California Gets Carbon Tax Horribly Wrong

Unfortunately, I need to explain some economics before understanding why this California politician is clueless.

A market externality is a cost of a good or service that is not included in the price. For instance, I am a power plant and do not figure in the cost of acid rain when I burn coal to generate electricity (luckily we have ways to remove the sulfur from the emissions now, but think back to the 80s). The cost of the acid rain is the market externality.

A social cost or a social good is part of the market externality. In the example above, acid rain is a social cost. Since the cost of the acid rain isn't figured into the price, the difference is borne by everyone affected -- hence the social cost. A social good is similar, but a desired result. For instance, a well-educated population is a social good even for those who did not pay tuition.

A pigovian tax is a "tax" added to the price of a good or service which has an external component. Or think of it as having a social cost. The pigovian tax is meant to bring the price in line with the true price -- it attempts to internalize the externality. The result is two-fold: (1) the behavior causing a social cost is disincentivized, so less social cost and (2) the price now reflects the true price which increases market efficiency.

When it comes to carbon emissions, market externalities are the true problem. The actual cost of emitting carbon (via climate change mainly) is ignored. Gas is cheaper than its true price would be. It's impossible to know exactly what the true price would be, but that doesn't mean it doesn't exist. So the best way to solve carbon emissions that contribute to climate change is through a pigovian tax. More on this in the forthcoming issue of the Journal of Lutheran Ethics.

So when I saw an article about carbon tax in California I thought they were on the right track. But then I read the full headline: "California senate leader: Carbon tax would return revenue to poor, transit." A pigovian tax can't be treated like a sales tax or income tax. It can't simply be thrown into the revenue barrel and allowed to be porked out like the rest. The whole point of a pigovian tax is to bring the externality into the market and reduce social costs to equal or less than zero. Simply doling out this revenue to the poorest Californians does nothing to mitigate climate change. The proceeds should be used for the social goods that help neutralize carbon emissions. While I doubt California is interested in paying Brazil not to cut down the rainforest (a truly important measure to take), I think they would be interested in a research grant for tech companies to look into artificial carbon sinks. The revenue from this tax could help fund such a grant. While they also mention public transit, I just hope they do it the right way in order to reduce traffic instead of increase it. See David Owen's great books which cover, among other topics, induced traffic.

Martin Luther Was Not Against Capitalism

I've recently read more than one article that paints Martin Luther as anti-capitalist. They offer quotes from Luther's writings pointing to his critique of (what they call) free markets.Granted, the articles at times used "emerging" and other such nuances.  This still irked me. Not because I am in love with our current flavor of capitalism (I am not), but because it shows how many Christian ethicists need a better background in economics.

Martin Luther died in 1546. That's the first reason why Luther never wrote against capitalism. It simply didn't exist during his lifetime. I'll grant that pinning a birthdate on an emergent economic order is impossible, but 1546 is nowhere close. Adam Smith's Wealth of Nations was published in 1776. Again, you can't date an emergent order on a book's publishing, but Wealth of Nations had such an effect on economic practice that it is difficult to ignore. So Luther died a full 230 years before Wealth of Nations.

But surely the emergent order that Smith described was in an inchoate form for many years preceding Wealth of Nations? Most assuredly. So let's look at exactly what these articles have used to portray Luther as anti-capitalist. The main quote I'd like to address is here:

“Daily the poor are defrauded. New burdens and high prices are imposed. Everyone misuses the market in his own willful, conceited, arrogant way, as if it were his right and privilege to sell his goods as dearly as he pleases without a word of criticism.”

This sounds like a resounding critique of free markets. Except that would require an anachronistic stretch. Free markets did not exist in Luther's time. Markets certainly did, but they weren't free. They were plagued by cartels, price fixing, collusion, and similar activities that would now be considered fraud (though given the lack of prosecutions from the financial crisis, they were probably to this day get off scot free). The economy of Luther's time and place was dominated by the Fuggers. Monopoly does not make for free markets either. So we can't read Luther's comments to mean he was against free markets or capitalism. We can certainly say he was against exploitation of the poor, though. That would be a great anchor on which to base an article. But it wasn't.

Luther is certainly critiquing a market, but not a capitalist free market. He's critiquing the market of his day and region. We would be silly to universalize these comments as a critique of capitalism or free markets in general.

This bias, though, isn't limited to Christian ethicists writing about economics. I see similar problems in what economists are writing about Uber -- the surge pricing taxi service. Economists are praising uber like it's the best thing since comparative advantage. Yet they don't realize that Uber, by itself, is not a free market tool. It is a monopoly. My state representative recently tweeted:

RT if you want to bring Uber to Miami
— Carlos Trujillo (@RepCTrujillo) February 5, 2014

To which I replied:

@RepCTrujillo A real free market sentiment would be to bring multiple Uber-like services to Miami. Not an Uber monopoly.
— Curtis L. (@CurtisKnows0) February 5, 2014

If the question is "What would Martin Luther think of our contemporary flavor of capitalism?" the best answer is "I don't know." I would presume to put words into his mouth. I'm pretty sure he wouldn't like it. But it would be for different reasons than those given in the articles mentioned.

Book Review: After Virtue by Alasdair MacIntyre

This is more my personal reflections on the book than it is a review. These were very casual notes I made as an email to someone while I was reading.

 

• Concerning telos: Perhaps he conflates two different versions of telos. The one as it applies to the summum bonum. The other as it applies to history. I don't see where the Enlightenment took down the first. The authors he mentions that attempt to do it aren't really Enlightenment. Kieerkegard, Nietsche, etc. are so prescient they really qualify more as 20th century existentialist/nihilists than they do Enlightenment. But even then, I think the telos of mankind isn't lost and that Bentham was probably onto something as far as telos goes (he may have gone a little too far in the calculus and policy implications). The telos of history, on the other hand, has been successfully taken down, I think, by postmodernism. But a rejection of teleology in history does not necessarily entail a rejection of the telos of humanity.
• Chapter 8 about his views on social science was great (to me). But I wonder if the reasons he gives for the social sciences being unable to stand up to scrutiny doesn't also apply to the hard sciences. Also, he points to the inability of the soft sciences to predict and therefore they aren't sciences. I'm not sure that is a necessary requirement. The soft sciences do an excellent job explaining. From there, a good social scientist can draw probability predictions. Perhaps not in the way physics can predict orbits, etc., but even orbits aren't predicted perfectly. To me, it's like a sports coach. There are obviously better coaches than others. Those coaches' skills don't depend on prediction, but probability. And it certainly has an artistic element to it. Yet no one would doubt that Coach A is better than Coach B given certain data. 
• The third to last chapter comparing Nozick to Rawls is just what I need. He says they are incompatible without an appeal to virtue. I have a different idea. Still a ways away before I get to actually writing anything though!

And at this point I forgot my book at my wife's doctor's office. The last 30 pages will have to wait until after her next appointment when she can bring it home.

 

And on the "battle of the schools of ethics," I have this to offer.

 

• After watching the first couple lectures of Sandel's Justice on YouTube, I figured out how to reconcile deontology, utilitarianism, and virtue ethics (I would also add casuistry as a fourth option although the case could be made to apply it to all three of the above): each one answers a different type of question. In the dilemma's Sandel uses to introduce the course, there are obvious choices for which is best in certain situations. I usually lean towards utilitarian (at least the modified version of the present), yet there are some questions (cheating in the USAF on the test for officers in charge of nuclear weapons for instance) that certainly point to a virtue perspective. And Walzer, in my view, is often the champion of a deep casuistry over any easy appeal to duty, utility, or virtue.