Congress has few philospher kings

By Fester:

I like to live in the real world. It is messy, it is confusing, it often produces non-optimal outcomes (depending on the relevant constraints) but it is tangible. I can also live in a normative world where everything is neat, clean, organized and optimized towards the relevant constraints. However that world seldom exists. I often look for satisficing improvements instead of optimal solutions because the improvements are achievable.

I don't understand the critique of Waxman-Markley that Andrew Samwick and others are advancing in that it is a satisficaing improvement but non-optimal on several grounds:

Much as you may like the idea, this is another 1300 pages of complexity and loopholes. Buried in there, I'll wager, are more than enough ways for large organizations (the ones who hire lobbyists) to get all the exemption and evasion they'll need. Consider the alternative of a carbon tax calibrated to achieve the same emission reductions, and applied to all sectors including vehicle fuel consumption. I'm no expert on translating ideas into pages of a bill, but that can't be much. And given that it allows us to do away with the CAFE standards, I figure we've done a great service of dramatically simplifying the whole regulatory process for carbon emissions.

Economically, a clean carbon tax and a clean cap and trade bill will do the same thing. They will both internalize the currently externalize cost of carbon dioxide emissions. There are two big differences. The first is that a a carbon tax is a price certain option while the cap and trade system is a quantity certain feature.  Secondly, cap and trade is economically more efficient as it allows for market discovery of prices of a scarce good instead of hoping that Congress can hit the right number at any given time for optimal economic efficiency for a given amount of emissions.  

 

His argument is that a carbon tax would be neater and less messy.  Lobbyists would not be able to claw out special interest exemptions and transfers and the legislation would be only several pages long.  He is arguing a straw man here in my opinion.  A properly designed cap and trade system could also be written in a fairly short and concise manner as well.

 

He is bitching and moaning about basic political incentives here.  A complex bill with exemptions, curlicues and who knows what else in it for concentrated interests is far more profitable to the relevant players than a simple, clean sheet proposal with no exemptions.  Dr. Samwick is implicitly arguing that a carbon tax would be less susceptible to this type of manipulation than a cap and trade regime.  I have severe doubts about that.  We have plenty of evidence that tax bills, even comparatively simple tax bills that are mere modifications of existing tax laws can and will be massively abused with exemptions, exceptions, partially refundable credits, donut hole deductions and anything else that concentrated interests can muster to improve their interests against the counterfactual of a clean bill.  The classic example is the agricultural bill where there are significant subsidies for sugar, mohair, honey and other products because there is a strong lobby for those interests while the public purpose of food security, public health and reasonably low prices for a wide selection of goods is often ignored. 

 

I have yet to see a good political reason why the concessions that the Democrats on the Agricultural Committee wanted and received to weaken the bill and make the bill more complex for cap and trade would not also be granted in a carbon tax system.  I think it is very reasonable to assume that Agricultural Committee Democrats would want land use carbon emissions to be exempted from the carbon tax or at least counted under a friendly system.  Those are the concessions that they basically got in cap and trade, and those would be the concessions they would have wanted from a carbon tax regime.  Otherwise they most likely and there would be nothing. 

 

Now if Dr. Samwick wants to argue that doing nothing now is a superior option as the costs of action and inaction escalate the pressure to pass a much cleaner bill that is more to his liking at some uncertain point in the future, that is a defensible argument.  However that is not the argument he is making.  He is whining that Congress is acting like politicians engaged in politics with attendant incentives instead of philosopher king technocrats who will agree with his preferred solutions.  Me, I’m happy for an improvement with the hope that institutional inertia will lead to a good process and outcome over time.