What Policy Can Do for Growth and What Politics Won't

Yglesias’ valiant attempt to show how Obama’s big schemes are all connected by the thread of economic growth works mainly as an illuminating exercise in free association. The thread that in fact holds them together is that there are major constituencies within the Democratic Party that want them. Most of the time, that’s how politics works and Matt often displays a fine appreciation of that fact when it comes to Republican policy initiatives. Anyway, I’d like to comment on this bit of Matt’s post:

[P]erhaps the most important things policy can do to impact the capacity for sustainable growth—i.e., growth that’s not based on asset price bubbles—is to increase the availability of high-quality human capital and the availability and quality of public sector physical capital. Which is to say education and infrastructure.

I agree that human capital and physical infrastructure are crucial to growth. I’m even happy to agree that government investment in education has more than paid for itself over the years in added growth. But I also think the evidence points to the idea that returns to public investment in the status quo system of education have diminished to basically nothing. No Democrat is going to do anything to run afoul of their party’s most powerful client in order to promote the deep structural changes needed in primary education to actually improve the quantity and quality of American human capital. So instead we get free money for college, which is Obama’s way of saying “thank you” to the loyal, powerful bloc of Democrats who make their living pouring valuable human capital into nineteen-year-olds by making them pretend to have read Plato and Beloved

As for energy infrastructure, we really could use a “smart grid” that allowed for real-time pricing of energy based on demand. (See Lynne Kiesling on the “transactive” potential of the smart grid.) Markets are known to be the best mechanism available for efficiently allocating resources, and putting in place an infrastructure for pricing energy would be good for growth and the environment. Just before the bit quoted above, Matt allows that:

There are a lot of factors behind growth including, of course, old fashioned human ingenuity at coming up with new products to offer and new ways to offer old products.

But Matt evidently thinks policy can’t do much about this. One thing policy can do is to make markets possible, so that there are rewards to ingenuity. That can mean making an illegal market legal, or making a legal market worth investing in by lowering the burden of regulation. Another thing it can do is to restructure intellectual property law to encourage rather than discourage invention. Another thing it can do is not crowd out private investment in innovation, which is the opposite of what Obama plans to do in education, energy, and health care. When I talked to Nobel Prize-winner Edmund Phelps, an expert in failed European attempts to spur growth by subsidizing technological advance and no right-winger, he seemed pretty worried that a lot of new infrastructure spending (much of which will be flat-out unecessary and unproductive) and targeted government spending on “green” technology would in fact adversely affect incentives to innovate. I don’t think he’s wrong to be worried. Matt thinks entrepreneurship is an empty business buzzword, but it is in fact the foundation of economic growth. 

I will rejoice the day either Republicans or Democrats find that their interests align with the general good and plump for a serious set of pro-growth initiatives. Until then, I’ll expect the usual constituency service.

New at Free Will: Lew Daly and Unjust Deserts

In this week’s Free Will, I chat with Lew Daly of Demos about his book with Gar Alperovitz, Unjust Deserts: How the Rich Are Taking Our Common Inheritance and Why We Should Take It Back. I found the book, especially the first part, stimulating if unconvincing. Daly and Alperovitz adopt a Douglass North-style neo-institutionalism and emphasize the broadly social nature of scientific discovery, invention, and economic growth. I’m completely on board with all this. They begin by noting that good institutions and technological advance are the foundation of growth, which is also true enough. They go out of their way to emphasize that successful economic activity depends on an enabling climate of norms, property rights, and decent government. Yup.

But it doesn’t take them long to fallaciously infer that your dog owns your house. The main thrust of Daly and Alperovitz’s argument is that the cumulative nature of the scientific advance and entreprenuerial discovery that leads to productivity gains implies that, as time goes on, individuals add a diminishing fraction of the overall value of the goods and services they help produce. D&A then push hard on a very simple and I think largely discredited notion of desert as the basis for just distribution. Since I didn’t come up with the theory of computation, did not build this computer or the Internet, since I cannot singlehandedly prop up the entire context of wealth-enabling institutions in which I am embedded, and since taxpayers paid for the education that enabled me to read and write, I deserve next to nothing of the economic value of this blog (if it has any). Daly and Alperovitz’s view comes down to the idea that, since we’re constantly enjoying and building on the positive spillovers of prior economic activity and earlier generations of wise governnance, society deserves almost everything produced. As you’ll see in the diavlog with Lew, I had some problems with this argument.

