Further thoughts on the carbon tax.

This post is in response to feedback from my previous post on this topic.


There are no panaceas.

But as abstract ideas go, pollution taxes are pretty appealing. Holding constant lots of things that we can’t really hold constant, it means replacing the inefficiency resulting from poorly defined/enforced property rights with a world where prices more accurately reflect the costs of one’s decisions.

Let me come back to the things we’re “holding” constant in a bit. Why do I want to throw my weight behind shifting public perceptions in favor of pollution taxes?

I think they’re underrated by the median voter. Climate change is just a subsidy paid in the form of worse conditions. But most people (including people who should know better) don’t have a good understanding of the problems caused by subsidies.

Which is not to say a carbon tax isn’t overrated by the median policy wonk. There are a ton of important caveats, but on balance, as a policy for use in the next 50 years, I think they’re a useful tool to enhance efficiency or replace worse tools.

Again, there are no panaceas. I’m also not a huge fan of the “Economists’ Statement on Carbon Dividends” as written (for reasons I’ve hopefully mostly addressed). I suspect the best case scenario for my preferred carbon tax policy would be a modest improvement. I think the bulk of the gain would be a cultural shift away from “let’s regulate our problems!” to “let’s leverage incentives to address our problems!” Not Earth shattering, but a step in the right direction.

So let me state my position, then we can dig into criticisms and caveats.

Let’s make marginal shifts away from taxing investment and towards taxing negative externalities. As we go, let’s spend a lot of effort trying to study the impacts and adjust accordingly. Let’s heavily agument that with abatement policies rather than trying to return to some pre-industrial climate target.

Okay, let’s dig into criticisms and caveats.

  1. Public choice considerations
  2. Geoengineering and other alternatives
  3. Cost
  4. Coordination
  5. Uncertainty

1-Public choice considerations

A Green New Deal will be a rent-seeking bonanza. Pollution taxes will face the same sorts of problems that plague the tax code in general. There will be intentional loop-holes and accidental screw ups.

We have to continue to push for reducing the complexity of tax codes in general. But I can’t deny that a carbon tax would be a step back on this margin.

Minus a hundred points for my position.

2-What about geoengineering?

Geoengineering sounds like a possible panacea. Maybe it is. But I’m not willing to flip a switch and find out the hard way all at once.

First off, geoengineering is scary. The climate is a complex system and complex systems are difficult-impossible to manage well. And that’s especially concerning if it means that anyone with a few million bucks can try to fiddle with Earth’s thermostat.

But it seems like a plausible tool that might be used to address climate change. Similar to my take on a carbon tax, I think the way to go is baby-steps plus research.

What about subsidizing “green _____”

Personally, I’m skeptical. Solar sounds appealing, and I (personally) think windmills are beautiful. But I don’t think the government will do a good job of picking winners and losers. Pollution taxes are appealing to me because they don’t require bureaucrats to choose. Again, I think the way to go is to use pollution taxes to offset other taxes–while continuing to advocate for reduced size/scope of government and a return to federalism.

Plus five points for my position.

3-Cost

We should also remember that GDP is an imperfect measure of well being. The current figures aren’t directly comparable to the figures we’d get in a post-carbon-tax world. A one-time fall in GDP doesn’t (necessarily) mean we’ve screwed things up.

A tax big enough to halt climate change would be incredibly costly. Too big a tax yields a negative net benefit.

Still, it’s worth remembering that a) we can go too far with a carbon tax, and b) we don’t have access to a silver-bullet solution. So let’s start small and gradually increase carbon taxes till we get close to (our best estimate of) the optimal level.

Plus epsilon points for my position.

4-Coordination

The basic idea of a carbon tax is that we’re dealing with a global-scale externality problem. But small scale taxes are unlikely to do much beyond shifting where pollution happens. A fully effective tax would require multi-lateral coordination. And, as a country, we aren’t very good at that.

Trying to create a tax on imported carbon-intensive goods that didn’t face a tax at home seems a) sensible at first blush, and b) a massive opportunity for public choice problems.

On the other hand, we could justify a tax commensurate with the local impacts (something like 10% of the global impact). This fits nicely with my idea of starting small and adjusting at the margin.

But even within the U.S. there are coordination issues. Long Island will likely face net costs from climate change, but other areas will benefit from a longer growing season.

Plus 10 points for my position, but also minus 10 points.

5-Uncertainty

Uncertainty cuts both ways: we’re currently accidentally manipulating the climate and that could turn out to be catastrophic. Trying to intentionally manipulate it in the other direction is also dangerous. Again, the appropriate focus is on marginal tinkering [much as it clashes with my non-interventionist priors] rather than ambitious global engineering [which grabs my priors by the lapels and knees them in the groin].

