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The Case for Carbon Taxes, Part II:  Political Sustainability

by Eric Kramer

The Case for Carbon Taxes, Part II:  Political Sustainability

In a prior post, I argued that carbon taxes are not vulnerable to political subversion by hostile courts and regulators, and that this is an important advantage of carbon taxes over traditional regulation based on mandates, and also an advantage over subsidies.  Once they are passed, carbon taxes can work more or less on auto-pilot to drive a clean energy transition, unless they are affirmatively repealed by Congress.  In this post I consider whether carbon taxes are likely to sustain the support they need to remain in place.  There is certainly no guarantee of this; any ambitious climate policy is likely to remain controversial.  However, there are reasons to be optimistic that a carbon tax will not provoke a self-defeating backlash, and mandates and subsidies will also encounter political headwinds.

When it comes to political viability, it is natural to think that subsidies are the best policy, mandates are second-best, and carbon taxes rate poorly.

Subsidies are politically popular – at least if they are funded through deficit spending – because the benefits to voters are clear and they seem to reward people for virtuous behavior (like buying an electric vehicle), but the costs of deficit spending are indirect and hidden from view.  Subsidies do not force anyone to do something that they would rather not do, like convert from natural gas to electric heat, or purchase an electric vehicle.  They are all carrot, no stick.  (This advantage of subsidies is entirely dependent on deficit financing.  Telling people that we will give them a $10,000 tax credit to use on the purchase of an electric vehicle at some point over the next ten years is not particularly appealing if we also tell them that their taxes will go up $1,000 per year to pay for it.)

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What’s behind the subprime consumer loan implosion

Via Naked Capitalism  comes an explanation of what income inequality looks like in the US.  It stands in contrast to the Bloomberg article pointed to by Yves in her introduction.  I pulled the quotes with a non-economic person in mind.

THE WOLF STREET REPORT    transcript of podcast by Wolf Richter.

Subprime doesn’t mean poor or uneducated. Subprime means having a credit score below 620…
(Dan here) For example:
Aggressive subprime lending went into overdrive starting in 2014, and private equity firms piled into it, and smaller banks went after it, and it’s now coming home to roost  . . .
This includes healthcare costs, and it includes food costs, and apartment rentals, and cars have gotten a lot more expensive, and the like. But cars and apartments and cellphones have gotten a lot better too, and these quality improvements are added to the price. Think of the move over the years from a four-speed automatic transmission to an eight-speed automatic, or from two airbags to 10 airbags, or from a basic cellphone to a smartphone . . .
But for figuring the inflation measure of the Consumer Price Index, the costs of these quality improvements are removed from the index. This is the principle of hedonic quality adjustments . . .

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The Case for Carbon Taxes, Part I:  Political Subversion

 

by Eric Kramer

The Case for Carbon Taxes, Part I:  Political Subversion

Economists support carbon taxes on efficiency grounds.  By putting a price on carbon dioxide emissions, a carbon tax creates a strong incentive for people reduce their carbon footprint.  They can do this by switching to clean technologies or simply by reducing their use of fossil fuels – by driving less or turning down the air conditioning, for example.  Other policies can also be used to get people to reduce their use of fossil fuels, but carbon taxes allow people to reduce their carbon footprint in the least costly way.  Given that decarbonizing the economy will be a large and expensive undertaking, keeping costs as low as possible is clearly important.

Economists have made some headway persuading policymakers that carbon taxes should be a central part of any plan to limit global warming, but many people remain quite skeptical.  The most important doubts revolve around the political sustainability of carbon taxes.  Carbon taxes appear to be politically vulnerable because they directly and visibly lead to higher energy prices, and spending on energy is a major item in the budgets of most families.

I will discuss the politics of carbon taxes in two posts.  In this post I make a simple political argument for carbon taxes:  carbon taxes are clearly constitutional and can function effectively even if most Republicans remain opposed to action on climate change and gain control of the executive branch.  In contrast, the main alternatives to carbon taxes, mandates and subsidies, are highly vulnerable to political subversion by Congress and conservative courts and regulators.  This point alone is sufficient to justify including a carbon tax in any plan to avoid the worst effects of climate change.  In the next post I will argue that carbon taxes with per capita rebates will tend to generate their own support over time as people make investments that only pay off if the tax remains in place.  This does not ensure that a carbon tax will be politically sustainable – any ambitious climate policy will remain controversial for years – but it gives policymakers and activists another reason to support carbon taxation.

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The consumer is still alright, November 2019 edition

by New Deal democrat

The consumer is still alright, November 2019 edition

I have a new post up at Seeking Alpha.

A few months ago I took a look at the order in which I would expect the dominoes to fall if there were to be a consumer-led recession. One more domino has fallen, but several important ones are still upright.

As usual, clicking over and reading puts a couple of pennies in my pocket, and should be educational for you.

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Real decentralization is radical

by David Zetland  (originally published at One handed economist)

Real decentralization is radical

Visionaries, consultants and public speakers love to explain how they are embracing distribution over decentralization over centralization, using an image like this:

Figure 1

What drives me crazy about this image is that it actually undersells true decentralization, i.e., when everyone is connected to everyone:

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Russ Roberts and The Rat Hole Fallacy

by Eric Kramer

Russ Roberts and The Rat Hole Fallacy

Liberals believe that unregulated markets do not adequately supply public goods like roads, parks, and scientific research, and that government should use its taxing and spending powers to provide these goods.  Conservatives agree that markets fail to provide ideal quantities of public goods, but they emphasize that government spending is often wasteful and inefficient, and they argue that waste and inefficiency justifies limiting government spending.  Market failure is real a problem, but so is government failure, and nothing is gained by shoveling tax dollars down a rat hole.

The belief that government inefficiency justifies reducing the size of government is one of the most common and influential arguments for limited government.  Here is a version of this argument being made by Russ Roberts in a recent episode of his EconTalk podcast:

I have no problem with government taxing at relatively high rates if I thought they would spend the money well . . . I oppose high tax rates not because of market inefficiencies or slowing of rates of growth. Because I don’t think that government allocates that money well. And I think that argument–again, it’s not much of a winner [politically] –but that’s the right way, I think, to think about those things.

The point Roberts is making is intuitively plausible.  The idea that government waste justifies spending cuts is also emotionally appealing, because people deeply resent the idea that their tax money is misspent by incompetent or corrupt public officials.  Not surprisingly, the belief that government is wasteful reduces public support for government programs.  But the claim that government inefficiency justifies limited government is a fallacy.  We can call it the Rat Hole Fallacy.

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Excellent October housing report is good news for employment

Excellent October housing report is good news for employment

I’ll have a more comprehensive report up at Seeking Alpha, and I’ll link to it when it goes up, (UPDATE: It’s finally up, here ) but in the meantime let me just share the least volatile most leading component which is single family permits:

These made a new expansion high. The housing rebound, following lower mortgage rates, is firmly in place.

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