In particular, their story seems to imply that networks of scientists and innovators now long dead deserve a large portion of the wealth that we now create, since they are causally responsible for its foundation. But if that’s true, then it’s likely true that today’s innovators are also undercompensated, since they will be able to internalize only a tiny fraction of the value they pass on to future generations. So which is it? Larry and Sergei are too rich or not rich enough? Moreover, if successful American entrepreneurs don’t deserve much of their profits, then neither do contemporary American citizens who have done even less than the entrepeneurs to create economic value. Sure, I couldn’t make a fortune selling widget polish if no one ever invented the widget, or if the institutions in which widgets could be invented never developed. But there is nothing in the argument that implies that current tax consumers deserve my profits more. Even if we buy that I don’t deserve my income, D&A don’t seem to bother showing that society does. At least, I couldn’t find the argument that shows why, if I don’t deserve X, then a big set of people who also do not deserve X have a legitimate claim to it. This confusion is compounded by their lazy identification of society with the membership of the nation state. 

Their real worry is inequality. They want higher taxes on the wealthy and more government spending. And they seem to think popular but confused intuitions about desert and distribution stand in the way of their egalitarian policy objectives. That may be true. But it’s hard to see how offering an even less intuitve but nevertheless false account of desert and distribution is supposed to help them.

Never Enough

The current recession may turn into a small depression, and may push global living standards down by five percent for one or two or (we hope not) five years, but that does not erase the gulf between those of us in the globe’s middle and upper classes and all human existence prior to the Industrial Revolution. We have reached the frontier of mass material comfort—where we have enough food that we are not painfully hungry, enough clothing that we are not shiveringly cold, enough shelter that we are not distressingly wet, even enough entertainment that we are not bored. We—at least those lucky enough to be in the global middle and upper classes who still cluster around the North Atlantic—have lots and lots of stuff. Our machines and factories have given us the power to get more and more stuff by getting more and more stuff—a self-perpetuating cycle of consumption.

[…]

Today, buttermilk-fried petrale sole with pickled vegetables and parsley mayonnaise, served at Chez Panisse Café, costs the same share of a day-laborer’s earnings as the raw ingredients for two big bowls of oatmeal did in the 18th Century. Then there are all the commodities we consume that were essentially priceless in the past. If in 1786 you had wanted to listen to Mozart’s The Marriage of Figaro in your house, you probably had to be the Holy Roman Emperor, Archduke of Austria, with a theater in your house—the Palace of Laxenberg. Today, the DVD costs $17.99 at amazon.com. (The multiplication factor for enjoying The Marriage of Figaro in your home is effectively infinite for those not named Josef von Habsburg.)

That’s a taste of Brad Delong’s fascinating new column at The Week.

Technocracy vs. Liberal Democracy

Upon return from Singapore, Bryan Caplan writes:

Singaporean bureaucrats are less afraid to criticize their government than American bureaucrats are to criticize theirs.  Neither group would be afraid of legal punishment; but the Americans would be more worried that saying the wrong thing would hurt their careers.

Why is that? Commenter Devin Finnbar writes:

I believe it. Tocqueville noted that American democracy had less free speech than the European monarchies, because of the overwhelming social pressure to say the right thing.

I find this fascinating. Let me see if I can flesh out this idea a bit more.

In a democracy, policy shifts due to shifts in public opinion. Random changes in public opinion won’t do. They have to be coordinated. Opinion is coordinated through signaling and sanctions, both subtle and unsubtle. So, in a democracy, stating an opinion is a move in a delicate coordination game. There is a lot of pressure to be on the team. Coalition democratic politics is largely about trying to sabotage the other side’s attempts at solving the opinion-coordination problem. If you are a bureaucrat, you will be especially sensitive to the demands of conformity and solidarity in producing policy change, so you will tend to toe the line. You probably won’t think about this strategically. People whose sincere opinions tend to track the needs of their political coalition will be trusted within political coalitions, and will tend to get assigned to desirable government jobs.

In a Singapore-style technocracy, public opinion is just one of many constraints to take into account in formulating policy. But then public opinion can’t serve as the basis for a sense of the legitimacy of a policy or a policymaker. If the technocrat actually cares about legitimacy, then she probably cares a lot about effectiveness. The reason its okay to go over the heads of the people is that what you’re doing actually works to make them better off. Additionally, if you’re a bureaucrat, have a good idea, and can argue for it, it just might become policy. Especially if you are willing to let your boss take credit for it. In a well-functioning technocracy, status accrues to people who produce new ideas for effective policy.

