This is an article that I wrote which was published in my college’s newspaper, the Davidsonian. I wrote it to advocate for smart government and to provide insight into my philosophy on the role of thereof.
I do not believe in government. That is to say, I don’t believe its ability to solve most of our problems is greater than the free market. One need only look to the absolute failure that is communism, the problems that currently beset socialist countries in Europe, or Tuesday’s ten year anniversary of the United States’ bloody involvement in Iraq for reasons why government frequently creates more problems than it fixes.
However, for some things, government is the only solution. Aside from traditional normative considerations about equity vs efficiency, there are also more tacit elements of our economy and society that warrant government intervention. Issues in need of government regulation are primarily rooted in market externalities, irrational decision making, and collective action problems.
One of the biggest issues we face is Global Warming. Until recently, we had no idea that pumping carbon into the atmosphere was problematic, but new data paint an incontrovertible picture. Ninety-nine percent of scientists agree that Global Warming is real and it is man-made. Let’s suppose for a second that we don’t care at all about the environment, only our wallets. Experts estimate that if current trends continue, the earth will warm by about 7 degrees fahrenheit, which would diminish global GDP by 20%. Water scarcity will spark wars, coastlines will shrink, and businesses will shutter.
Many of the worst problems can be prevented if we control our carbon emissions. One might like to think that businesses would voluntarily group together to avoid the costs that Global Warming will incur on them, but this has not happened because of a collective action dilemma; each business has too much incentive to continue polluting on their own, and little to no direct incentive to stop. The economic metric of GDP is an excellent measure of economic output today, but it does nothing to account for the market externality of carbon pollution in today’s economy. In other words, while we build tremendous wealth by using fossil fuels today, we are accumulating a “Carbon Debt” much like our own National Debt, we just can’t see it clearly. The difference is that in 30 years, Congress won’t be able to pass a law to abolish Global Warming. Carbon pollution and Global Warming are like toothpaste; once that stuff is out, you ain’t getting it back in.
An excellent solution to this very real and very serious issue is articulated by Thomas Friedman, a world-renown journalist and economist with pragmatic ideas for the 21st century. In his March 16th New York Times Op-Ed column, he describes the situation bluntly: It’s Lose-Lose v.s. Win-Win-Win-Win-Win. He argues for “the obvious solutions to our budget, energy and environmental problems”: a carbon tax. This is otherwise known as a Cap-and-Trade system, whereby the government sets a cap on carbon emissions and auctions permits to emit to businesses. Those that are more efficient can sell their permits, while those that can’t afford it could buy them. This system has been one of the few great policies to come out of Europe recently, to great effect.
Friedman correctly points out that taxes can be used as a tool, citing Gregory Mankiw, a conservative Harvard economist who acknowledges that a Pegovian tax that modifies behavior has been used to great effect in the past. Rather than try to fix our budget woes with an offensively inefficient sequester, why not raise the same money while also avoiding environmental costs? Friedman looks to the nonpartisan Center for Climate and Electricity Policy for analysis of a potential tax; they estimate that a tax of $25 per ton of carbon-dioxide emitted would raise $125 billion annually, enough to lower the debt by $1.25 trillion over 10 years (more than the sequester), lower the corporate tax rate by 70%, income taxes by 15%, or a combination of all three.
The astute reader might assert that while this sounds great on paper, it can’t be practical – surely the costs of regulating our emissions would be passed onto the consumer, which is the last thing we can afford in this economy. Not so, agues Friedman. A carbon tax would only add about 21 cents to the price of gasoline and 1.2 cents per kilowatt hour of electricity, and could be phased in gradually as the economy improves. These costs aren’t imagined – instead of building a carbon debt, we would be paying the real costs of our activities today.
In the end, government policies can be debated ad nauseum – representatives in Congress have driven this point home over, and over, and over. Many policies are worthy of contention, but this isn’t. It just makes too much sense. Regulating carbon emissions isn’t a question of government overreach; the consequences are real – the data don’t lie. We have to control our debt and our emissions; a carbon tax is a great tool for both, plus it benefits our environment. A carbon tax isn’t partisan, it’s just plain smart.