No bailout for Wall Street!

Gretchen Morgenson interviewed by Bill Moyers:

BILL MOYERS: But I mean, look what they've been doing. Their past experience is no indication that they will respond to what you're saying.

GRETCHEN MORGENSON: Only if they're held accountable.

BILL MOYERS: By?

GRETCHEN MORGENSON: And if they have to pay the bill that comes a cropper. Let's not make it a bail out where the taxpayer bails out Wall Street, please.

BILL MOYERS: Then Wall Street would be the winner and--

GRETCHEN MORGENSON: Then Wall Street would say, "Fine. I'll go do that again. I'll go throw money at a problem and let it blow up, and I don't mind."

BILL MOYERS: Does this contribute to what you and I both know are-- is growing inequality in the country? The gap between the rich and the poor? The greatest gap since 1929? Is this contributing to that gap?

GRETCHEN MORGENSON: To the degree that Wall Street made an awful, awful lot of money on these securities, yes, it contributes to that gap. To people who work on Wall Street, you saw the enormous bonuses, the enormous payouts to the CEOs of these firms. Absolutely. The mortgage mania contributed to that. The little guy doesn't have the benefit of all the powerful friends in Washington and the powerful friends on Wall Street. The little guy is just trying to be able to retire comfortably and not have to scrimp and worry about money. And he and she have a right to that. And if we're in an ownership society that's ballyhooed around, that should be a benefit. That should be who wins. But unfortunately, the little guy is the guy that's usually the bag holder.

Kitchen Linker may post this ARM reset schedule chart on the kitchen wall, noting that any housing bubble is in part a kitchen bubble, and any housing bust is in part a kitchen blowout.

Both links via Ben's Housing Bubble Blog.

European commissioning smarts

Greg Mankiw points out that the European Commission is considering doing the right thing for the environment and its torpid economy:

The Commission will on 28 March present ideas for “green taxes” to save energy and cut greenhouse gas emissions. It says that such an ‘ecological tax reform’ could increase the bloc’s competitiveness by shifting the burden away from labour taxes.

Could the EU lead down the smart path?

Convenient Truth

Jonathan Rausch makes the obvious point that a carbon tax is the best way to deal with global warming and has good side effects:

Just as conveniently, the most efficient way to get started is also the simplest, albeit not the easiest politically: tax carbon emissions. "At around $30 per ton of CO2 over a 25-year horizon, experts seem to think this is the kind of price that will encourage the kind of technologies that are necessary," says Billy Pizer, an environmental economist at Resources for the Future, a Washington think tank. That would translate into an additional 27 cents or so on a gallon of gasoline and about a 20 percent increase in residential electricity bills (more like 34 percent for industrial users). Unpleasant, but hardly radical. Perfectly do-able, in fact.

Fortuitously, a carbon tax could also reduce the U.S. budget deficit and the geopolitical leverage of sinister "petrocracies" such as Iran, Russia, and Venezuela. Policy prescriptions don't come any more convenient than that.

Taxation six plus times more efficient than regulation

Econbrowser on CAFE standards:

Overall, Jacobsen estimates that a one-mile-per-gallon increase in the required average corporate fuel efficiency would increase the average fuel-efficiency of all new cars sold by 2.5%. However, since most of the older cars would still be on the road, Jacobsen estimates that during the first year, total U.S. gasoline consumption would decline by only 0.8%. He estimates the costs of this 1 mpg tightening of CAFE would be $20 billion in the first year, with these first-year costs shared about equally between U.S. consumers and producers. For comparison, Jacobsen claims that a gasoline tax could accomplish the same first-year effect at an efficiency cost of significantly less than $1 billion.

Over time, the fuel savings from tightening CAFE would of course increase, but even after 10 years, Jacobsen concludes that that a gasoline tax could accomplish the same thing at 1/6 the cost.

That's not even including that gas taxes produce revenue which can be used to reduce horribly inefficient taxes on labor and capital.

For the n'th time Kitchen Linker says Pigou means less planning, more growth, a cleaner environment, nor that OPEC pays part of any gas tax.

Toyota #1: fear and marketing or pricing and environment?

BusinessWeek on Why Toyota Is Afraid Of Being Number One -- anti-foreign backlash. So Toyota is afraid, and running ad campaigns to emphasize its U.S. employment base.

Kitchen Linker's observations:

• Toyota doesn't have to take the #1 spot no matter how bad the Big Three get. Toyota can raise prices instead.


• Toyota should emphasize (and invest in) green cars. Nothing could be more patriotic, or good for the U.S. economy. Fear and marketing is no substitute for doing good.

Continental Europe: Getting out of the way?