So bureaucrats in a technocracy will be motivated to explore ideas, while bureaucrats in a democracy will be motivated to signal and recruit fidelity to the coalition’s pre-assigned ideas. Free-thinking exploration could spell defeat! 

Some related thoughts:

  • The glacial nature of shifts in democratic public opinion are part of what kept the U.S. from adopting more heavily socialist policies mid-century. 
  • Implementing the policies best supported by the social-scientific consensus once meant “economic planning,” and that is bound to fail for familiar reasons. But the fact that those reasons are familiar explains why technocracy is now less likely to fail.
  • Milton Friedman claimed that capitalism and freedom are inextricably linked. If this is an empirical and not a conceptual claim, we could find that this is false if politically free people again and again choose against economic freedom, or if the rulers of politically unfree countries show some tendency to choose policies of economic freedom.
  • In principle, free-market technocracies seem dangerously unstable in ways liberal democracies do not. But that doesn’t imply a free-market technocracy can’t have a good run before becoming captured by malign forces. How much will it matter to people in democracies that their liberties are more secure in the long run if it comes to pass that a technocracy on a heater is actually producing 3x the democracy’s per capita income?
  • In that scenrio, “Canadian citizen living in Singapore” will dominate “Canadian citizen living in Canada” or “Singapore citizen living in Singapore.” Why not live in the richest jurisdiction as long as you can always retreat to the freest if things go south? 
  • Singapore can’t absorb a ton of Americans or Canadians, but China could. If China becomes a huge Singapore, do liberal democracies develop a brain drain problem? Could this push democracies toward freer market policies and vindicate Friedman in the end?

Christina Romer to Head the CEA

Christina Romer’s appointment to the chair of the President’s Council of Economic Advisors is excellent news. Her recent papers on taxation with David Romer represent a real advance in blending economic theory with rigorous and ingenious historical research. Of course, good economics isn’t always good politics, which leaves high-ranking academic economists in a bit of a tight spot as they attempt to help the administration meet its aims while also attempting to maintain their professional reputation as social scientists. (This is, I imagine, rather harder for right-leaning economists such as Mankiw and Holtz-Eakins, already a distinct minority even in economics.) I’m interesting to see the extent to which Obama’s excellent economic team will and won’t be willing to diverge from their expert opinion in order to provide political cover for bad economic ideas. Goolsbee’s truth-telling campaign gaffe about Nafta comes to mind. 

In honor of Romer’s appoinment, I reprint the post I wrote about her and David Romer’s recent work on taxes over a year ago for Free Exchange:

The unbearable lightness of being Martin Feldstein

Posted by: 
Free Exchange | Washington, DC
Categories:
Taxation

JONATHAN CHAIT apparently is unimpressed by citations to the work of personages such as Martin Feldstein, the president of the prestigious National Bureau of Economic Research and the George F. Baker Professor of Economics at Harvard University. Indeed, Mr Chait has a knack for drawing the bounds of intellectual respectability so tightly around himself that by late afternoon even his shadow falls outside the charmed circle. Even so, one must admit that Mr Feldstein’s Clark medal and his endorsement by the New York Times for the job of Chairman of the Federal Reserve does leave one with a residue of suspicion. The Bank of Sweden has not bestowed upon him its coveted prize—though it’s true he has been mentioned, specifically for his work on the theory of taxation. So let’s not be too hasty to take him seriously. 

Because Mr Chait is a self-avowed empiricist, perhaps he will favour this new NBER paper (free version here) by Christina and David Romer of the Univesity of California, Berkeley (despite somewhat embarrassing credentials, even slightly more lackluster than Mr Feldstein’s). It is a dazzling empirical investigation of the effects of tax cuts and increases on economic output in the United States since the end of the second World War—one that significantly improves on the methodology of earlier attempts to estimate the effects of tax changes. They find that tax increases appear to have a very large, sustained, and highly significant negative impact on output. Since most of our exogenous tax changes are in fact reductions, the more intuitive way to express this result is that tax cuts have very large and persistent positive output effects.

