Topic: Energy and Environment

Abolish the Federal Gasoline Tax!

Earlier this month, Peter Van Doren and I published a study calling for the total elimination of the federal gasoline tax. Well, the first wave of commentary is in and, thus far, we are greatly underwhelmed. Gas tax proponents are going to have to do a lot better than this to hold the intellectual fort.

Over at the Economist, we are accused of misrepresenting citations when we argue that a doubling of the gasoline tax would only reduce tailpipe pollution by about 6 percent over the long run; an accusation also levied by some commenters at Marginal Revolution. The Economist writes:

Consultation of the cited source seems to show not that an increase in efficiency leads to a 20 percent jump in vehicle miles traveled, but that roughly 20 percent of total energy savings from efficiency gains are lost to increased travel. That’s quite a different point, implying that efficiency gains could have a significant impact on emissions.

We happily accept the clarification. The Economist has crisply stated what we in fact meant to say. But clarifying the point does not undercut our argument.

The “rebound effect” discussed above is one reason why aggregate tailpipe emissions will not be reduced as much as gas tax proponent think. But the other – and more important – reason can be found in J. Daniel Khazzoom’s userID=d8b90bfe [at] cato [dot] org/01cce4405b00501c7188b&dpi=3&config=jstor">paper which we cited. To wit, current law regulates tailpipe emissions per mile traveled, not per gallon of fuel consumed. A gasoline tax will induce a consumer shift towards more fuel efficient vehicles, and that shift will lead to only modest reductions in vehicle miles traveled. The upshot is found on page 438 of Khazzoom’s paper: Just as we said, a doubling of the gasoline tax would only reduce tailpipe pollution by about 6 percent over the long run.

Now, a careful critic might point out that this problem could be remedied by regulating tailpipe emissions per unit of fuel consumed rather than by vehicles miles traveled. But we haven’t run into that careful critic as of yet. We do anticipate and acknowledge the point, however, in endnote 32 of our paper.

Another large batch of commenters score us for not conceding that gasoline taxes are an efficient means of addressing greenhouse gas emissions from cars. But it never occurred to us to state the obvious – that if society wants to reduce greenhouse gas emissions, the most efficient means of doing this isn’t with a gasoline tax. It’s with a carbon tax.

Greg Mankiw asks us: “If Congress were considering repeal of the gasoline tax together with an income tax increase to make up the lost revenue, would you favor this revenue-neutral change in the tax mix?” Answer – no. The best way to make up for the revenue loss associated with repeal of the federal gasoline tax would be to eliminate the federal spending associated with the tax. Transportation infrastructure should be a state or local undertaking – not a federal undertaking.

Lurking behind that question, however, is the belief that raising revenue via a gasoline tax imposes less efficiency losses on the economy than raising revenue via an income tax. We don’t think much of that argument, but we discuss it at length in our paper so we won’t go through it again here. Perhaps when Prof. Mankiw gets around to reading our paper, he’ll have something further to say on that score.

There is little else of substance for us to deal with after Round 1.

For instance, many commenters have argued that our paper does not properly take into consideration the underlying literature, which supposedly cuts strongly against our arguments. That literature, we are told, was most recently surveyed by Ian Parry et al. in the June issue of the Journal of Economic Literature.

But this simply tells us that most of the opinions being expressed on these blogs are uninformed by any actual reading. Even a casual look at our paper demonstrates that we review and discuss the same literature discussed in Parry et al and, in fact, we cite Parry’s work extensively throughout. Moreover, Parry et al.’s paper in the JEL makes the same point we make in our study – that a gasoline tax is a deeply problematic means of addressing the externalities associated with driving and that there are far better policy tools available to get the job done. Parry et al. suggest that federal gasoline taxes might be a reasonable “second-best” policy, but we anticipate and counter those arguments in our study, so I won’t go into them here.

Remarkably, no one has yet taken up the most radical challenge offered to the common wisdom in our paper: that even a perfectly efficient gasoline tax would do more harm than good because it would induce more mass transit use, and mass transit use imposes even more costs on society than passenger vehicle use. For this argument, we rely on work done by Mark Delucchi at the Institute for Transportation Studies at the University of California and Cliff Winston at Brookings. Is anyone up to the task?

