite of an externality is the internalization of benefits and costs by the decision-makers. As long as you ignore the second part of your definition we are close, but I still prefer the standard definition that refers to what benefits and costs are "internalized" by decision-makers and which ones are not. It is an incentive problem, not a valuation problem. If there is a good reason to establish a new excise tax, its revenue is better offset by a reduction in some other taxes but without tying the new revenue to a particular expenditure. I cannot think of any second best argument to do it. Maybe you're referring to a political argument to justify the particular tax you want to reduce.

By: Steve Verdon

Steve Verdon — Sun, 18 Mar 2007 09:06:58 +0000

Spencer, Considering that the first link I have aside from the CBO link is to Greg Mankiw and that I've already signed on to Mankiw's idea, what is your point? Oh, and I think that Gore isn't very bright not because he supports a pigouvian tax, but because he doesn't know what the heck an externality is. Edgardo,

...costs and benefits of an action that are not taken into account by the decision-maker...

That is not the definition. It isn't that the costs/benefits are not taken into account it is that these things are external to the market an hence cannot be taken into account even if one wanted too. As for the problem of tying a specific pigouvian tax to a specific expenditure, yeah I realize that there is a problem. Rent seeking has been a topic I've discussed many times. Heck, I've even got James using the term. My preferred policy position is that the money raised from such a tax simply be destroyed...of course, I realize that even while this might be the best course of action, such a policy is likely to garner little support. The theory of the second best and all that you know.

By: PolState.com » Blog Archive » ADMIN: We’re about to again be a functioning member of the Gov. Relations Blog Network

Sun, 18 Mar 2007 02:00:50 +0000

[...] Outside The Beltway ::: “Global Warming vs. Medicare“, a thoughtful (Ok, it’s long anyway < grin >) treatise describing “noodling with Excel” that shows everyone who wants something out of government should be concerned that Medicare will continue to take a larger chunk of the expenditure pie. [...]

By: Edgardo

Edgardo — Sat, 17 Mar 2007 20:59:20 +0000

Gore doesn't know what an externality is. No surprise here. However, your definition differs greatly from the standard definition in micro textbooks: costs and benefits of an action that are not taken into account by the decision-maker (this is not a valuation problem, it's an incentive problem because even if you can value the cost or the benefit, you don't have the incentive to take it into account).
Regarding your proposal, you should be aware that the large literature on tying taxes to particular expenditures centers on many reasons not to do it.

By: spencer

spencer — Sat, 17 Mar 2007 20:31:33 +0000

Do not forget that one of the major advocates of this tax is Greg Mankiw.

Does this imply that you also think he is not one of the brightest bulb in the bunch?

By: » OTB News

» OTB News — Wed, 31 Dec 1969 18:00:00 +0000

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