The economists Romer looked at every tax change legislated at the national level since WWII.  Impressively, they scoured “presidential speeches, executive-branch documents, and Congressional reports … to identify the size, timing, and principal motivation for all major postwar tax policy actions.” They then categorized each tax change based on whether or not it was intended as a forward-looking correction to the direction of the economy (they call these “endogenous” changes), or intended for other reasons, such as to reduce an inherited deficit or to boost long-run growth (the “exogenous” changes.) This allows them to tease out the output effects of tax cuts and tax increases set in place for different reasons.

Those interested in raising taxes, but unwilling to take seriously Martin Feldstein’s estimate of the deadweight loss of tax increases, will need to grapple with Mr and Ms Romers’ new findings. For example:

Our baseline specification suggests that an exogenous tax increase of one percent of GDP lowers real GDP by roughly three percent.

This is bad news for those with aspirations to higher levels of tax-financed spending. However, they find that not all tax hikes hurt the same. Tax increases specifically intended to offset budget deficits largely avoid the negative effects of other kinds of increases, in part by improving the climate of investor confidence.

In another fascinating new working paper on the “starve the beast” hypothesis (it is false, FYI), the Romer duo directly discuss the revenue effects of tax cuts. So, the question at the heart of Mr Chait’s attack on supply side economics: do tax cuts pay for themselves? 

[A]lthough a tax cut leads to a sharp fall in revenues in the short run, it does not have any clear impact on revenues at horizons beyond about two years. Second, roughly half of the tax cut is offset by legislated tax increases over the next several years. Taken together, these findings suggest that a substantial fraction of the rebound in revenues is the result of non-legislated changes. The key source of the non-legislated changes in revenues is almost certainly the effect of the tax cut on economic activity. In Romer and Romer (2007b), we find that a tax cut of one percent of GDP increases real output by approximately three percent over the next three years. Since revenues are a function of income, this growth undoubtedly raises revenues. 

So there you have it. Tax cuts don’t exactly “pay for themselves”, but they also don’t diminish revenue after about two years. That is, after about two years, the government receives revenues equal to what it would have received at the higher rate, but taxpayers enjoy a lower burden. It is an important advance to discover that because cuts do lead to an immediate dip in revenue, they often inspire offsetting tax increases that retard the growth effect of the original cut. Nevertheless, the effect of cuts on output is generally strong enough to bring revenue back to where it would have been otherwise.

They do, however, add “an important caveat” to their “finding that tax cuts partially pay for themselves through more rapid growth”: the output effects of a tax cut may not last forever, in which case the cut could lead to shortfalls over the long run “in the absence of other legislative changes.”

The lesson, then, is that it is indeed irresponsible to think of a tax cut as a free lunch. If citizens wish to enjoy lower taxes, and do not wish to foist their debt on the next generation, they cannot avoid the responsibility of also cutting spending. This is how it should be. Truly “free” tax cuts make big government too much of a bargain. If you care about nothing more than getting out from under high tax rates, then self-funding tax cuts are a political dream come true: you don’t have to ask anyone to give anything up. But if you worry about the intrusions, abuses, and injustices other than the confiscatory tax rates enabled by a massive state, you should not want too much slack in the relationship between the spending levels and tax rates. 

For their part, empirically-minded champions of the welfare state like Mr Chait should be encouraged to discover that taxpayers seeking relief are not in fact the mortal enemy of government spending. The real nemesis of both government revenue and individual well-being is a slowed rate of economic growth, which, research shows, tax increases generally deliver.

The Crucible

Casey Mulligan’s important post on the relative separability of the performance of the financial and non-financial sectors of the economy (among many other refreshing and illuminating posts) highlights what I think are some of the great neglected facts of the ongoing discussion about the implications of the financial crisis.

First, financial markets are a necessary instrument to wealth creation, but are not a fundamental cause of increasing prosperity. It is a tremendous problem of economics journalism that journalists and opinionators don’t really understand the mainsprings of economic growth. Financial innovation affects growth at the margin by more efficiently allocating capital to its most efficient uses, but this is obviously secondary to developments in the real economy that increase capital’s productivity. Derivatives can make us a bit richer, but productivity-enhancing technologies make us rich.

The conditions for entrepreneurial discovery, and therefore scientific and technological and organizational innovation, and therefore productivity growth, and therefore increasing prosperity and welfare remain very, very strong. Yes, if the flow of capital to would-be innovators dries up, then innovation and growth dries up. But there is in our system enormous ongoing potential for innovation, and therefore for increasing returns to capital. And there is an enormous amount of capital, the owners of which continue to want a nice return. The magnetic force between capital and innovation is so strong, and our overall institutional environment so sound, that we can be pretty sure innovation and growth will continue with barely a hitch. The financial crisis is not going to keep us from getting a hell of lot richer.    