More Tax-Funded Media Bias

This morning on Marketplace Radio, there was a clear example of the bias toward government intervention that pervades so much of the establishment media. The story was titled

U.S. finishes last in fuel economy

Online, the introduction reads, “A new report reveals that the U.S. is at the bottom of the barrel when it comes to fuel economy standards. Turns out even China tops us. ” The reporter introduces the topic of a new study on mandatory fuel economy rules in different countries and turns to the study’s author:

Drew Kodjak: At the bottom of the heap is, unfortunately, the United States.

Study co-author Drew Kodjak says Europe and Japan already have high mile per gallon rules, and they’re gonna get even better.

Kodjak: Out to 2012, Europe is projected to have a 49 MPG passenger fleet. And Japan a 47 in 2015.

Even China’s better than the American 27.5 miles a gallon.

Kodjak: So certainly a very big difference between the leaders and the laggers.

Notice the drumbeat: the United States is “last,” “at the bottom of the barrel,” “at the bottom of the heap,” a “lagger.” Stricter regulation is “better.” And all because our regulations are slightly less intrusive and burdensome than those in other countries.  I think we’re better off letting the market determine how much fuel efficiency American consumers want. But my point here is not to argue the issue, but simply to notice that Marketplace Radio, heard on tax-funded radio stations, didn’t argue the issue either. It just indicated to listeners that stricter regulation was “better,” and the United States was a “lagger … at the bottom of the heap” for having less stringent regulations.The last time I wrote about a similar one-sided, adjective-laden story on Marketplace, I referred to it as “unconscious liberal bias.” But really, how long can I keep seeing only unconscious bias? I noted in my previous item:

So where’s the bias? Let us count the ways. First, of all the studies in the world, only a few get this kind of extended publicity. It helps if they confirm the worldview of the producers. For instance, I don’t believe Marketplace covered this Swedish study (pdf) showing that the United States is wealthier than European countries (perhaps most provocatively, that Sweden is poorer than Alabama — perhaps because Europe has the kinds of laws the Heymann study advocates). Second, Heymann was allowed to appear without a critic. Third, the interviewer never asked a critical question. He never noted that the countries that Heymann was praising are poorer than the United States and in particular that many are suffering from high unemployment brought on by such expensive labor mandates. Fourth, look at the language of the questions: “lags behind,” “falling short,” “picking up the slack.”

The unstated, perhaps unconscious, premise is that countries should have mandatory paid leave and other such programs. If we don’t, we’re “falling short” and someone must “pick up the slack.” Language like that, which is very common in the media, posits government activism as the natural condition and then positions any lack of a government program as a failure or a problem.

Do Marketplace’s reporters, editors, and producers–and the reporters, editors, and producers at other media outlets–really not recognize that this sort of language biases their coverage?

Zimbabwean Economics Spreads to Capitol Hill

In Zimbabwe, the government is ordering businesses to cut prices and threatening to jail executives who don’t comply, in an attempt to deal with inflation that is now variously estimated at somewhere between 4,000 and 20,000 percent a year.

Meanwhile, on Capitol Hill both houses of Congress have passed legislation establishing stiff penalties for those found guilty of gasoline price gouging. The bill directs the Federal Trade Commission and Justice Department to go after oil companies, traders, or retail operators if they take “unfair advantage” or charge “unconscionably excessive” prices for gasoline and other fuels in an “energy emergency.” (The complex energy legislation is still working its way through both houses, though both have endorsed the price-gouging provisions.)

How’d’ja like to be the bureaucrat charged with enforcing such vague and emotional language, or the businessperson trying not to incur a 10-year jail sentence for doing something “unfair” or “unconscionably excessive”? It’d be sort of like living in, you know, Zimbabwe.

Did Congress offer bureaucrats and businesses any more specific guidance? You bet they did. H.R. 6 and S. 1263 define an ”unconscionably excessive price” as a price that

(A)(i) represents a gross disparity between the price at which it was offered for sale in the usual course of the supplier’s business immediately prior to the President’s declaration of an energy emergency;

(ii) grossly exceeds the price at which the same or similar crude oil, gasoline, or petroleum distillate was readily obtainable by other purchasers in the affected area; or

(iii) represents an exercise of unfair leverage or unconscionable means on the part of the supplier, during a period of declared energy emergency; and

(B) is not attributable to increased wholesale or operational costs outside the control of the supplier, incurred in connection with the sale of crude oil, gasoline, or petroleum distillates.