Greg Mankiw links to an interesting column that has nothing to do with Pigouvian taxes ... Ed Phelps on Why European economies lag behind the U.S.:

The values that might impact dynamism are of special interest here. Relatively few in the Big Three report that they want jobs offering opportunities for achievement (42% in France and 54% in Italy, versus an average of 73% in Canada and the U.S.); chances for initiative in the job (38% in France and 47% in Italy, as against an average of 53% in Canada and the U.S.), and even interesting work (59% in France and Italy, versus an average of 71.5% in Canada and the U.K). Relatively few are keen on taking responsibility, or freedom (57% in Germany and 58% in France as against 61% in the U.S. and 65% in Canada), and relatively few are happy about taking orders (Italy 1.03, of a possible 3.0, and Germany 1.13, as against 1.34 in Canada and 1.47 in the U.S.).

So EUians don't want to lead or follow. As a result their relatively shrinking economies are getting out of the way.

Now if the US would just take a dynamic lead on efficient environmental policies...

Congestion pricing goes well with other eco-efficient policies

Kitchen Linker is a big fan of congestion pricing. While not as important as (much) higher gas taxes replacing less efficient taxes, congestion pricing is another win-win: more efficient and more environmentally friendly transportation system.

Save the environment and the economy, yada yadda yaddda.

Tax Saudi Arabia, Iran, and Venezuela

A hefty gas tax would initially be paid by American drivers. But as Americans became more fuel efficient as a result of the tax, the tax would be paid by oil producers. Read about tax incidence.

So the U.S. can replace taxes on goods with taxes on bads, save the environment, and make American foreign policy enemies pay the tax!

Kitchen Linker asks: Why are we not doing this already!?

Fix corporate tax competition with green taxes

Today's Financial Times has a subscriber-only article Europe's tax rivalry keeps multinationals on the move bemoaning tax competition and an eventual "race to the bottom" for corporate taxation.

Kitchen Linker says this is not a problem but a grand opportunity: replace corporate taxes (and taxes on increasingly mobile labor) with green taxes. Save the environment, economy, and state, all in one fell swoop!

Another FT article hints this is the way things are going:

French VAT is already at 19.6 per cent, and Germany had implemented some significant structural reforms that remained elusive in France. However the ministry was examining whether some of the tax burden on labour could be transferred, for example through environmental charges, he said.

France’s expression of interest in Berlin’s VAT experiment could be the first of many, according to economists.

“You can see that possibly even Britain is going that way with the debate on the environmental tax,” said Holger Schmieding, senior economist with Bank of America.

Excellent, now go faster, and also in America!

Mankiw's blunder

Greg Mankiw posts that Robert Samuelson has joined the Pigou club in calling for a $2/gallon gas tax. Wonderful.

And Mankiw says:

One purpose of Pigovian taxation, in my view, is to avoid heavy-handed regulations with all their unintended consequences.

Absolutely, a point Kitchen Linker has loved to harp on these last few months.

Approving links to Mankiw have been a feature of the Kitchen for awhile now, even coming to dominate what Kitchen Linker intended to be just another blog about cool tech stuff. But that's good. What could be more important than saving the environment in the most efficient way possible?

Anyhoo, Mankiw makes a blunder in this last post:

I have proposed a more modest $1 increase, in part based on the research of Parry and Small, but of course there is a degree of uncertainty about how high the optimal tax is.

No, no, no! "Optimality" in the sense of correcting for externalities is the wrong, wrong, wrong metric to judge a Pigouvian tax by.

What is the right metric? Is the tax an better than growth-destroying taxes on labor and capital? That's all. Debating optimality may be a pins-on-the-head-of-an-angel-counting excercise for academic papers but is totally irrelevant to the public debate and to reality, which consists of trillions of dollars of taxes on production that could be shifted to taxes on destruction.

Win-win taxes

Pigou Club founder Greg Mankiw quotes Brink Lindsey on win-win taxes:

Tax reform also offers the possibility of win-win bargains. The basic idea is simple: Shift taxes away from things we want more of and onto things we want less of. Specifically, cut taxes on savings and investment, cut payroll taxes on labor, and make up the shortfall with increased taxation of consumption. Go ahead, tax the rich, but don't do it when they're being productive. Tax them instead when they're splurging--by capping the deductibility of home-mortgage interest and tax incentives for purchasing health insurance. And tax everybody's energy consumption. All taxes impose costs on the economy, but at least energy taxes carry the silver lining of encouraging conservation--plus, because such taxes exert downward pressure on world oil prices, foreign oil monopolies would wind up getting stuck with part of the bill.

Pigou means less planning

NoPigouClub:

But here's Jaccard's big claim: He supports Pigovian taxes because they involve "no role for planners." We'll have more on this untruth in later postings, but let's begin with one question: Who sets the price--i.e. the tax?

and

And then another question: What do we do with the money collected through the Pigovian tax? Let's get the Ministry of the Environment and the Department of Industry...but, hey, no planners, please.