I think it’s pretty clear that our recent troubles are primarily due to a variety of misconceived U.S. government policies intended to promote home-ownership, and secondarily due to combined financial market irrationality and regulatory failure. Suppose you agree that the government screwed up in failing to regulate leverage. What does this imply about the feasibility of relatively free-market capitalism? What does it say about the desirability of government regulatory intervention into the non-financial economy–the part that actually delivers prosperity. Very little.

What does it say about the alleged dangers of free market ideology? Again, very little, if anything. I think Ross Douthat put it extremely well in his reply to Jacob Weisberg’s silliness:

[A]rguing that a single bad economic contraction following a long period of growth permanently discredits an ideology that can be implicated in both the growth and the contraction is like arguing that, say, Weimar Germany permanently discredits partisans of democracy.

Past and furture Treasury Secretary Larry Summers does understand a something about the deeper sources of economic prosperity, and thus in his FT op-ed titled “The Pendulum Swings Toward Regulation,” he says almost nothing about regulation (just leverage, really), and concentrates on the ways government subsidies might at once soften recession and enhance the productivity of the real economy.  

So there is a need to ensure that the pressure to increase spending is directed at areas where it will have the most transformational impact. We need to identify those investments that stimulate demand in the short run and have a positive impact on productivity. These include renewable energy technologies and the infrastructure to support them, the broader application of biotechnologies and expanding broadband connectivity, an area where the US has fallen behind.

I happen to think Summers is making a mistake in believing that government has adequate information or motivation to do a very good job at identifying growth-enhancing investments (in energy, biotech, broadband, or otherwise), but the implied broader point is that financial markets are a sideshow. The real economy is where it’s at, and the best the government can do is to promote the enabling conditions of innovation and growth. The contemporary debate was and continues to be whether government spending can complement or enhance relatively free markets, not whether we will be better off if those markets are more heavily regulated and relatively less free.

Indeed, I think the evidence points to overregulation of the economic uses of many forms of “intellectual property.” More generally, the evidence that dominant firms support regulation that increases the cost of entry into their markets remains overwhelming. Thanks these sorts of regulations, we’ve foregone a lot of innovation and growth.  At a smaller scale, regulation of small business — most notably the businesses poorer people are likely to start — continues to suppress a lot of welfare-enhancing entrepreneurship. Libertarians continue to lead the way in emphasizing all this, and continue to be right about all of it. We have witnessed nothing in the financial markets to reinforce the wisdom of this kind of welfare-reducing regulation.

Libertarians and other free market cheerleaders have made huge permanent strides in convincing the world of the importance of entrepreneurial discovery, competition-driven innovation, and the role of rent-seeking regulation in hobbling these. The prevalence of these ideas has made the world much wealthier, and stands to make it wealthier still. Larry Summers might not jump at the chance to admit this, but neither do I think he would disagree. He’ll just emphasize that active government spending can nevertheless be growth-promoting. That’s not much of a “pendulum swing” back toward a more regulated economy. If we’re really in the middle of a PR nightmare for capitalism — if this is our big generational crisis of confidence — and the importance of things like infrastructure upgrades and subsidies for renewable energy is the upshot for the left-leaning economic policy establishment, then what we’re going through amounts to the fire-tempering, the locking down, the consolidation of decades of libertarian-leaning economic policy gains.

Michael Clemens for Treasury Secretary

Michael Clemens explains, more or less, why I put a bunch of money (a bunch for me) in an index fund a couple weeks ago and now wish I’d waited a bit…

As for whether or not the current financial crisis will make much difference to income growth in the United States over time, have a look at the second graph below. This is the best estimate of real income per capita in the United States since 1820. Over these years we had violent financial crashes of various types, bank panics, piles of recessions and a huge depression, many foreign wars and one enormous domestic war, had a central bank and didn’t, were on the gold standard and weren’t, had governments topple in scandal and multiple leaders assassinated, and what did it all amount to in the medium to long run? In per-capita income terms: Nothing. The overall trend does not bend or shift. Every bad year was followed by a good year that returned us to trend. The US average growth rate of real per capita incomes over the last 190 years has been 1.8% a year, and the same rate over the last 10 years has been…. 1.8% a year. Stare at that graph: The Great Depression was traumatic in countless ways, but astonishingly, it’s not clear that we are any worse off today than we would be if the whole thing never occurred. Anyone who made such a claim in the 1930s would have been scoffed at, but that’s what happened.

