Efficiency & Pollution Victims

TIM HABB explains that the revenue from a corrective tax should not be used to compensate the "victims" of pollution:

"So what happens if we compensate the victims according to how much pollution they are exposed to? The costs of staying are reduced and the cost/benefit ratio shifts in favor of staying. That is, the victim is willing to bear more pollution costs to stay--the demand for pollution increases! This is a classic moral hazard problem. The solution to the problem actually creates the incentive for more of the problem.

So are there anyways to compensate victims of pollution using revenues from a pollution tax without distorting the incentives? Sort of. A lump sum payment to all victims--that is a payment independent of the amount of damages the victim incurs--will not distort the victims' incentives. By simply making a payment of $100 to each victim, the victim still must bear the additonal (marginal) cost of each unit of pollution. The marginal damage from the last unit of pollution is the relevant cost in the benefit/cost decision. A lump-sum payment doesn't change that cost."

I believe the conclusion is correct, but I don't think using the term "victim" fits with the normative analysis of efficiency.

If the normative criterion for evaluating the allocation of resources is pareto optimality, then I don't think there is a victim when there is market failure. Rather there is just an inefficient allocation of resources. This normative perspective then suggests there may be an explicit role for government to play in the economy, and this role is not to make things "right" for the victims of the market failure. Rather, the role is to achieve an efficient allocation of resources. The normative framework of economic efficiency seems to me to be intended to take a specific "social point of view" with respect to economic activity. As such, I don't think efficiency can identify specific "victims." Instead, the "victim" of an inefficient allocation of resources is some concept that relates to the entire economy and not to specific identifiable people. When we use efficiency to discuss pollution, we might ask who is at fault for causing the external cost. Such a question seems to me to fit with the "victim" terminology, but I think this too is a use of language that is off the mark for efficiency analysis. The fault is not the actions of any specific individual, even if he or she is a polluter. The fault is found, for efficiency analysis, in an institutional structure that does not internalize the entire marginal social cost of resource utilization decisions.

I would suggest that the term "victim" is much more appropriate to the normative perspective of individual liberty. In this case, we would be looking for harm caused to some individual (or to a set of individuals), which results from the actions of another or others. If there is harm caused by the actions of another or of others, then it would seem quite natural and appropriate to say that the person harmed is a victim of the actions of another or of the actions of others. Further, on this normative perspective the idea of having those causing harm compensate those who are harmed (the victim or victims) is quite direct and obvious.

I suggest that using terms like "victim" when discussing efficient policy with respect to pollution really amounts to adding a second normative framework to the discussion. Or, using such terms perhaps is the result of paying too little explicit attention to the nature of the normative framework which is being used to evaluate environmental policy alternatives. Often times efficiency and liberty are normative frameworks that point to the same policy choices, but there are some policy issues for which these normative frameworks point to different policy choices. It seems to me that pollution is one of the issues where these normative frameworks point to different policies. For example, getting an efficient level of pollution (generally greater than zero pollution) is really not going to satisfy the normative perspective of individual liberty since the efficient pollution will mean there is still uncompensated harm to some which is caused by the economic behavior of others. And, as Tim essentially points out with his explanation, if "victims" are compensated with the revenue from a corrective pollution tax, then the result will be inefficient. The result in other words would actually be more consistent with the normative perspective of individual liberty, and it would not be consistent with efficiency.

Sowell on Congress & Immigration

THOMAS SOWELL:

"Of all the insults to our intelligence in the current discussions of immigration legislation, the biggest insult is the claim that border control legislation and legislation on the illegal immigrants already in the country must go together.

Why? What will happen if they are done separately? And who will be worse off?

The claim that the two pieces of legislation must be passed at the same time has been repeated endlessly. But endless repetition is not a coherent argument.

At the heart of this issue is the question whether Congress and the Bush administration are serious about controlling the borders and about letting the number and kind of immigrants allowed into this country be decided in the United States, not in Mexico.

Whatever number and kind of immigrants the United States wants to admit into this country, that decision means nothing unless that limit is enforced at the borders. Nor is there any way to know in advance how effective any particular method of border control will turn out to be in practice.