So that seems reasonable clear: it’s a price that is “gross” or “unfair” or (redundantly enough) “unconscionable.” And it can only happen during a “Federal energy emergency”:

(a) IN GENERAL- If the President finds that the health, safety, welfare, or economic well-being of the citizens of the United States is at risk because of a shortage or imminent shortage of adequate supplies of crude oil, gasoline, or petroleum distillates due to a disruption in the national distribution system for crude oil, gasoline, or petroleum distillates (including such a shortage related to a major disaster (as defined in section 102(2) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act 42 U.S.C. 5122(2))), or significant pricing anomalies in national energy markets for crude oil, gasoline, or petroleum distillates, the President may declare that a Federal energy emergency exists.

In the United States, unlike Zimbabwe, we have the rule of law. That means vague, emotional, and nonsensical laws can only be passed upon a vote of both houses of Congress and the approval of the president.

Heritage - Out of Energy

To many people, the Cato Institute and the Heritage Foundation are closely related ideological siblings. This causes me no end of frustration. There are plenty of rather significant differences between us — health care, immigration, foreign policy, the War in Iraq, etc. — but even in areas where you would think we might agree, we often don’t. Like energy.

For instance, according to Heritage, the Ur-commandment for the federal energy policy is as follows:

Lawmakers should implement a long-term energy plan that balances supply and demand, ensures reliable and affordable supplies of energy for the future, and provides responsible stewardship of the nation’s resources.

To me, that smells of Soviet 5/10-year economic planning. If you really think a bunch of vote-maximizing politicians with no particular expertise in energy markets can competently execute those tasks, then God bless you. Me? I’d rather leave those tasks to the market, thank you very much.

Still, views over there are not monolithic. Ben Lieberman and I generally see eye-to-eye, but Ariel Cohen might as well be titled “Senior Research Fellow for Anti-Taylor Studies.” See, for instance, his worries about energy security and his support for turning Justice Department antitrust lawyers loose on OPEC.

The tension between the Lieberman and Cohen is palpable. Cohen, for instance, was generally happy with President Bush’s 2007 State of the Union address, which called for America to break its “addiction to oil.” Lieberman, on the other hand, was not. And some outside voices given a platform at Heritage muddy the waters further. For instance, Daniel Fine appears willing to entertain federal subsidies for oil shale development, and no one over there — to my knowledge — has said a discouraging word about Republican efforts to launch “Synfuels, Part Deux.”

So it was with some interest that I read a new missive out of Heritage from Stuart Butler and Kim Holmes — Heritage’s vice presidents for domestic and foreign policy studies respectively — on the 12 principles that should guide federal energy policy. When the bosses step in to lay down some guidelines in a policy arena where tension has previously existed, one should pay attention.

And what do they have to say? Not much that I would say. Let’s go through their principles one by one.

1. Avoid costly environmental regulatory man­dates that will achieve little environmental gain.

No problem here, but the idea that environmental regulations are constraining investment in America’s energy infrastructure is greatly overblown, as we’ll see when we get to their nearly-identical Principle #5.

2. Rely on the private sector’s research and development capabilities.

Fine, but Butler & Holmes support generalized rather than specific tax subsidies for energy R&D, which they imply here but make more explicit when they get to Principle #7. Given where energy prices are today, I don’t think investors need any encouragement from the taxpayer to engage in these undertakings. Profit incentives established by endogenous price signals should suffice.

3. Urge government agencies to learn from the private sector.

Yeah, that will happen. The reason government agencies rarely behave like private businesses is because their incentives are different. Public actors gain utility by maximizing political capital. Market actors gain utility by maximizing profits.

That aside, Butler & Holmes seem to be saying that the Pentagon and other federal agencies should be willing to pay more for fuel efficiency than they do at present. Maybe, but fuel efficiency costs money, and unless we know the gains associated with those expenditures versus the gains associated with alternative expenditures, we can’t confidently offer advice.

4. Make all sources of energy within U.S. bor­ders accessible.

I’m not so sure. If policymakers could allocate scarce resources among competing user groups in an efficient manner without price signals to guide them, then the Soviet Union would probably still be around. We don’t really know whether ANWR, for instance, is more valuably employed as an oil platform or as a wildnerness preserve because we have only limited information about the public’s willingness to pay for either. Now, I suspect that, it these things were left to the market, that there would be more energy development on federal lands, but I don’t know that. It would be best to privatize the lands at issue and let market actors sort this out.

