Mason Gaffney: Economics in Support of Environmentalism

Private property: from means to end

In a proper view of things, I submit, private property is a means to an end. It is not an end in itself; it needs a functional rationale. The end is to get land put to the best use. All the private land in the world was originally granted by some sovereign public person or body, mainly for that purpose, not as a welfare entitlement. Landowners and their lawyers have slyly, over time, turned the means into an end, a fetish they endow with "sanctity." This is a term they borrowed from absolutist medieval theology. "Sanctity" means the quality or state of being holy or sacred, hence inviolable. It means property may not be challenged, or even questioned. It has become an end in itself, its own voucher. You're not even supposed to think about it, it is above thought. Taboo!

Neoclassical economics, historically, marked the final, total surrender of the profession to this fetish. The modern economist's view runs something like this: "I pledge allegiance to the 14th Amendment, and to the overinterpretation of private landowner supremacy for which it has come to stand." It is ironic to recall that Radical Republicans passed that Amendment, at a time when a "Radical Republican" was one who favored freeing the slaves. The 14th Amendment was designed to protect the rights of freedmen. As interpreted now, the 14th Amendment means that The Emancipation Proclamation itself was unconstitutional! Fortunately, no one has brought that case - yet.

The Neo-classical economists' view of their proper role is rather like that in The Realtor's Oath, which includes a vow "To protect the individual right of real estate ownership." The word "individual" is construed broadly to include corporations, estates, trusts, anonymous offshore funds, schools, government agencies, institutions, partnerships, cooperatives, the Duke of Westminster, the Sultan of Brunei, the Medellin Cartel, Saddam Hussein, congregations, Archbishops, families (including criminal families) and so on, but "individual" sounds more all-American and subsumes them all. This is a potent chant that stirs people to extremes of self-righteousness and siege mentality when challenged.

The resemblance between Neo-classical economics and the Realtor's Oath is easier to understand when you learn that Professor Richard T. Ely, founder of the modern discipline of Land Economics, was heavily subsidized by the National Association of Real Estate Boards, the utilities, the major landowning railroads, and others of like mind and property interests.

When it comes to violating property rights, air pollution today is perhaps the greatest invader and confiscator of property. Where do economists stand? Once a few of them tried to say, following A.C. Pigou, "let the polluter pay," and in parts of Europe they still do. In our modern backward thinking here at home, however, it's not the polluter who is invading the property of others, nor the human rights of those not owning property. Rather, when you tell them to stop, the government is invading their rights. The wage-earning taxpayers must pay them to stop, else you are violating both the 14th Amendment and the "Coase Theorem," a rationalization for polluting now dearly beloved by Neo-classical economists. ... read the whole article

Nic Tideman: Improving Efficiency and Preventing Exploitation in Taxing and Spending Decisions

Whenever a one-time redistribution is proposed, a reaction of many economists is, "Yeah, right. Why would anyone one believe that it would be only one time?" What would make it reasonable to believe that such a redistribution would be a one-time event is its rationale: The recognition that some persons have had unfairly inadequate starting positions in life, and the determination to end that. If the purpose is achieved, there is no rationale for further redistribution, unless, at some future time, our society attains a new moral insight that implies that further redistribution is required.

With transfers replaced by private insurance and local action, and defense pad for substantially by Pigouvian taxes on capital, not much is left for federal taxes to support. Perhaps some international relations, perhaps some research (though in view of the possibility of a conflict of interest on my part, one should not take my word for it.) If I could have my way, the little that would be needed in national spending would be paid for by voluntary subscription by lower levels of government, as the UN is financed. ... read the whole article

Nic Tideman: Revenue Sharing under Land Value Taxation

The ideas in this paper can be regarded as a variation on the Pigouvian idea of equating marginal private cost and marginal social cost. Independent localities with free migration are inefficient because of the resulting discrepancy between the marginal private cost and the marginal social cost of migration. Taxation of a common base is inefficient because of the discrepancy between the social cost of local government spending and the cost of such spending to localities that make spending decisions. Taxation of the rental value of land by both localities and states is inefficient because it causes the local cost of a project to exceed its marginal social cost. Taxation of the sale value of land by both localities and states is inefficient because it causes the cost to the locality of being inefficient to be less than its social cost. The system that does not have inefficiencies is one that avoids externalities in migration decisions and makes the local contribution to state coffers independent of actions that localities take. ... read the whole article

Peter Barnes: Capitalism 3.0 — Chapter 3: The Limits of Government (pages 33-48)

Let’s set aside for a moment the question of whether government is inherently biased toward property and focus instead on a purely mechanical question: is taxation a good tool for preserving gifts of nature? I pose this question because economists have advocated “green taxes” for over eighty years, and it’s time to move beyond this hoary panacea.

The idea of using taxes to protect nature dates back to 1920, when Cambridge University’s top economist, Arthur Pigou, proposed it. At first blush the idea makes sense. If pollution is free, there’ll be lots of it. If it’s taxed, there’ll be less. Taxation forces polluters to internalize some of the costs they’d otherwise externalize.

So far, so good. The devil, however, is in the details. For example, who sets the taxes? What algorithm do they use? How quickly can they act? To whom are they accountable? And where does the money go?

When the federal government sets taxes, the key players are the House Ways and Means Committee and the Senate Finance Committee. As any observer of Congress will tell you, the process of writing tax laws is ugly, contentious, and time-consuming. Bills are introduced, hearings held, politics unleashed. More than anything else, this is what keeps Washington’s lobbyists on their cell phones.

What algorithm drives committee members when they write tax laws? Most often, it’s what’s best for their reelection. They’re not economists, they’re politicians. They want to please donors and voters. Protecting nature, or future generations, isn’t foremost in their minds. Hence, pollution taxes will never be as high as they need to be.

Consider a real example here — carbon taxes. A tax on carbon emissions could, in theory, reduce global warming. But in order to make a difference, the tax would have to get extremely high. This means Congress would have to raise the prices of gasoline, natural gas, and electricity year after year, hitting every business and consumer in the pocketbook. That’s an improbable scenario.

In most situations, mainstream economists would shout, “Politicians shouldn’t set prices, markets should!” Prices should announce to the world, on any given day, what buyers are willing to pay and sellers are willing to accept. To the extent that government distorts or delays this process, it leads to inefficient allocation of scarce resources, not the least of which is Congress’s own time.

So why did Pigou and his followers give the price-setting job to politicians? Because, in their minds, there was no alternative. Someone had to set prices for pollution, and they thought no one else could do it. But there are other options. ... read the whole chapter