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Quotation of the Day…

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is David Friedman’s comment on a recent post at EconLog by David Henderson [2]:

Have any of them [members of the “Pigou Club,” who advocate higher taxes on carbon emissions] dealt with what I regard as the most serious weakness in their position–the lack of good reasons to believe that the externality is negative? Everyone assumes it is and there is lots of hand waving, some of it probably wrong (typhoons and droughts), some of it almost certainly right (sea level rise). But there are also lots of positive externalities, especially since temperature increase will be greater in cold times and places than in hot, for well understood reasons. The increase in habitable area due to expansion towards the poles should be a couple of orders of magnitude bigger than the decrease due to sea level rise.

We can expect significant negative externalities, significant positive externalities, and the size of both is quite uncertain, so why do people take it for granted that the net is negative?

Spot-on appropriate question.  Friedman’s point is similar to the one that I was driving at in my recent post entitled “A Question About Costs & Benefits. [3]”  Carbon emissions (like my Pl) may be called a “pollutant,” and these emissions also very well might – indeed, almost surely do – unleash some harmful consequences.  But it does not follow from these facts that carbon emissions (like my Pl) creates, on net, negative externalities.

David Friedman, in his comment, highlights likely positive consequences that will result from global warming caused by higher concentrations of greenhouse gases in the earth’s atmosphere.  The positive consequences must be weighed against the negative consequences to determine whether or not current levels of carbon emissions are a net bad or a net good for humanity.  As Friedman correctly notes, though, Pigou Club members, along with almost everyone else who advocates government actions to reduce carbon emissions, merely assume either that there are no potential positive consequences or that the negative consequences from warmer global temperatures necessarily outweigh the positive consequences.  Such assumptions are illegitimate; indeed, they are unscientific.

In my post I highlight a different set of positive consequences entailed by the creation of a pollutant that has some negative consequences, namely, higher standards of living created by the pollutant (Pl) making economically possible the production of more goods and services.  Again, Pl might well be appropriately classified as a “pollutant.”  But the fact that the unregulated and untaxed use of Pl unambiguously creates some identifiable negative results does not mean that the unregulated and untaxed use of Pl creates net negative externalities.

Of course it’s true that, as with carbon emissions, if the downsides of Pl can be reduced at a cost lower than the resulting benefits from reducing these downsides, then it is (by assumption) worthwhile to take the cost-effective steps to reduce Pl‘s downside effects.  But…

(1) empowering government to regulate or tax the use of Pl (or carbon emissions) itself creates downsides by enlarging centralized power that might well be misused, if not in this particular circumstance, in future circumstances.  Advocates of enhanced government power to deal with real or imagined negative externalities seem to be largely oblivious to the dangers of government power itself – a bizarre obliviousness, in my view, because centralized government power has killed multitudes more innocent people throughout history [4] than have carbon emissions (or any other species of industrial pollutants).  If carbon emissions are to be feared, government is to be feared far more.

(If you think my pointing to mass murder by government to be a bit hysterical, then I’m content to point out that government misuses power in many other, less-lethal ways to reduce people’s well-being – for example, tariffs to protect powerful corporations from from foreign competition; subsidies to these same corporations; minimum-wage legislation to protect higher-skilled (and higher-paid) workers from the competition of lower-skilled (and lower-paid) workers; even environmental regulations that, despite the smiley-face mask they wear, are driven chiefly by special-interest group political pressures [5].  I’m quite confident that the reduction in living standards – from what these would otherwise be – caused even just by Uncle Sam over the past 200 years is far more costly and lethal than would have been whatever reduction in living standards we Americans would have suffered if Uncle Sam had never concerned himself with environmental matters.)

(2) pundits, academics, ‘activists,’ and politicians concerned with the negative consequences of carbon emissions continue to appear to be mostly oblivious also to the enormous increase in living standards made possible by the industrial and commercial practices that generate carbon emissions.