Regardless, Butler & Holmes argue that “Failure to make full use of these domestic energy resources exacer­bates the security and cost problems caused by geopolitical events and makes America more vulnerable to supply disruptions and price increases.” This is nonsense. Supply disruptions anywhere in the world increase the price of crude oil everywhere in the world to more-or-less the same degree, so increasing domestic production does nothing to insulate our economy from malicious producers or random disruption events abroad.

Nor would increasing domestic production reduce revenue to producers very much given that there are not enough untapped reserves in the United States to affect world crude oil prices in any substantial manner.

Nor is increasing domestic production a hedge against the threat of embargo for the simple reason that embargoes can’t work absent a deep-sea navy to enforce them. All that happened in 1973, for instance, was instead of buying our oil from Arab members of OPEC, we bought our oil from people who bought their oil from Arab members of OPEC and shifted to non-OPEC producers, displacing their customers who then bought from Arab members of OPEC.

5. Remove artificial constraints on the domes­tic energy infrastructure, including unneces­sarily severe environmental regulations.

While it would be convenient for anti-government types like me to argue that “Red tape has restrained the expansion of refineries, construction of new pipelines and electricity transmission lines, and construction of new power plants,” that’s not entirely true. Refineries are not being built because (i) it’s cheaper to expand capacity at existing refineries, and (ii) because it’s a hotly competitive industry with little return on investment capital compared to the returns available to the industry elsewhere. Transmission lines aren’t getting built for a whole host of reasons, and “red tape” is only a relatively minor contributor to the problem.

The proposition that “Several key domestic energy sources, particularly coal and nuclear power, can fulfill their potential and thus help to achieve energy security only if costly regula­tions and procedural requirements are revised or eliminated” likewise misdiagnoses the problems. Nuclear power plants aren’t built because they are simply too expensive, and even the industry’s own trade association thinks the regulatory problems identified by Butler & Holmes are relatively nonexistent (something I learned when sitting on a panel with Richard Myers, Vice President at the Nuclear Energy Institute, at a conference sponsored by the Manhattan Institute earlier this year).

6. Ensure that any effort to reduce reliance on foreign oil is grounded in policies that are best for the economy.

I could write a book on the absurdity of the popular campaign against “foreign oil,” but rather than turn this blog post into said book, let me simply propose the following: The case for importing oil is the same as the case for importing anything else. If it’s cheaper to get oil from a foreign producer than from a domestic producer, then economic health is improved by buying from the former source rather than the latter. The case for free trade applies to oil just as much as it applies to steel, tennis shoes, or television sets. There is no “BTU exception” to Adam Smith’s observations on this matter.

Anyway, Butler & Holmes want to have the feds lead us in a campaign to diversify America’s energy supplies. Poppycock. If diversification makes sense as a hedge against supply disruption, then why won’t market actors efficiently diversify of their own accord? Until I hear a reasonable answer to that question, we can deposit this idea into the wastebasket labeled “ideas that make sense for one minute until you think about them for two.”

7. Manage risks to critical energy infrastruc­ture as a responsibility shared jointly by the government and the private sector.

Why should the taxpayer expend funds to protect private property? Don’t property owners have every incentive to optimally invest to protect assets worth millions and in some cases billions of dollars? What exact market failure leads us to think that they don’t?

Unfortunately, Butler & Holmes don’t get into that. Instead they simply assert that “Government can best understand threats and take steps to reduce them, while businesses can best assess their own vulnerabilities and address them effectively.” Question #1: what makes them think that government assesses risk better than market actors? Question #2: what makes them think that government knows better than private asset owners about how to efficiently address whatever risks are identified?

8. Establish effective risk communications for energy issues.

I’m all for educating the public about energy issues and energy risks, but I’m not convinced that vote-maximizing politicians with no expertise in energy markets are in any position to constructively engage in that activity. Nor am I convinced that Joe Public trusts government enough to take anything it says on these matters at face value. And he’s right.

9. Develop foreign policies that thwart the capacity of coercive regimes to employ energy supplies as an economic weapon.

The oil weapon is the foreign policy equivalent of UFOs — often reported to exist but never produced for public inspection. Can producers purposefully and signficantly cut way back on production and consequently harm consumers? Sure, in theory. Have they ever done so? No. Why? Because it would blow their economies to smithereens. Simply put, producers need the money derived from oil revenues more than consumers need the oil from the same.

Regardless, the ability of producers to inflict damage on consumers in this manner is entirely related to how dependent consumers are on oil … from whatever source. There is no foreign policy in the world that can change that fact.