When I teach externalities, I draw a graph like this:

Negative externalities when we magically know their magnitude.

In this market, we end up with an equilibrium quantity defined by the point where Marginal Private Cost equals Marginal Social Benefit (MPC = MSB). But the Marginal Social Cost (MSC) is greater, so we get a deadweight loss equal to the triangle I’ve shaded in red and purple.

It’s important to note: we don’t actually know where the MSC curve is. It’s somewhere above MPC, but we’re basically in the position of trying to eliminate a subsidy we don’t know the size of.

The relevant models–climate models and economic models–are filled with uncertainty that we simply cannot resolve without real life experience.

What does the economic way of thinking tell us? Act on the margin. Setting a tax that pushes supply (MPC) up to the green line doesn’t fully address the problem (as I’ve assumed it to be in this graph), but it’s an improvement.

Even better, it’s an improvement where the biggest returns are experienced up front. This modest tax fails to get rid of the red deadweight loss (DWL) area, but it eliminated 3/4 of the total DWL.

Plus X points for my position where X is a random variable with an unknown distribution, positive first derivative, and negative second derivative.

tl;dr:

At my friend’s behest I’ve been looking at Bob Murphy’s critique of carbon taxes. I find it’s shifted the magnitude of my prior opinion, but not the direction. I still think carbon/pollution taxes are a good idea, but I no longer think they’re a great idea. My take away from Murphy’s work is that the optimal carbon tax is fairly modest. My response is to advocate for getting a very modest carbon tax on the books, then gradually shift tax policy in that direction.

For climate change (and any other problem) we ought to be pluralists. A mix of approaches is ideal. Part of the appeal of Pigouvian taxes is that they allow and encourage a wide range of responses. The best pollution abatement scheme isn’t something we can look up in a binder. We have to discover it, and crowdsourcing is the appropriate way to do that.

But carbon taxes are only one part. We should also advocate for changes that will ameliorate harm. I am more bullish on these policies than I am on a carbon tax:

  • Make it easier for the world’s poorest people to move to rich countries that will be better able to cope with climate change.
  • Quit subsidizing flood insurance.
  • Quit subsidizing polluting industries (and other industries).

Even though geoengineering scares me, we should try to learn more. Ditto for any other possible tools that come along.

The Rao Roe Row

Neomi Rao, nominee to the D.C. Circuit Court of Appeals, has fallen victim to an old fissure–conservative and libertarian disagreement over unenumerated rights. At the hint that she believes that rights exist outside the express text of the Constitution, conservatives have pounced, concerned that Rao will betray conservatives on abortion issues. On both political and legal dimensions, this concern is silly.

As a general matter, it’s beyond clear that Rao is qualified. Conservatives shouldn’t cripple a great candidate over a minor issue. The Supreme Court has many times confirmed that unenumerated rights exist. Rao is bound by those precedents, including Roe, and whether she agrees with those precedents or not is immaterial to the job she’s nominated to do. The chance that Rao will even have a chance to expand the existing list of recognized unenumerated rights is exceedingly low. It just doesn’t come up that often, and the courts already have tests for assessing whether a right should be recognized.

But perhaps more importantly, non-enumerated rights don’t lean toward one side of the ideological spectrum or the other. The Supreme Court of the early twentieth century recognized, for instance, liberty of contract as a constitutionally protected right–though unenumerated. Progressive jurists bent on defending Roosevelt’s New Deal did so in part by opposing the enforcement of unenumerated rights. Unenumerated rights also include other “conservative” causes such as the right to earn a living. And, of course, unenumerated rights have also favored “liberal” values such as a broad right to privacy. In short, it is unclear why Rao’s alleged support for the enforcement of unenumerated rights should enter into the partisan calculus.

And then there’s the simple fact that unenumerated rights do in fact exist and deserve constitutional protection. The history and passage of the Ninth Amendment, which says enumeration of rights shouldn’t detract from those retained by the people, make this clear. The founding generation didn’t see rights as reserved to a fixed set of especially important activities. In fact, many feared that the enumeration of certain rights would imply that the unenumerated ones shouldn’t be recognized. That fear has turned to be prescient, despite the inclusion of the Ninth Amendment, which was written to make clear that the enumerated rights shouldn’t be seen as implying that unenumerated rights should go unprotected.

