I was noodling around yesterday with Excel in regards to government spending, Medicare and economic growth. I wanted to see how big government spending would get, as a percentage of GDP, over time as Medicare continued to grow at a rate of about 2.5% points higher than economic growth (source). First I checked 20 years, then thirty and eventually I got as far as 100 years. Sure, it is a bit silly to hold a projection that far based on a historical record that is about half the size of the forecast horizon, but what the heck…I was just noodling around.
But then when I was looking at the percentage of government spending (federal only mind you) for the 100 year scenario I had a thought…”Hey, I wonder why the global warming advocates aren’t all over this too?” After all, if just federal government expenditures account for almost 70% of GDP that is…well not a good thing in terms of our future. And the bulk of that will simply be just Medicare/Medicaid, forget about the increases in Social Security and other potential problems such as the higher tax rates necessary to sustain that kind of spending will likely slow economic growth. It seems to me that is one is going to wring their hands about temepratures 100 years hence, then shouldn’t such people wring their hands about immiserating taxation and spending 100 years hence?
And this brought to mind another thought I had about global warming and the people who think both the hypothesis is true and that it is a bad thing: they really don’t believe it. Deep down I doubt the veracity of their beliefs in the dangers of global warming, or either that they see the dangers sufficiently far off that they don’t feel that something serious should be done today. The reason I think this is simple. If you really truly believe that Anthropgenic Global Warming (AGW) is a serious threat to the world on a variety of fronts (catastrophic changes in weather patterns, rising ocean levels, rampant disease, etc.) then there is a really simple and obvious solution. In fact, somebody has already suggested the solution.
Yes that is right, higher taxes. This is basic public economics (and also basic environmental economics). This is so basic anybody who has taken either of these classes at the undergraduate level should be totally and fully aware of this solution. Yet, what do we hear about from most of the advocates of the AGW hypothesis? Kyoto this, Kyoto that. Bah, Kyoto wont work. But taxes? Taxes will work, and not only that they are simple to put in place. What isn’t simple is finding the right level for the pigouvian tax, but when there is a tax people will eventually reduce their consumption of the good that is causing a negative externality for society.
Al Gore has suggested something like this, but nobody seemed to think it was a good idea (at least that I know of). Of course, Gore isn’t the brightest bulb in the batch though, so maybe people figure that the policy was bad based on that point.1 But, in any event here is Gore’s solution,
For the last fourteen years, I have advocated the elimination of all payroll taxes – including those for social security and unemployment compensation – and the replacement of that revenue in the form of pollution taxes – principally on CO2. The overall level of taxation would remain exactly the same. It would be, in other words, a revenue neutral tax swap. But, instead of discouraging businesses from hiring more employees, it would discourage business from producing more pollution.
The only problem is that the level of taxation will be fixed so that the new pollution tax is revenue neutral with respect to the payroll tax that would be eliminated. The problem here is that to really deal with AGW the tax level might need to be higher than whatever tax rate Gore is proposing above. Still the above is pretty good. First we are getting rid of a highly regressive tax that does discourage both work and hiring of workers. Second, it would be paid by those who are doing some of the polluting–i.e. corporations. Of course, this doesn’t go far enough since it exempts everybody who drives a car. So another tax would have to be introduced to disuade people from driving so much.
Heck, this could be a way to help solve both problems, the Medicare short fall and AGW. But oddly enough I just don’t see much discussion of it, but maybe I’m just looking in the wrong places.
Update: Kevin Drum suggests that “virtually every serious analyst I’ve read agrees that a carbon tax is one of the primary building blocks for any effective global warming policy”. He points to this survey by the National Journal. However, in looking at the poll only about 50% of the respondents felt that a carbon tax was essential and the comment from one such policy analyst (member of Congress really) was to make the tax industry specific. Uhhh, sorry Charlie, that just isn’t good enough. We need to make it economy wide so that every source of CO2 is pretty much covered.
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1Gore also said,
Global warming pollution, indeed all pollution, is now described by economists as an “externality.” This absurd label means, in essence: we don’t to keep track of this stuff so let’s pretend it doesn’t exist.
Which is just stupid and an insult to just about every environmental economist out there. An externality is something that is fundamentally external to the market and hence is not factored into the relevant (marginal) cost and (marginal) benefit calculations by agents in the economy–that you would be you, me and everyone else because we lack the information to factor these things into the calculation, not out of some malevolent desire. That doesn’t mean that economists ignore it, but that it is hard to measure and thus correct.