10. Sustain access to the global marketplace.

Sure, count me in. But when Butler & Holmes go on to say that, “To accomplish this, the United States should retain the capability to use all of the instruments of national power — including military, diplomatic, law enforcement, intelligence, economic, and informational power — in any theater where U.S. interests could be at risk,” I get off the policy train. I simply do not think the U.S. should be threatening war if a country is not producing as much oil as we might like or is adopting anti-market policies that we disapprove of. In short, I say “no blood for oil.”

11. Discourage restrictive international regimes.

Sure, but how? As noted above, Heritage’s Ariel Cohen thinks we should prosecute OPEC as a criminal conspiracy in violation of U.S. antitrust law. I think that’s nuts. Short of that, how can we “discourage these practices” — as Butler & Holmes put it? Beats me.

How about a policy of providing no favors whatsoever to cartel members? That is, no military assistance, no foreign aid, and no bilateral actions that provide any benefit to those countries whatsoever? That might make some sense, but then we’d have to get out of Iraq (why are we defending a regime that’s a member of said criminal conspiracy?), tell Saudi Arabia that, as far as al Qaeda is concerned, they are on their own, and inform Kuwait that we regret having lifted a finger to defend that country against fellow-conspirator Saddam Hussein and won’t do that again were Iran, say, to come a-knocking. That would be fine with me, but I doubt that it would be fine with Butler & Holmes.

12. Recognize that not all trading partners are equal.

On the surface, what’s to argue with here? Of course Canada (our number one source of imported oil) is not the same as Venezuela (our fourth largest supplier of imported oil). But Butler & Holmes is smuggling in a more ambitious argument. To wit, America (presumably when possible) should trade with producers that share our political values and not with those who don’t.

Decisions about where America gets its oil are not, however, made by some bureaucrat in the Department of Energy. They are made by thousands of private actors in energy markets. So a policy of discouraging imports from countries a, b, and c while encouraging imports from countries x, y, and z by neccessity means regulating a vast swath of the market previously unmolested by government.

What would be gained by this? Nothing much. As noted above, America’s vulnerability to supply disruptions abroad is dictated by how much oil it uses, not where its oil comes from. Producer revenues are dictated by global supply and demand curves that establish price, not by the identity of the parties lining up for its oil. All that would result from the intervention suggested by Butler & Holmes is slightly higher domestic oil prices. That’s because buying from a distant “good actor” (say, Norway) rather than a much closer “bad actor” (say, Venezuela) means paying higher transportation prices.

Butler & Holmes conclude with this: “Americans clearly understand that freedom, opportunity, and their very quality of life suffer when abundant, affordable energy supplies are threatened.”

Americans may think that, but that doesn’t make it so.

Even with the highest inflation-adjusted gasoline prices in recorded history and plenty of threats in the air menacing supplies abroad, Americans spend less on automotive fuel as a percentage of their take-home pay than they have during most of modern history and the economy continues to hum along nicely. Even a worse-case scenario, like the loss of Saudi Arabia to the world market (13% of global supply), would likely have no more impact than the loss of Iran to the world market (10% of global supply) had in the late 1970s (which is particularly the case given that much of the damage from the 1978 price explosion was due to the oil price controls in place at that time, not a rise in oil prices per se). America survived the latter event and would certainly survive the hypothetical equivalent today without losing its “freedom, opportunity, or quality of life.”

It would be nice to have more allies on the Right. Unfortunately, I find that the Sierra Club is more willing to entertain free market energy policies than is the venerable Heritage Foundation. And that’s sad.

Stealing Property

A headline in the Saturday Washington Post reads:

Russia’s Gazprom Purchases Siberian Gas Field From BP

The story begins:

The state-controlled energy giant Gazprom on Friday bought a vast natural gas field in Siberia from a unit of British-based petroleum conglomerate BP, continuing the Kremlin’s policy of shifting control of the country’s major energy projects from foreign to state hands.

The last part of the sentence begins to hint at what really happened, a truth that is concealed by words like “purchases” and “bought.” In fact, the Russian government and its giant energy firm Gazprom forced BP to sell, as it has forced other companies to turn valuable properties over to Gazprom and the oil company Rosneft, often through the use of trumped-up tax or regulatory issues.

Journalists should be straightforward about such things. Gazprom did not “purchase” a gas field from BP. This was no “willing buyer, willing seller” transaction. It would more accurately be described as a seizure, a confiscation, or at best a forced sale.