Keep on truckin’, America.

[Via Cowen via Blattman]

Bourgeois Deeds

I just discovered that Deidre McCloskey has posted on her website a draft [doc] of the second volume of her work on bourgeois virtues. For those of us who love the history and anthropology of morality and economic history and rhetoric and political economy, McCloskey’s hard to beat for interestingness value.

HT: David Boaz

More Money, More Happy, Again

Here’s Betsey Stevenson and Justin Wolfers’ new paper [pdf] on happiness and economic growth. The bottom line:

The accumulation of more recent data (and a re-analysis of earlier data) suggests that the case for a link between economic development and happiness is quite robust. Moreover, we establish that the relationship between happiness and income within a country is similar to the relationship between happiness and national income across countries. Finally, we show that the within country relationship between economic growth and happiness is similar across countries.

And this effect shows up despite all the reasons — scale renorming, unbounded income scale vs. bounded happiness scale — that you would expect to flatten the trend. Taking the methodological considerations about surveys into account, the most reasonable conclusion is that these findings set the lower bound on the contribution of income to happiness.

The paper has all sorts of interesting findings from the Gallup World Poll that I have not seen. For example:

We next turn to a series of well-being questions contained in the Gallup World Poll. Respondents are asked to report whether they experienced “the following feeling during a lot of the day yesterday?” including enjoyment, physical pain, worry, sadness, boredom, depression, anger, and love. The middle panel of Table 4 shows that, among the positive emotions, the enjoyment-income gradient is positive and similar for both the between- and within-country estimates. More income is clearly associated with more people having enjoyment in their day. Love is less clearly related to income, although within-countries more income is associated with being more likely to experience love. Among the negative emotions, physical pain, boredom, depression, and anger all fall with rises in income, at both the national and individual level.

Beatles fans and headline writers please note relationship between income and love.

The final regressions analyze the relationship between income and some more specific experiences in people’s lives, such as feeling respected, smiling, doing interesting activities, feeling proud, and learning. Most of these assessments are related to one’s income in the within-country estimates. Fewer show signs of a similar sized effect when examining the relationship between countries. However, there are some notable exceptions. Wealthier people are more likely to say that felt that they were treated with respect yesterday and as countries get wealthier more people feel respected. Wealthier countries have people who report smiling more. This last measure is particularly interesting as smiling has been shown to be correlated with reported levels of happiness or life satisfaction. Indeed, in the data people who report smiling more, also report higher levels of life satisfaction. Finally, as countries get wealthier more people report having been able to eat good tasting food the previous day and the magnitude of the relationship is similar to that seen within countries.

All told, these alternative measures of well-being point to a robust relationship between rising
income and improvements in societal welfare.

MONEY IS GOOD FOR PEOPLE. I will continue to wait with bated breathe for conventional wisdom to catch up.

[HT: Zubin Jelvah]

Framing the World Away

Joe Brewer of The Rockridge Institute (aka, the George Lakoff Center for a More Scientific Leftwing Propaganda) discusses the “cognitive dimension of climate policy” in “How Conservatives Have Duped Us in the Global Warming Fight.” As far as I can tell, this duping consists entirely of basic social-scientific literacy. Here’s Brewer’s expose of the enemy frame:

Idea No. 1: Protecting the environment harms the economy

This idea has been promulgated for decades by conservative think tanks like Cato Institute, Heritage Foundation, Competitive Enterprise Institute and others. It is based on the foundational claims that (1) the environment and the economy are fundamentally different things, and (2) they compete with one another in a zero-sum manner — meaning that a gain for one amounts to an equivalent loss for the other. This idea takes many forms. Here are a few that we hear all the time:

  • Environmental action will cost us jobs.
  • American companies will be burdened by additional costs.
  • Addressing global warming will put our economy at a competitive disadvantage versus the rest of the world.
  • Renewable energy must compete with traditional energy sources, like coal and oil, before it can be implemented.

This is just weird. What does (1) even mean? Does he really think anyone thinks that? And (2) is a bald-faced misrepresentation. The general market environmentalist view is that there is something like an environmental Kuznets curve (or set of curves for different pollutants and environmental goods), according to which environmental quality degrades in early stages of economic development, and then improves at later stages.