The only way to know whether fences, national guardsmen or anything else will work is to wait and see before issuing blanket amnesty to millions of illegal aliens, virtually guaranteeing that millions more will follow, as has happened in the past.

A Congressional package deal is not about border control. It is about trying to get the Hispanic vote without losing the votes of other Americans. It is about allowing politicians to vote on both sides of this issue to cover themselves politically."

Yes, this is right on the mark. Many of our fearless leaders in Washington are indeed trying to get the Hispanic vote while not losing the votes of Americans, and their strategy is to try to trick We The People. Shameful, eh? It is the responsibility of Congress and the national government in general to enforce our laws, to enforce our borders, to devote their attention to our security. They haven't been doing this, and instead of turning to the responsibility today and in a forthright manner, so many of them are trying to trick us.

I'm with Sowell:

"Some say that the Democrats would filibuster a bill that offered border control separately. Fine. Let them!

Let them show their true colors in an election year and then go face the voters in the fall.

Of course, those Republicans who are either weak-kneed or who share the Democrats' views would also lose the political cover of being able to vote on both sides of the immigration issue.

But the country would be better off not to commit itself to guaranteeing the permanence of millions of illegal aliens and all their descendants thereafter without getting anything more than pious hopes about controlling the border."

Make them vote yes or no on enforcing the border!!

Unconstitutional Supreme Court?

RANDY BARNETT:

"JunkYardLawDog: Yes, indeed courts can act unconstitutionally in their rulings. One virtue of originalism is that it provides a benchmark external to case law by which to judge judicial behavior. As the first sentence of Restoring the Lost Constitution states, 'Had judges done their job, this book would not need to be written.' Allowing precedent to trump original meaning (where that meaning is clear), which is supported by all ideological stripes when it is convenient, actually puts the rulings of judges above that of the Constitution."

I think this is an important point. I have heard and read others who do seem to think the Supreme Court cannot make unconstitutional rulings, because "the constitution means what the Court says it means." If that is a person's view, then indeed it must be clear that the Court cannot amend the Constitution or act unconstitutionally. In my view, the Court can, and has done both. In my view, when the Court decided to read the Takings Clause as "public purpose" instead of "public use" we have just one clear illustration that it has done both.

I also had not thought of the point Barnett makes about precedent, but it seems correct.

Wal-Mart Predators?

Apparently a city in California is thinking about taking 17 acres of land from Wal-Mart. I have a short post on this over at Eminent Domain Institute

Katrina -- The Real Story?

LOU DOLINAR:

"Let's try that again: The cavalry wasn't late. It didn't arrive on Thursday smoking a cigar and cussing. It was there all along.

The National Guard's response to Katrina was even more robust than I suspected in my reporting for RealClearPolitics in September, and in more detail for National Review, where I revealed for the first time that rescue operations saved up to 50,000 lives, with perhaps an equal number making their way to shelters on their own.

Fifty thousand New Orleans residents were in danger of death from drowning, heatstroke, dehydration and disease. That was a tough one to get through the media reality-distortion field, but the numbers have since been confirmed by Congress, the White House, Louisiana state officials and the relevant agencies themselves. If anything, I understated the size of the rescue effort. What I didn't understand was the critical role the Superdome headquarters played."

After Katrina I posted several comments that were based upon what I could read and hear from the news industry. The essay I point to above paints a much different story than I got then, and apparently it is more likely the accurate story of what happened after Katrina had passed New Orleans. Apparently there were significant rescue efforts that saved many, many people.

Perhaps I should take this as a reminder that the news industry, on the whole, is not a very good source for information that leads to true understanding.

Sprawl's Paradox

Robert Bruegmann:

"When asked, most Americans declare themselves to be against sprawl, just as they say they are against pollution or the destruction of historic buildings. But the very development that one individual targets as sprawl is often another family's much-loved community. Very few people believe that they themselves live in sprawl, or contribute to sprawl. Sprawl is where other people live, particularly people with less good taste. Much anti-sprawl activism is based on a desire to reform these other people's lives."