The Wall Street Journal used similar language. The New York Times, to its credit, was more honest and clear: Its headline read, “Moscow Presses BP to Sell a Big Gas Field to Gazprom,” and the story began, “Under pressure from the Russian government, BP agreed on Friday to sell one of the world’s largest natural gas fields to Gazprom, the natural gas monopoly, in the latest apparently forced sale that benefited a Russian state company.”

Footnote: Today is the second anniversary of the Kelo decision, in which the U.S. Supreme Court ruled that states could take private property for the benefit of other private owners such as developers. In a stinging dissent, Justice Sandra Day O’Connor wrote:

The specter of condemnation hangs over all property. Nothing is to prevent the State from replacing any Motel 6 with a Ritz-Carlton, any home with a shopping mall, or any farm with a factory. …Any property may now be taken for the benefit of another private party, but the fallout from this decision will not be random. The beneficiaries are likely to be those citizens with disproportionate influence and power in the political process, including large corporations and development firms. As for the victims, the government now has license to transfer property from those with fewer resources to those with more. The Founders cannot have intended this perverse result.

The United States is not Russia. But O’Connor’s warning that “the beneficiaries [of forced takings] are likely to be those citizens with disproportionate influence and power in the political process, including large corporations and development firms” is certainly borne out — not just by a new Institute for Justice report on eminent domain in action — but by the actions in Putin’s Russia.

Of Tax Credits and Government Subsidies

Previously on Cato-at-Liberty, Michael Cannon (post 1, post 2) and Andrew Coulson (post 1, post 2) argued with Jason Furman (on health care) and Sara Mead (on education) about the nature of tax credits and tax breaks.

Furman and Mead claim that tax credits and breaks, because they represent forgone tax revenue, are little different than government subsidies (with a raft of implications). Cannon and Coulson (for various reasons) disagree.

The great “a-ha” moment of the discussion came when Mead pointed to Cato scholars’ criticism of ethanol tax credits as subsidies or “tax expenditures.” Even other Cato scholars agree that ‘tax credit’ equals ‘government subsidy,’ she says.

Surprisingly, up to this point, the argument has largely ignored the use of the credited money/forgone government revenue. I would argue the use of the credited money is fundamental to determining if the credit/tax break is a subsidy.

In the case of an education credit, it is true that government would lose revenue because of the credit. But government has also assumed the obligation to educate the nation’s children, and government would be released from that obligation in the case of the child whose schooling is funded by the credited money. Is the credit, thus, a subsidy?

Consider: If Joe owes his bank a $10 fee for its services and, instead of sending Joe a bill, the bank simply deducts that amount from his account, we wouldn’t describe Joe as subsidizing the bank (or the bank as subsidizing Joe). Likewise, if government has assumed the obligation to educate little Johnny, but instead Joe pays Johnny’s tuition and receives a government tax credit as a result, it seems incorrect to say that Joe has received a subsidy. Instead, just as with the bank and Joe, the education credit represents a net adjustment of Joe’s obligation to government and government’s obligation to little Johnny.

Now, there may be reasons why government should not make this adjustment, but those reasons would not include that the adjustment is a subsidy to Joe. The only subsidy in this system is government’s taking on the obligation to provide little Johnny with schooling — a subsidy that I assume Mead finds acceptable.

Parenthetical #1: I suppose there is one condition under which Joe’s education tax credit should be considered a subsidy: if government education expenditures aren’t about educating Johnny, but about providing jobs for unionized public school workers. Thus, Joe’s paying for Johnny’s tuition at a private school wouldn’t be fulfilling government’s intended obligation. But surely, no one thinks that government education policy is about benefiting unions and bureaucrats instead of educating kids, right?

Health care tax benefits (e.g., HSAs, tax deductions for medical expenses, the tax-free status of employer-provided medical coverage) are a murkier subject. There is no explicit government financial obligation to provide the entire nation with health care (though supporters of socialized medicine claim there should be such an obligation — and, I assume, they are intellectually consistent and support tax breaks and credits for the private provision of health care).

There are, however, legally established government obligations to provide health coverage to the poor (Medicaid, SCHIP, et al.), the elderly (Medicare, Medicaid, et al.) and to guarantee everyone access to care. It may be that the various medical tax credits and insurance tax breaks help government to fulfill those obligations at lower cost than other policies. If that is the case, then tax breaks and credits may be part of the optimal policy for fulfilling that obligation (and Furman would be arguing for a policy change detrimental to welfare).

