Economists have long been ecstatic about the growing enthusiasm of the greenies for the market. At last, economists chortle, our expertise will play a positive role. No longer the dismal science – now we’ll be the dismal swamp science. Pollution taxes, emission rights, tradable credits for CO2 reduction! Wow. Government will set the goals – market mechanisms will efficiently get us there. After all, regulations are costly – let’s at least make sure that we-re as efficient as possible in implementing them.
But, before buying into this fantasy, one should consider carefully the risks that such policies entail. For one thing, they will make government reform more difficult. Consider the New York City taxicab system. New York politicians decided, in their wisdom, that the city would benefit from fewer cabs, capped the number allowed, and granted each owner a number of medallions to cover their existing cab fleets (the “grandfathinging” policy). To ensure “efficiency” the medallions were tradable – want to drive a cab? Buy a $100.00 medallion, throw in a little extra for the cab and gas and you’re ready to abuse tourists anywhere in New York.
This is the traditional role of government: first create scarcity and then misallocate it. But the right to buy and sell such medallions creates something far more pernicious. In effect, we’ve securitized the government monopoly privilege – and thus made it far more desirable to medallion holders. Making medallions tradable ensures that they will always have value, giving owners a powerful incentive to lobby fiercely to ensure that nothing is done to dilute their “property right” to exploit consumers. A tradable rights system is much more difficult to reform.
Slavery is another example. Had the slavery system not included the “right” to buy and sell, it might have died out much earlier. Slaves in the older costal states would have been freed as economic conditions made them locally less useful. Using a market mechanism, however, allowed a more “liquid” market in human flesh and ensured that slavery flourished until the Civil War.
Tradable emission rights are only another variation on this theme. If CO2 suppression becomes a national policy via a “cap and trade” system, then we’ll all find energy costing a little more and becoming less affordable; all of us will become (in part) energy serfs. And the magnitude of the rights created in this area will not be small – recent studies estimate that the proposed minimal level of CO2 reductions would lead to “CO2 emission rights” worth over $2 trillion.
If you thought an affordable energy policy was hard with just big green opposition, imagine the problems when they’re joined by big business.