Unless all NoPigouClub members are anarchists, they will admit that taxes need to be collected. The level of energy tax should not be set by the EPA or Commerce Department, but by Congress ... just as Income and other taxes are now set, mostly according to what Congress thinks it can get away with and how much is needed to cover spending minus borrowing. There is no additional planning, just a shift from one sort of taxes to another.

And the shift is better if you care about the environment, the economy, or simply distrust planners.

Why?

1. Taxes on income and capital suppress positive externalities (ex: economic growth).
2. Pigouvian taxes substitute for regulation and prohibition of greenhouse gas and other pollutant emissions.
3. (Redundant, but Kitchen Linker must drive home the point) Without pigouvian taxes, we will continue to have damaging tax on labor and capital AND extremely inefficient and politically determined non-solutions to our environmental problems (ex: the SugarCorn mafia)

Come to grips with reality NoPigou and switch clubs!

Pigou or what? Part III

Mike Moffatt talks sense in the National Post:

High taxes on labour discourage work. High taxes on capital gains discourage saving, investment, and risk taking. High taxes on activities which pollute will encourage consumers to switch to environmentally friendlier alternatives.

Pigou opponents need to respond to this or they're merely blowing hot air.

Pigou or what?

David Masten writes No to Pigou!

He notes many real problems with Pigouvian taxes. Like the NoPigou Club he fails to address the real and far worse alternatives to Pigouvian taxes: regulatory and prohibitionist approaches to externalities and taxation of productive labor and capital.

Do Masten, NoPigou, and other critics of Pigouvian taxes really think energy central planning and income and payroll taxes are preferable to carbon taxes?

p.s. Posner has joined the club.

Be frugal to be green?

Tyler Cowen in Slate on "Can You Really Save the Planet at the Dinner Table?":

Pollan makes much of the energy costs incurred by the long food supply chains of American grocery stores. It may look like we are eating Chilean grapes, he argues, but in fact, once we consider transportation costs, we are guzzling petroleum. Economics offers a clearer view of what is going on. We do need to save energy, but it is difficult for a central planner (or for that matter a food commentator) to identify what is waste, relative to the costs of eliminating it. We should rely on higher market prices, if need be with the assistance of taxes, to increase conservation. If fuel becomes more expensive, we'll likely adopt peak-load energy pricing, and drivers may scrap their SUVs for hybrids. But we probably won't plant grapes in our backyards. While we must conserve energy, we cut back where it makes the most sense; grape-shipping is not the place to start. Global trade does involve transportation costs, but it also puts food production where it is cheapest, again saving energy by economizing on costs of labor, irrigation, and fertilization, relative to the alternatives.

So, is simply being frugal the best way to be friendly to the environment, at first approximation (which may be the most accurate we can be)? There's some discussion at Marginal Revolution.

Pigou manifesto great but too low, too slow and a tax increase

Greg Mankiw in the Wall Street Journal.

Kitchen Linker says:

1) $1/gallon over 10 years is too low and too slow

2) It needs to be revenue neutral, as Al Gore has proposed.

But the manifesto is excellent. Seven reasons you should support this. Call your politico and tell them. Maybe interrupt their lewd IM convo if necessary.

Tax waste not capital

Tyler Cowen in US News and World Report:

Phase out all forms of capital income taxation, including the corporate income tax, and replace them with a carbon tax, including a gasoline tax. "Savings and investment boost economic growth, but when it comes to energy, global warming threatens as a major problem and our dependence on Middle Eastern oil damages our foreign policy."

Kitchen Linker prefers Al Gore's proposal to tax waste not work but either or a combination is critical.

NoPigou then what?

Greg Mankiw points out Join the Nopigou Club in Canada's National Post, which basically says pigouvian taxes are central planning, thus they are bad. Kitchen Linker understands this, but the alternative is much more central planning -- direct controls and prohibitions on greenhouse gas production and subsidy of things like ethanol -- all of which are inefficient, to say the least -- better to tax than prohibit.

The NoPigou Club has a blog. Hopefully they'll address the "if not pigouvian tax, then what?" issue.

Second blogroll addition: Greg Mankiw

I first got interested in Greg Mankiw's blog due to his Pigou Club (carbon tax supporters). I'm subscribing for Pigou updates and an ongoing stream of interesting posts. Apparently Greg was an economic advisor to George W. Bush. That sounds like a hopeless position, as GWB doesn't seem to take advice from anyone but the tooth fairy.

My first blogroll addition was Jon's Radio.

Tax waste not work

Wow, apparently Al Gore wants to replace the payroll tax with a carbon tax. If he runs for president and makes this a centerpiece of his campaign ... I am going all-out for Gore! This is the best thing that could possibly be done for the environment and the economy.

Everyone else, jump on this bandwagon. Read about the Pigou Club.