The paradox? Everyone says they are against sprawl, but many (perhaps most) of us are pretty darn happy living in it. This seems paradoxical. Yet, the important paradox may be seen in trying to figure out why being "anti-sprawl" seems to be good politics? I would hope that in this land of liberty the last sentence quoted above was not the case, but alas, I'm afraid it is.

Earmark Reform? Not!

On the Editorial Page of the Wall Street Journal ($$$):

"Under the House bill, all earmarks inserted into appropriations during the conference committee stage must identify the earmarker -- unless, we now discover, the earmark goes to a federal agency, as nearly half of them do. Another notable earmark exception has been carved out for Fannie Mae and Freddie Mac, the mortgage giants that are political honey pots for the Members. As far as we know, the two companies have never received an earmark before -- which raises the question of whether they are about to become a new earmark shelter for the Members to disguise their pork-barrel habits.

Oh, and earmarks directed to state and local governments are also exempt from the requirement under some circumstances. How big a loophole is that? 'It could be as big as the appropriators are clever,' Representative Jeff Flake (R., Ariz.) told us. 'And they're pretty clever.' Congressman Flake has been fighting the earmark tide since long before it became a cause celebre, and he's hoping the loopholes can be narrowed when the House and Senate sit down to agree on a common version of the bill." ["Earmark Loopholes," The Wall Street Journal, Friday, May 19, 2006]

Isn't there an old adage that goes something like "watch what they do, not what they say?" Many of the Washington politicians may talk a good game, but when I read things like this I wonder why I shouldn't conclude that Washington these days is rife with corruption. What do you think? Can you give me specific reasons not to reach this conclusion?

Latest NSA Old News

NEWSBUSTERS:

"Even though it’s largely been reported before, today’s USA Today “bombshell” seems too good for the Bush-bashing networks to ignore."

You should read the entire piece which provides a detailed "replay" of stories about this same story from about 6 months ago. Do you suppose those members of the news media reporting now simply forgot they reported the same story earlier? Are there any medications we can give the media for this condition?

Taxes

The Joint Economic Committee released a report on our federal income tax system. Check out the chart at TaxProf Blog that shows the distribution of taxes paid. The bottom 50% in adjusted gross income pay only 3.46% of the total income taxes paid, which leaves 96.54% paid by the upper 50% of adjusted gross income. What's more is that the top 5% in AGI pay over 1/2 of the federal income taxes, and the top 1% pay over 1/3.

It seems to me that a fair and efficient tax system cannot be a tax system with 1/2 the population paying essentially nothing for the goods and services provided by the national government.

Who's a No-Think Economist?

DON BOUDREAUX:

"Roberts’ mode of argument is so disingenuous, his name-calling and innuendo so unscholarly, and his economics so madcap, that I’m tempted to ignore him in much the same way that I ignore the antics of Lyndon LaRouche, Louis Farrakhan, and others who scream from the fringes.

But I resist the temptation."

It's worth a look.

Economics Summer Reading

Summer reading suggestions by Arnold Kling and Greg Mankiw. I would concur with: Easterly, Harford, Lomborg, Blinder, and McMillan.

Iran

Amir Taheri:

"President Bush can learn from the Kennedy, Carter and Clinton models by not repeating their mistakes. What the U.S. needs is an open, honest and exhaustive debate on what to do with a regime that claims a mission to drive the U.S. out of the Middle East, wipe Israel off the map, create an Islamic superpower, and conquer the world for 'The Only True Faith.' The options are clear: retreat and let the Islamic Republic advance its goals; resist and risk confrontation, including military conflict; or engage the Islamic Republic in a mini-version of Cold War until, worn out, it self-destructs.

With the options clear, Messrs. Carter, Brzezinski and Clinton along with other 'engagers' would have to tell us which they favor and, if they like none, what alternative they offer. Calling for talks is just cheap talk. It is important to say what the proposed talks should be about. In the meantime, talk of 'constructive engagement' is sure to encourage President Mahmoud Ahmadinejad's intransigence. Why should he slow down, let alone stop, when there are no bumps on the road?"

