Sunday, February 28, 2010

Going Beyond the Global Warming Debate

The Telegraph in the U. K. is running an opinion piece that sums up much of the case against the "warmists", titled A perfect storm is brewing for the IPCC; The emerging errors of the IPCC's 2007 report are not incidental but fundamental, says Christopher Booker.

I am not going to quote from it but will rather go in a different direction.

There is little question that cap-and-trade is a gift to special interests such as the financial industry, for which a fully implemented cap/trade regime would probably be the largest business line in history-- profits which would be paid by you and me.

Let us go back to fundamentals and not pretend to know the extent to which global warming is occurring and if so whether it is due to human industrial activities.

It's easier to come to a practical solution without trying to know the unknowable but rather to stick with basic principles.

Basic principles are that resources are finite, that in most systems of government, financial accounts need to balance, and that first and foremost, economic systems need to meet the basic human needs of food, shelter, etc.

Another basic principle of economic thought is that Adam Smith's capitalism does not give weight to externalities such as pollution caused by, say, a manufacturer's pollution of a lake used for pleasure fishing but for which the fishermen do not pay dock fees or the like.

A simple way to account for loss of value of a public good such as a pristine lake or a mountaintop that would be destroyed by coal mining is to assess a value to those losses and have the business treat such costs as an input to costs just as much as labor and raw material costs are counted.

Thus, whether fossil fuels, potash or many other nonrenewables are produced, they can be taxed according to the replacement value (which rises over time as the easiest deposits are depleted first) of the resource plus an estimate of environmental damage, or some other similar scheme.

Climate considerations aside, it is difficult to see how an electricity-intensive advanced world and an automobile-poor emerging world are going to find more and more fossil fuels near today's prices to fuel the growth. Price will ration these resources better than any regulatory scheme. It may be better for, say, government to force resource-depleting companies to price in tomorrow's market price today as tax. Paradoxically, doing so will keep market prices lower than they would be in the future, by discouraging consumption of nonrenewable resources in favor or renewable goods, such as those derived principally from human imagination such as the performing arts, medical services, education, etc.

If such an idea occurs, look for resource-based companies to lose value. It would be better for governments to take advantage of the slack in the global economy and avoid taxes on useful things such as work effort or medical devices and instead obtain an increased share of government's revenues from industrial activities that are underpriced to the extent that resource depletion and environmental damage (including non-economic damage) are not considered as input costs by the companies involved.

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