How about those bullet points? Here’s what a bona fide Cato-style market environmentalist thinks:

  • Environmental action may or may not cost jobs, depending on the action. When Chad Pegracke enlists volunteers to clean up local rivers, that’s both effective environmental action, and it doesn’t cost jobs.
  • Most environmental regulations do burden companies with additional costs. How is this wrong? Does Brewer think regulatory compliance is free? If he thinks the cost is worth it for all of us in the end, that doesn’t mean there wasn’t a cost bone disproportionately by the company and its shareholders.
  • Imposing heavy restrictions on carbon emissions will put firms using America-based production at a competitive disadvantage relative to those using foreign-based production unless we can ensure general compliance with global restrictions. And we probably cannot. China and India (not to mention all of Africa) are on the left side of the Kuznet Curve, and they are not going to kneecap themselves for the rest of us. How is this incorrect?
  • Renewable energy must be as efficient as traditional energy sources, or else using them will be more expensive, and using the more expensive alternatives leaves us with less to spend on other things. I suppose the very idea of a budget is rightwing agitprop?

Here’s Brewer’s attempt at reframing:

Idea No. 2: A healthy economy depends upon a healthy environment

The well-being of our communities (isn’t that what we mean by a healthy economy?) is intimately bound to the preservation of life-giving qualities from nature. In other words, a thriving economy depends upon protection of the environment. Separation of environment from economy is fictitious, an artifact of a flawed way of thinking.

This begs the question, “what is wealth, and where does it come from?” A progressive response might be that wealth is the well-being of individuals, society, and the earth. Wealth is more than simply material wealth. It comes in many forms — having good relationships with friends and family, maintaining physical health, and yes, living in a community where clean skies, thriving forests, and healthy streams are preserved. Clean air, drinkable water, and fertile soils are inherently valuable because our well-being depends on them — independent of markets. A consequence of this meaning is that resource preservation is wealth creation. The logic works like this:

  • Wealth is anything that increases well-being.
  • Clean air increases well-being, so it is a form of wealth.
  • Dirtying the air reduces well-being, so it is a loss of wealth.
  • Keeping the air clean is preserving wealth.

This is not an equally valid prism through which to see the issue. This is just an insistence that words come to mean what one wishes them to mean. But suppose we accept the redefinition of “wealth” as “anything that increases well-being.” It then follows that clean air is wealth only insofar as it increases well-being. If there is in fact a tradeoff in certain places between higher incomes and cleaner air, and there is, and higher incomes do more to increase well-being than cleaner air at certain stages of development, and they do, then cleaner air decreases well-being relative to the relevant alternative. And so cleaner air can be a form of poverty. QED.

The whole thing turns on denying the possibility of tradeoffs, which is just stupid. You can’t just insist that people spend more money on what you want them to spend more money on and then say that it didn’t cost them anything because it made them wealthier by your very special personal definition of wealth. Well, you can say it. And you may even manage to persuade some people. But it makes you look either foolish or dishonest to people who know better.

I’m all for availing ourselves of any useful indicator of well-being. But this can’t be merely stipulative. You need to show that something contributes to health, happiness, longevity, creativity, the realization of basic human capacities, etc. The story these indicators taken together tells us is that the greatest increases in human well-being have been a consequence of rapid economic growth, traditionally construed. This has taken a certain toll on the environment, but that hasn’t left us worse off has it? Indeed, the opposite is true. So Brewer has it backwards.

The evidence — the whole set of well-being indicators, and not just the income numbers — says that growth-based environmental changes have been associated with an increase in well-being. Historically, pollution has been side-effect of wealth, as Brewer construes wealth. Now, it is completely misleading to attempt to try to brand carbon as a pollutant, as Brewer seems to wish to do. But even so, the places that emit the largest amounts of carbon per capita are precisely the places where people tend to do best on pretty much every well-being indicator imaginable, and this relationship seems to be largely casual, and not incidental. So pretty much all the relevant evidence points to the conclusion that cutting carbon emissions in the absence of equally efficient sources of energy will reduce well-being. It will impoverish us. This is not a right-wing framing conspiracy. It’s called a considered judgment based on empirical evidence. Try it!

Now, I’m quite open to the idea that carbon taxes are an efficient method of getting folks to internalize the costs of the negative external effects of their activities. But Brewer clearly thinks that if the debate proceeds in economically-literate terms, he will not get the policies he wants.