Parenthetical #2: Full disclosure here — I’m of the camp that health care expenditures should be treated no differently, tax-wise, than other expenditures, and that government has no special a priori obligation to provide health care or health coverage.

Now, juxtapose the above two situations with ethanol tax credits and the other sorts of tax breaks that Cato scholars regularly decry. While there are legally established government obligations to provide schooling for children and health benefits to certain sub-groups of the population, there is (that I’m aware) no government obligation to provide American citizens with corn-based energy for transportation.

Parenthetical #3: I ignore the wacky claim that the U.S. government has an obligation to provide ”energy security” so the nation is protected from evil Canadian and Mexican oil sheiks.

This means that there is no government obligation that ethanol producers can fulfill privately, and thus receive a tax credit or tax break. The ethanol industry’s tax breaks and benefits are not simply “squaring accounts” in the manner as Joe, little Johnny, and the government. The ethanol tax benefits seem to be clear cases of government subsidy, and they should be criticized as such.

Where does this reasoning leave the discussion between Cannon and Coulson on the one hand, and Furman and Mead on the other? At the very least, it seems Coulson’s position is fully consistent with Cato’s general critique of subsidies. Further, given the premise that government has some special obligation to provide health care, Cannon’s position also seems consistent with Cato’s general critique of subsidies.

I am curious, though, whether the Left’s sudden concern over subsidies is consistent with positions they take on health care, education, and other policy areas….

Sharks and the Tragedy of the Commons

The global shark population may be sharply declining, according to an article in the Washington Post. Actually, the article never quite gives a number for the global population, but it does warn that “something must be done to prevent sharks from disappearing from the planet.” And there are suggestive reports like this:

In March, a team of Canadian and U.S. scientists calculated that between 1970 and 2005, the number of scalloped hammerhead and tiger sharks may have declined by more than 97 percent along the East Coast, and that the population of bull, dusky and smooth hammerhead sharks dropped by more than 99 percent. Globally, 16 percent of 328 surveyed shark species are described by the World Conservation Union as threatened with extinction.

Post reporter Juliet Eilperin notes that shark attacks can be big news, but in reality sharks kill about 4 people a year worldwide, while people kill “26 million to 73 million sharks annually.”

Why kill sharks? To make money, of course, mostly for the Asian delicacy shark-fin soup. Shark fins are much more valuable than shark meat. Mexican shark hunters say they get $100 a kilogram for shark fins but only $1.50 a kilo for meat.

Unlike fish that reproduce in large numbers starting at an early age, most sharks take years to reach sexual maturity and produce only a few offspring at a time. Shark fishermen also tend to target pregnant females, which are more profitable because they are larger. As a result, said Michael Sutton, director of the Monterey Bay Aquarium’s Center for the Future of the Oceans, “there is no such thing as a sustainable shark fishery.”

So OK, here’s where Eilperin should have said, “Wait a minute … if there’s money to be made, why would greedy capitalists want to destroy the goose that lays the golden egg? Shouldn’t they want to maximize their long-term profits?” And if she had, she might have run into a concept called “the tragedy of the commons.” Owners try to maximize the long-term value of their property. Timber owners don’t cut down all the trees and sell them this year; they cut and replant at a sustainable rate. But when people don’t own things, they have no incentive to maintain the long-term value. That’s why passenger pigeons went extinct, but chickens did not; why the buffalo was nearly exterminated but not the cow.

But Eilperin says that “sharks take years to reach sexual maturity.” Maybe that’s why they can’t be profitably farmed. Maybe. But elephants also mature slowly, and African countries that allow ownership and markets are seeing booming populations of previously threatened wildlife (pdf).

Oceans, of course, present even more challenges: how do you create private ownership in fish or sharks or sea turtles that can easily move through vast and unfenced bodies of water? It’s a more difficult challenge, but attempts to create private solutions that overcome the tragedy of the commons are being studied and experimented with, especially in Iceland.

Eilperin reports on many proposals for “tight new controls” and legislative bans and endangered species lists and catch limits. Those proposals provide no incentives for sustainable harvests, they leave shark hunters every reason to try to evade them, and they failed to protect elephants and tigers. The Post’s readers — and the world’s sharks — would benefit if Eilperin would do a follow-up article on property-rights solutions that might properly line up incentives and create sustainable shark markets.