Taheri's commentary is important, and I think he is probably right. At this moment, our political leaders should be engaged in an honest, open, and frank discussion of what our policy should be with respect to a country that espouses the goals Iran espouses. As well, the attention of We The People should also be turned to these issues. I think we should be very concerned about any policy response, or non-response, that allows the Islamic Republic to advance toward it's goals.

Tyranny

A. Yasmine Rassam:

"One torture technique favored by Saddam's henchman and his sons involved raping a detainee's mother or sister in front of him until he talked. In Saddam's torture chambers women, when not tortured and raped, spent years in dark jails. If lucky, their suckling children were allowed to be with them. In most cases, however, these children were considered a nuisance to be disposed of; mass graves currently being uncovered contain many corpses of children buried alive with their mothers.

During Saddam's war with Iran, nearly an entire generation of Iraqi men were killed, injured or captured, leaving a dearth of men of military age in Iraqi society. As a result, Saddam launched 'fertility campaigns' that forcibly administered fertility drugs to school girls as young as 10 in an effort to drive up the population rate.

After the Gulf War--particularly after crushing the Shiite and Kurdish uprisings of 1991--Saddam reverted to tribal and 'Islamic' traditions as a means to consolidate power. Iraqi women paid the heaviest price for his new-found piety. Many women were removed from government jobs and were not allowed to travel without the permission of a male relative. Men were exempted from punishment for 'honor' killings--killings carried out on female relatives who had supposedly 'shamed' their family. An estimated 4,000 women died from honor killings in the ensuing years. By 2000, Iraqi women, once considered the most highly educated in the Middle East, had literacy levels of only 23%.

Under the pretext of fighting prostitution in 2000, Saddam's Fedayeen forces beheaded 200 women 'dissidents' and dumped their head on their families doorsteps for public display. These women obviously lost whatever 'rights' granted to them once they got in Saddam's way.

Saddam Hussein was an equal opportunity killer who tortured, raped and gassed men, women and children alike. From Dujail in the South (the murder of hundreds of villagers for which he is on trial now) to the chemical obliteration of Halabja in the North, all Iraqis bore the brunt of the tyrant's wrath."

Manhattan Gasoline

Washington Post:

"Gas stations are an endangered species in Manhattan, shoved aside by luxury developments and spiraling commercial rents. A cluster of stations sit on prime real estate that has already been rezoned from industrial to residential.

In the past few months, at least four stations have been shuttered. That means there are no more than 54 stations left to service the estimated 830,000 cars, delivery trucks and various other gas-consuming vehicles that crawl through Manhattan's urban canyons each day. It's come to the point that the city's Planning Department is examining strategies to keep the remaining stations in business.

'I don't think they will disappear completely, but I don't see stations being built because of the expense,' said Ralph Bombardiere, executive director of the New York State Association of Service Stations and Repair Shops. 'I don't see anyone putting that kind of investment in it.'

The numbers tend to bear this out. The island is 23.7 square miles of real estate, home to about 1.5 million people. Add to that the tens of thousands of daily commuters, and land in Manhattan becomes what water is to Los Angeles: precious regardless of looks, smell or location.

Scarcity explains, in small part, the borough's astronomical gas prices, says Bombardiere. Fewer stations equals less competition."

Now there's some solid economics: fewer stations equals less competition. But I suppose there is a bigger picture. That is, the fewer stations are the result of ever greater competition for parcels of land.

The article seems to suggest that over time there are fewer and fewer gas stations because there are different economic uses for the land the gas stations now sit on that are willing to bid far greater values for the land than are the gas stations. The story also suggests that government is considering whether to adopt some policies to "correct" the situation:

The city's Planning Department, which makes recommendations for rezoning and tracks demographic shifts, plans to examine strategies for preserving critical services, such as gas stations, in Manhattan, according to Rachaele Raynoff, a department spokeswoman. One option is to provide special zoning protection to gas stations, repair shops and other industrial-age service centers.

Might New York one day protect gas stations because they provide a public service?