In short, not only would Rao be right to recognize such rights–though the scope of those rights is always a matter of intense debate–she has to recognize them under binding law, and her thoughts on the matter are unlikely to make much difference to her job. If she gets nominated to the Supreme Court later down the road, the concern may have more relevance. For now, just get her confirmed.

Expression at the polls

Last election, Jillian Ostrewich drove to a polling place at a Houston rec center, expecting to vote. But she made the mistake of wearing a “Houston Fire Fighters” t-shirt. An election worker confronted Jillian, insisting that she couldn’t vote unless she turned the offending shirt inside out. The rationale: a measure on the ballot was related to firefighter pay, and the shirt was related to firefighters.

Tony Ortiz suffered a similar fate in Dallas. Tony’s crime was wearing a MAGA hat while he stood in the voting line outside his local library. An election worker said he couldn’t wear the hat to the polls because the MAGA slogan constituted “electioneering.” Tony responded that the hat had nothing to do with any issue or candidate on the ballot. The election worker threatened to call the police.

These election workers were relying on a Texas law that forbids electioneering or wearing “a badge, insignia, emblem, or other similar communicative device relating to a candidate, measure, or political party appearing on the ballot” in or near a polling place. The law even prohibits someone from wearing an ID if the name is the same as someone appearing on the ballot. A violation is a criminal misdemeanor. Today, my colleagues and I at Pacific Legal Foundation filed a lawsuit on behalf of Jillian and Tony challenging the Texas ban.

As it happens, the Supreme Court issued a decision just last year striking down a similar law in another case brought by Pacific Legal Foundation called Minnesota Voters Alliance v. Mansky. The Minnesota law in MVA prohibited wearing a “political badge, political button, or other political insignia” in the polling place. The Court said states can limit some electioneering at the polling place to prevent voter intimidation and excessive disruption. But the government has to have some clear and logical basis for sifting “what may come in from what must stay out.”

The word “political” was not a clear boundary. As the Court noted, almost anything could be considered political, and the fuzzy language offered too much wiggle room for abuse and discrimination. The attorney arguing for Minnesota drove this point home during an onslaught of blistering questions in oral argument: how about a rainbow flag shirt? Permitted, maybe. How about a “Parkland Strong” shirt? Permitted, probably. How about an NRA shirt? Definite no. How about a shirt with the text of the Second Amendment? Definite no. At about that point, most everyone knew the outcome of the case–the attorney had just proven the inherently arbitrary standard he was trying to defend.

The Texas case filed today is a bit different. For one, the ban extends to 100 feet outside the polling place, which clearly encompasses sidewalks and other public areas where speech rights enjoy their widest berth. But the ban is not quite as amorphous as the word “political.” Instead, the ban extends to messages that relate to a candidate, measure, or party on the ballot.

This slightly narrower language probably doesn’t save the Texas law. After all, almost anything can be considered related to a candidate if the candidate has taken any kind of position on it. If a candidate has criticized Trump (have any not?), then is Tony’s MAGA hat “related” to the candidate? If Ben & Jerry’s takes a position on a ballot measure, does a Ben & Jerry’s shirt relate to that ballot measure? Maybe, but it depends on the election worker–and therein lies the problem. As the Supreme Court said in MVA, “A rule whose fair enforcement requires an election judge to maintain a mental index of the platforms and positions over every candidate and party on the ballot is not reasonable.” Not only would such an index be impossible, but the contents and application of that index would be dictated by an election worker’s own biases and background.

The integrity of the electoral process is vital. But surely Jillian’s firefighter shirt or even the much-reviled MAGA emblem do not imperil the right to vote. Wed don’t shed the right to express ourselves in peaceable ways when we step into a polling line.

Musk in contempt?

The SEC wants to slam Elon Musk with contempt over a thirteen word tweet. Musk has taken to Twitter to both vaunt his company and castigate the SEC. He’s under an existing SEC settlement that requires company oversight of his communications. Musk’s brief tweet on Feb. 19 that stoked the ire of the SEC said: “Tesla made 0 cars in 2011, but will make around 500k in 2019.” The SEC swooped in, charging that Musk hadn’t received preapproval for the tweet and convinced Musk had misled the public.

The SEC’s overzealous attempt to wield the contempt power is disturbing. Especially given Musk’s vocal and mocking disdain for the SEC, the regulator’s attempted coup over the content of his tweets raises serious First Amendment concerns. Here, it seems the 500K estimate was not precise, but Musk went on to clarify on his Twitter feed, and he didn’t conjure the number from the ether. At worst, it was incomplete information. Welcome to Twitter. I just can’t quite stomach the fact that a regulator is out there lurking, ready to pounce on any linguistic imprecision in a forum where brevity is the name of the game. Obviously, Musk’s statements have an impact on the market, but investors are sophisticated actors who should be expected to do their homework. The SEC’s paternalistic and aggressive monitoring of Twitter feeds should raise our hackles.

