Carbon tax vs. labor tax

by  Tyler Cowen in

I used to think that a revenue-neutral carbon tax would, in addition to its effects on climate, have superior allocative properties over a tax on labor or capital income.  "Why not tax pollution rather than productive activity?" or something like that.

It turns out I was (mostly) wrong.  I read this passage yesterday and said to myself "Duh!"  A tax on carbon, by raising the prices of goods and services, also lowers the real wage and discourages labor supply (holding constant its effect on climate), just as an income tax does:

However, this does not necessarily mean that revenue-neutral CO2 taxes, or auctioned allowance systems, produce a “double dividend” by reducing the costs of the broader tax system in addition to slowing climate change. There is a counteracting, “tax-interaction” effect (e.g., Goulder 1995). Specifically, the (policy-induced) increase in energy prices drives up the general price level, which reduces real factor returns, and thereby (slightly) reduces factor supply and efficiency. Most analytical and numerical analyses find that the tax-interaction effect exceeds the revenue-recycling effect, implying no double dividend, and that abatement costs are actually higher due to the presence of preexisting tax distortions. A rough rule of thumb from these models is that the costs of revenue-neutral emissions taxes are about 15 percent greater than the direct cost due to interactions with prior tax distortions, implying the optimal tax is 15 percent lower than the Pigouvian tax (e.g., Bovenberg and Goulder 2002).  However, the cost increase is far more substantial for policies that do not exploit the revenue-recycling effect (i.e., cap-and-trade with free allowance allocation or CO2 taxes with revenues not used to increase economic
efficiency). According to cost mark-up formulas derived in Goulder et al. (1999), the increase exceeds 100 percent when the emissions reduction is below 30 percent.

I'm not sure this should be a major factor in one's assessment of a carbon tax, but I hear this analytic error quite often, so I thought it was worth a post.  (I should add I don't understand their qualifying point about revenue-recycling at the end of the excerpt and as I read it I don't think it is correct; an income effect which offsets a substitution effect does not eliminate the distortion from the latter.)  The source paper, which is interesting on the economics of climate change more generally, is here.

Markets in everything, just don’t trust the Khmer Rouge

by  Tyler Cowen in

But they do understand that price may signal quality; the price was raised from $500,000 to $1.5 million:

A former Khmer Rouge official photographer has put on sale for 1.5
million dollars what he claims to be Pol Pot's clothes, sandals and
toilet, along with thousands of photographs and other artifacts he
collected during the genocidal regime's 1975-79 rule. "I will sell Pol
Pot's sandals, toilet, his uniform and cap, thousands of photographs
and the two cameras I used during the Khmer Rouge period," said Nhem
En, who was recruited to take photographs of detainees when they
arrived at Tuol Sleng torture prison in Phnom Penh.

"I am asking for 1.5 million dollars, but the price is negotiable," he added.

Shop Class as Soulcraft

by  Tyler Cowen in

This book grows out of an attempt to understand the greater sense of agency and competence I have always felt doing manual work, compared to other jobs that were officially recognized as "knowledge work."  Perhaps most surprisingly, I often find manual work more engaging intellectually.  This book is an attempt to understand why this should be so.

That's from Matthew B. Crawford, who has a Ph.d. in political philosophy from the University of Chicago yet now runs a motorcycle repair shop in Richmond.  I would cite shooting baskets, walking, and cooking as three of my analogous "intellectual" activities.

Recommended.

Does the gender of a judge matter?

by  Tyler Cowen in

From the work of Christina Boyd, Lee Epstein, and Andrew D. Martin, Boyd and Epstein report:

In research
that we conducted with our colleague Andrew D. Martin, we studied the
votes of federal court of appeals judges in many areas of the law, from
environmental cases to capital punishment and sex discrimination. For
the most part, we found no difference in the voting patterns of male
and female judges, except when it comes to sex discrimination cases.
There, we found that female judges are approximately 10 percent more
likely to rule in favor of the party bringing the discrimination claim.
We also found that the presence of a female judge causes male judges to
vote differently. When male and female judges serve together to decide
a sex discrimination case, the male judges are nearly 15 percent more
likely to rule in favor of the party alleging discrimination than when
they sit with male judges only.

This holds true even after we account for judges' ideological leanings.

The research paper is here.

The Islamic roots of *Star Wars*

by  Tyler Cowen in

This is even better than having a Muslim President:

…the Arabic word for "great," akbar, has been adapted into George Lucas's Star Wars franchise, in the form of Admiral Ackbar, a heroic character and military commander whose success in space helps Luck Skywalker and the Rebel Alliance repel Darth Vader's Galactic Empire.  Featured in Return of the Jedi, Ackbar is just one of many characters and settings in the Star Wars universe that have an Arabic background.  Luke Skywalker's home planet, Tatooine, takes its name from the Tunisian city of Tataouine (al-Tataouine in Arabic).  Darth Vader's home planet is Mustafar, a slight variation of Mustafa, an Arabic name that means "the chosen one" (and is one of 99 names for the Muslim prophet Muhammad).  Attack of the Clones showcases Queen Jamilla, whose name is a slight variation of jamilla, an Arabic word for "beautiful."  And Revenge of the Sith features Senator Meena Tills, whose first name means "heaven" in Arabic.

That is from Jonathan Curiel's often interesting Al' America: Travels Through America's Arab and Islamic Roots.  The book also has an intriguing discussion of Islamic influences on the architecture of the World Trade Center.

Expressive complaints

by  Tyler Cowen in

There are many injustices in the world, so it is good that we have people willing to speak out against them:

Media regulator Ofcom today said it had received nearly 350 complaints about the weekend's Britain's Got Talent shows – but fewer than 20 were about the treatment of runner-up Susan Boyle, who was admitted to a private medical clinic on Sunday suffering from exhaustion.

Ofcom
said most of the complaints, 331, were about 10-year-old singer Hollie
Steel, who broke down in tears on Friday night's Britain's Got Talent
live semi-final.

However, only 50 were concerned for her welfare,
while 281 were complaining that she should not have been given a second
chance to sing.

The story is here.

Markets in everything, labor hoarding edition

by  Tyler Cowen in

"How would you like to spend more time with your family – like the
next five years?" is not the kind of offer employees usually want to
hear from their bosses in the depths of an economic crisis.

But
BBVA, Spain's second-biggest bank, has posed that question to staff as
part of its latest cost-cutting drive. It is hoping at least some of
its 29,954 Spanish employees agree not to come to work for up to five
years – in exchange for nearly a third of their usual salary and a
guaranteed job when they return.

The story is here.

How Cooking Made Us Human

by  Tyler Cowen in

How much can you hate a book that has sentences like these?:

Instinctotherapists, a minority group among raw-foodists, believe that because we are closely related to apes we should model our eating behavior on theirs.

In fact I liked the book — How Cooking Made Us Human, by Richard Wrangham — very much.  Here is a good review of the book.  The one sentence version is:

We are cooks more than carnivores.

I also liked this fragment:

…a bachelor is a sorry creature in subsistence societies…

Here is a strange and wild critique of Instinctotherapy.