Cornelius Burns thinks so. "You absolutely need gas stations," he says. "You would need to do something to protect it."

I'm not sure this makes much economic sense. It seems to me we can't really expect the dynamic adjustments of this urban economy to be characterized by any source of market failure. I also suspect that using some "special zoning protection" will itself introduce inefficiency into the location of economic activities within this urban area. Am I missing something here?

I suppose some may think it is obvious that "you absolutely need gas stations," but perhaps that is not really the most significant concern. Imagine what the price of a gallon of gas might have to be in order for a gas station to be able to out bid the other potential economic uses of the land.

Oh, and I shouldn't forget to point out that we learn from this news story that big oil wins again:

"The winners often turn out to be the oil companies, said Bombardiere, of the gas station association. They typically own the land and set the gas prices. And when they're ready to sell, the companies reap the rewards."

I suggest it doesn't really matter who owns the land. As this urban area continues to grow and prosper and increase in density, the competition for parcels of land will continue to grow and bid up the amounts economic activities will pay for land. Those who own the land now will be the people who benefit from the increasing scarcity values of the land, regardless of the economic nature of the owner.

They Fight For Liberty

Marine Corps 1st Sgt. Bradley Kasal:

"In November 2004, while serving with Weapons Company, 3rd Battalion, 1st Marine Regiment, Kasal rushed into a house in Fallujah where Marines were trapped in a small room. They were pinned down by Iraqi insurgents firing into the house from a higher and superior position.

The first time, after being shot and crawling to safety, Kasal went back out into the line of fire to rescue an injured Marine.

'I knew I was gonna get shot (again),' he said.

Now, after having suffered seven gunshots, Kasal decided to again put his life at risk.

He would use all of the available field dressings to help stop the bleeding of a gunshot wound suffered by a fellow Marine. He decided not to use any of the dressings for himself and instead 'bleed out.' It just made sense that one of them should survive.

Finally, the insurgent, knowing the injured Marines had no way out, lobbed a grenade into the room. Kasal saw the grenade, and using his own body as a shield, leapt onto his fellow Marine as the grenade exploded.

'I thought the chances of surviving were zero,' he said.

But survive he did, his right leg and buttock riddled with bullets and his body stung by shrapnel."

Corruption

Glenn Reynolds on Congress: "It's as if there's nothing going on but graft and shakedowns."

Bolivia Predator

Reuters.com:

"President Evo Morales ordered the military to occupy Bolivia's natural gas fields on Monday after nationalizing the industry and threatening to expel foreign companies that do not recognize state control."

[ . . . . ]

Morales became president in January on vows to exert more state control over natural resources, reflecting a growing backlash against free markets and foreign investment in Latin America.

The president chose Labor Day, May 1, to announce the nationalization, which stipulates companies will have to leave Bolivia unless they sign contracts within six months recognizing state control.

"This is just the start ... tomorrow or the day after it will be mining, then the forestry sector, and eventually all the natural resources for which our ancestors fought," Morales told a jubilant crowd in La Paz's main plaza.

[ . . . . ]

The government decree says "the state recovers ownership, possession and total and absolute control" of hydrocarbons.

This means the state will own and sell these resources, relegating foreign companies to operators. Previously, Bolivian law said the state no longer owned the gas once companies extracted it from underground.

[ . . . . ]

South America's poorest nation, Bolivia has reserves of some 48.7 trillion cubic feet and exports most of its gas to Brazil and Argentina. Foreign companies have invested more than $3 billion in the last decade, much of it in exploration."

I haven't studied Bolivia's sytem of political economy, but I have to guess that a significant reason Bolivia is "South America's poorest nation" is likely to be a government that embraces economic predation.

Fuel for Thought

Don Boudreaux suggests an interesting way to think about the recent increases in gasoline prices:

"Note that in 2005 our cost of complying with federal-income-tax regulations was $53.7 billion more, in real 2005 dollars, than the extra amount we're now spending compared to 2004, on an annual basis, for gasoline.

And Congress has the gall to pontificate about the alleged unacceptability of the higher prices now charged by oil companies."