Ralph Nader and a friend have a piece in today’s Wall Street Journal arguing in favor of a carbon tax instead of the cap-and-trade rationing scheme that Sen. Obama says he will push through Congress once he is president.
Nader is right on a few points here — and his thesis, that the carbon tax must be global, isn’t the worst part of the proposal; after all, if you’re really going to hobble your economy in the name of a global issue, well, make it a global hobble. “Environmental protectionism” — which Europe seems to want to pursue as a result of the obvious competitive disadvantage imposed by their cap-and-trade scheme — is a far worse option. A tax also imposes a competitive disadvantage, of course, but if everyone is paying it . . .
Nader seems aware, even if he doesn’t promote the idea, that a tax is far less inefficient. Cap-and-trade is not “the most efficient way to reduce emissions” as the received wisdom ignorantly has it, but instead the most efficient way to allocate allowances, or ration coupons. The most efficient means of reducing emissions of course is to tax them. Whenever you tax something — jobs, productivity, wealth — you wind up with less of it.
Obama’s nominee to head the OMB, current CBO director Peter Orszag, is touted as a cap-and-trade expert. He acknowledges the greater efficiency (in terms of cost) of a tax over rationing, yet also pushes the myth in defense of cap-and-trade that it allows certainty of emissions (while taxing offers certainty of price).
Hogwash. I have serially informed audiences that I will take anyone’s action who is silly enough to claim to know what Europe’s emissions will be next year. I never get any takers, for the obvious reason: it’s impossible to know with certainty. Cap-and-trade possesses no such virtue. Its principal virtue is in hiding the tax and allowing rent-seeking constituencies to profit from selling ration coupons — neither of which is possible with a direct tax.
Despite his notoriously thin skin, I have a feeling that Obama, unlike President Bush, understands the virtue of being criticized from his party-base flank. So now he’ll be allowed to do honestly what Sen. McCain less-than-honestly did during the campaign, which is portray himself as fighting off those forces who want to tax you, swooping in with a “market mechanism” (i.e., a hidden tax) to save the day.
It is therefore ever-more important to hit the issue not only from the right — why are you hiding this TAX, the inefficiencies of which will hurt the U.S. economy? – but also from the left — why are you handing out corporate welfare while making energy more expensive for seniors and the poor?