How Cap and Trade Resembles Welfare Reform, 1970s-Style

by Steven F. Hayward

Jon Hilsenrath points out in today’s Wall Street Journal online that it was conservatives of the Chicago-school variety (think Ronald Coase, etc) who thought up emissions trading, suggesting that it is ironic that conservatives oppose cap-and-trade for greenhouse gases. To his credit, Hilsenrath points out that most of the original emissions trading advocates think it is a lousy fit for GHGs. But never mind that; the other interesting headline of the day comes out of Australia, where the Senate has voted to reject the Rudd government’s modest cap and trade proposal. Now, the Australian proposal appears to have suffered a pincer movement: conservatives (or “liberals” as free marketeers are rightly known Down Under) fear its economic cost, while many environmentalists predictably don’t think it is tough enough. 

Cap and trade may fall prey to the same pincer here. It is starting to shape up as a political rerun of Nixon’s proposed “Family Assistance Plan” guaranteed-annual-income idea in 1969. Recall that a guaranteed annual income, or a “negative income tax” as Milton Friedman called it, had a lot of conservative support as an alternative to the hodge-podge of paternalist/bureaucratic welfare programs that existed at the time. But Nixon’s FAP died an ugly death in Congress at the hands of the right and the left. Conservatives (including Friedman and, most importantly, Gov. Ronald Reagan) opposed FAP as it was formulated, while the welfare-rights left opposed FAP because the proposed grant wasn’t large enough. They wanted a guaranteed income level roughly four times what Nixon proposed. And so the whole thing died, though it took a couple of years; thank God. If FAP had passed and federalized welfare, we never would have had the state-level experiments in the 1990s that led to the conservative-oriented welfare overhaul in 1996.  

It may not be too early to think ahead to what comes if and when cap and trade goes down in (carbon-free) flames.

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