Global Warming–A Policy Design Problem

Mike is, of course, quite right to note that doing something about global warming comes with real costs. All the bunkum about attacking global warming creating a bunch of new technologies (and implying that it will add to economic growth) is really irresponsible. Of course it will spur new technologies, but not nearly as much as the economic activity that it will eliminate. The real question is whether the benefit to future generations is worth the cost, recognizing that there is a cost?

My non-expert judgment is that the benefits are worth the costs. Because the costs are likely to be so high, however, I do think it’s worth thinking as hard as possible about how to keep them from being any larger than they need to be. There are lots of ways to deal with global warming, not all of which have the same distortionary impact on economic activity, or which create the potential for rent-seeking behavior. I don’t think the economists are terribly helpful in telling us how to value the benefits, since they are fairly far out in the future and very hard to measure with much accuracy, given the uncertainty of all of these projections. But economists are absolutely necessary in designing ways to reduce fossil fuel use without creating unnecessary distortion. In addition, I would add that political scientists are very important to this conversation, since the policies to reduce global warming have to mobilize consent in the short term, and must be able to maintain consent over the long term, without requiring a lot of side payments to do so.

My preference would be to pay for reductions in global warming with fairly simple and direct carbon taxes, which would be used to pay (dollar-for-dollar) for very visible reductions in taxation. That way, the new taxes get balanced in the public mind with highly valued benefits, even if (in the aggregate) they don’t balance out. This gives politicians some protection. And if you trust fund these taxes, and give them back in the form of an annual, flat tax credit for every citizen, there would even be some political cost to reducing the carbon tax (since politicians would be directly reducing the lump-sum tax credit). Reducing global warming is an investment, to be sure, but we can’t count on the ability of the public to value future benefits against present costs to guarantee the political viability of such a scheme. Careful political engineering is essential to correct for the “defect of better motives.”

UPDATE: I unfairly caricatured Mike O’Hare’s “less stuff” position, and as it was not really germane to my larger point, I removed that section of the post. I fear it was the consequence of subconscious Kausism.

Author: Steven M. Teles

Steven Teles is a Visiting Fellow at the Yale Center for the Study of American Politics. He is the author of Whose Welfare? AFDC and Elite Politics (University Press of Kansas), and co-editor of Ethnicity, Social Mobility and Public Policy (Cambridge). He is currently completing a book on the evolution of the conservative legal movement, co-editing a book on conservatism and American Political Development, and beginning a project on integrating political analysis into policy analysis. He has also written journal articles and book chapters on international free market think tanks, normative issues in policy analysis, pensions and affirmative action policy in Britain, US-China policy and federalism. He has taught at Brandeis, Boston University, Holy Cross, and Hamilton colleges, and been a research fellow at Harvard, Princeton and the University of London.