Originalism and defamation

Today, Justice Clarence Thomas issued a solo opinion urging the Supreme Court to reconsider a hallmark case in First Amendment law–New York Times v. Sullivan. That case held that defamation claims brought by public figures had to meet a heightened standard of proof by showing “actual malice” by the alleged defamer. The basic premise is that muscular use of private defamation suits discourages criticism of public figures and thus clashes with First Amendment interests.

Justice Thomas’s primary complaint with this standard is that judges created it with a wave of the wand rather than a serious analysis of the original understanding of the First Amendment. He points out that the ratifiers of the Constitution gave no indication that they intended to abrogate the long-standing common law of libel that had existed in the colonies and England for centuries. For those who believe that the Constitution’s meaning should reflect what the ratifiers thought the language meant at the time, I think Justice Thomas makes a convincing case.

Obscenity law liberalised

2014 Protest outside parliament for sexual expression. Photo by BeeMarsh BeePhoto
December 2014 Protest outside parliament against sex censorship. Photo by BeeMarsh BeePhoto

This is a cross-post from my contribution to the Adam Smith Institute blog.

Last week the Crown Prosecution Service published updated guidance for prosecutions under the Obscene Publications Act (1959). Legal campaigning has brought about a big change: the liberal tests of harm, consent and legality of real acts are now key parts of their working definition of obscenity. The CPS explain:

… conduct will not likely fall to be prosecuted under the Act provided that:

  • It is consensual (focusing on full and freely exercised consent, and also where the provision of consent is made clear where such consent may not be easily determined from the material itself); and
  • No serious harm is caused
  • It is not otherwise inextricably linked with other criminality (so as to encourage emulation or fuelling interest or normalisation of criminality); and
  • The likely audience is not under 18 (having particular regard to where measures have been taken to ensure that the audience is not under 18) or otherwise vulnerable (as a result of their physical or mental health, the circumstances in which they may come to view the material, the circumstances which may cause the subject matter to have a particular impact or resonance or any other relevant circumstance).

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Bad guys and bad thinking

AOC made waves with her recent “lightning round” during a hearing on a new campaign finance behemoth lumbering through the House, HR 1. Her basic point was that under our current campaign finance regime, it’s “super legal” to be a “pretty bad guy.”

I wrote recently that much campaign finance rhetoric resembles a religious canon. If so, then AOC is vying for the position of high priestess. I can’t review all the many flaws in her five-minute fable, but I’ll briefly canvas her commitment to orthodoxy.

First, she asks the hearing panel whether there is anything stopping a “bad guy” from being entirely funded by corporate PACs. The panel answered that no law prevents that. But surely common sense does. Running on a campaign solely funded by corporate PACs would be a titanically stupid campaign strategy. First off, thanks to disclosure laws and the realities of a media-rich society, all constituents would know that the candidate was running solely off corporate PACs. Why any candidate would intentionally sell themselves as a corporate lackey is beyond me.

Not only would this look bad, but it would also come at a huge financial cost. Congressional campaigns are mostly funded by individual contributions, not corporate PAC money, so basically a candidate would be refusing a huge amount of loot in order to broadcast themselves as the Peter Pettigrew of electoral candidates. I’m not convinced this is a looming threat to our democracy. Why should we regulate a non-existent problem?

Of course, she also trotted out important theological terms such as “dark money.” She seems to think campaigns are directly funded by dark money. Not so–any contribution over $200 faces extensive disclosure requirements. Dark money usually refers to independent political expenditures, which still face a variety of disclosure requirements and make up a surprisingly small amount of total political expenditures. Again, she is swiping at phantasms.

A larger issue is that even if her claims are true, HR 1 and most other campaign finance laws are hugely overbroad. The overwhelming majority of political spending occurs with no eye toward extracting favors from a candidate. Yet HR 1 would impose huge burdens on all groups speaking in the political arena. The better route to catch “bad guys” is to enforce criminal laws that prohibit bribery. Will you catch every instance of quid pro quo corruption? Almost certainly not. But since when was this a controversial price to pay for a free society? We’ve long ago decided that it’s best to have less than perfect enforcement in order to preserve individual liberty.

The collateral damage that HR 1 would impose on legitimate, non-corrupt speech is tremendous. I’m not confident AOC is fretting over the real “bad guy.”