Monday, March 19, 2007

David Friedman's Slippery Slope

A blog reader directs me to economist David Friedman, who tells us why, in response to global climate change, he is not in favor of carbon taxes:

If I were dictator of the world, the answer would be fairly obvious. Impose a tax on activities that create greenhouse gases designed to reflect the marginal cost they create. That's the standard economic solution, due to Pigou, for problems of negative externalities. Since the tax brings in additional revenue, combine it with a corresponding reduction in whatever taxes currently have the largest adverse effects.

I do not, in fact, support such carbon taxes. The reason is that I do not believe that, if imposed, they would fit the pattern described above. To begin with, they would not be based on a realistic estimate of the marginal costs; insofar as they would be based on anything, judging by the ongoing arguments over Kyoto and similar proposals, they would be based on some target level of emissions. If, as seems likely, the level of taxes needed to substantially slow global warming was much higher than the marginal damage done, the result would be to buy lower temperature at a price much higher than it was worth, making the net situation worse, not better....

Furthermore, I think it unlikely that income from carbon taxes would be used toreduce other taxes. The clear evidence here is the repeated pattern with regard to wars. New taxes are introduced as an emergency measure for a war, retained long after the war is over; there is always some politically profitable way to spend themoney. In the case of carbon taxes, I am confident that they would be used as an additional source of revenue, perhaps with the argument that the money was needed to ameliorate the effects of whatever global warming continued to occur.

This is a classic slippery slope argument: X may be good policy, but if I endorse X, Y will soon follow, and Y is terrible, so the government is better off doing nothing. For example, "Ideally, the government should prohibit people from shouting 'fire' in a crowded theater, but once the government starts regulating speech, we will lose all first-amendment rights and will soon be living in a police state." This form of the argument is popular among the anti-government crowd. Hayek's book, The Road to Serfdom, is one long slippery slope argument.

Now you might say that Friedman's slippery slope argument makes more sense than my shouting-fire example. But be careful. As Eugene Volokh points out,
If you accepted this slippery slope argument, then you’d end up accepting the next one and then the next one until you eventually slip down the slope to rejecting all government power (or all change from the status quo), and thus “break down every useful institution of man.”
Personally, I do not see how, in a world of climate-change extremists, advocating no policy is a more tenable solution politically than advocating a moderate policy of a modest carbon tax. Ultimately, policy is set by the median voter. When smart economists like David Friedman reject the first-best moderate policy to advocate the do-nothing position, he loses credibility among moderates, and that makes it easier for climate-change extremists to convince the median voter that we need to do something extreme.

Note that David's position seems very different from Milton's advice to put "politics aside" when giving economic advice. Maybe it's one of those father-son things.