The Corner

Energy & Environment

Government Engineering with Markets Is Better Than Government Engineering without Them

A trader works at the New York Stock Exchange, January 8, 2019. (Brendan McDermid/Reuters)

In response to Sorry, Your Newest Government-Run Technocratic Scheme Is Not a ‘Market-Based Solution’

David Harsanyi writes:

The biggest lie of Obamacare wasn’t that Americans would be able to keep their insurance — anyone who paid even the slightest bit of attention to the Affordable Care Act debate knew that was untrue — but rather that their purportedly well-designed law was grounded in “market-based solutions.”

While there is never perfect competition, market-based solutions tend not to hold consumers captive, create monopolies by shutting down interstate and international commerce, force companies to sell a state-approved ideological menu of goods and services, or sue nuns who aren’t interested in buying those goods. They definitely don’t artificially spike the price of an otherwise affordable commodity in an effort to control consumer behavior.

Just like Obamacare, carbon pricing creates a fabricated “market” meant to nudge you towards better behavior. Whereas “markets” rely on efficiencies created by competition to drive down prices, carbon pricing relies on “fees” (known in non-DC parlance as a “taxes”) to induce you into rationing energy consumption. Washington will then mail you (well, some of you) refunds for good behavior.

I don’t disagree with him, necessarily, but I tend to see such schemes through a very different lens. If the choice is between the government interfering with free choice and the government not doing that, sure, I’ll keep free choice. But when the government does need (or unwisely decide) to get involved in a given area, I’ll take government-designed markets over other forms of government engineering any day.

When people call Obamacare as a whole “market-driven,” they are indeed ignoring the vast bulk of the law. (I’d add the Medicaid expansion to Harsanyi’s list.) But the Obamacare exchanges do, in fact, rely on competition among insurers to provide products and set prices. The law is better with that aspect of its design than it would be without it.

A similar principle applies to carbon emissions: If the government is going to get involved here — and in this case I think the argument for doing so is pretty strong, because free markets will not control the externality of carbon emissions on their own — it will have more success with a market-like mechanism such as a carbon tax than it will have if it tries to regulate emissions directly. When you put a price on carbon, you encourage people to use less of it specifically in the circumstances where their use of carbon is worth less than the price. You target the situations where reductions are most feasible and sensible, allow people to still use carbon whenever they’re willing to pay for it, and harness the knowledge and preferences of businesspeople and consumers throughout the country. Otherwise the government is just guessing which methods of carbon control will be the least damaging to our overall wellbeing.

Is that still government engineering rather than a completely free market? Yup. But when government action is either genuinely necessary or politically inevitable, conservatives should absolutely work to inject market principles into the process.

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