April 14, 2009
Economics Department
Samuelson's Complaint
It's been a few weeks since I've done any long-form blogging, but the normally sensible Reason website just linked approvingly to a Washington Post op-ed by Robert J. Samuelson that cries out for a response. He's talking about Obama's "green" energy plans and how we improve our economy:
Since the dawn of the Industrial Age, this has been simple: produce more with less. ("Productivity," in economic jargon.) Mass markets developed for clothes, cars, computers and much more because declining costs expanded production. Living standards rose. By contrast, the logic of the "post-material economy" is just the opposite: Spend more and get less.
Consider global warming. The centerpiece of Obama's agenda is a "cap-and-trade" program. This would be, in effect, a tax on fossil fuels (oil, coal, natural gas). The idea is to raise their prices so that households and businesses use less or switch to costlier "alternative" energy sources such as solar. In general, we would spend more on energy and get less of it.
I don't like most of Obama's economic agenda, but Samuelson's "spend more and get less" argument is incredibly silly. It only seems to work because he's conveniently ignoring the environmental benefits of Obama's plan---cleaner air and a cooler planet.
It's true these energy sources are more expensive, but contrary to what Samuelson says, we'd be spending more to get more: Instead of just getting the energy, we'd be getting the energy plus a better environment.
It's always easy to argue against a policy if you dismiss its benefits. I wonder, does Samuelson think a VHS video tape recorder is better than a digital video recorder because the VHS machine records up to six hours on a tape, but the DVR can't record tapes at all? Is buying a Tivo spending more to get less?
(It's arguable that cleaner energy won't solve global warming, but that's not the argument Samuelson is making. He's not saying that global warming theory is wrong, he's just assuming away the economic importance of pollution, which allows him to reach silly conclusions.)
The prospect is that energy and health costs may rise without creating much gain in material benefits. That's not economic "progress." Rebating households' higher energy costs (as some suggest) with tax cuts does not solve the problem of squeezed incomes. Given today's huge and unsustainable budget deficits, some other tax would have to be raised or some other program cut.
Samuelson is a little forgetful. Earlier, he described cap-and-trade as "a tax on fossil fuels." Obviously, the tax rebates to households could be paid for with the tax on fossil fuels. There's no reason a cap-and-trade (or carbon tax) program can't be revenue-neutral.
(On the other hand, there are rumors that Obama wants to give away the emissions permits instead of selling them. This would still raise energy prices due to scarcity, but the money would become a windfall to the energy companies instead of being available to help the poor.)
What defines the "post-material economy" is a growing willingness to sacrifice money income for psychic income -- "feeling good." Some people may gladly pay higher energy prices if they think they're "saving the planet" from global warming. Some may accept higher taxes if they think they're improving the health or education of the poor.
It amazes me that someone who writes editorials for a living would deride production that yields a psychic benefit. Why does he think people read his work if not for the psychic benefit?
Once you get past the basics---food, shelter, and clothing---almost all of our economy is driven by psychic benefits. Why else do we have tasty food, colorful clothing, comfortable homes, and sporty cars if not for the psychic benefits? Why do we have multi-billion dollar music, movie, television, and video gaming industries? Why do we have bars and ballgames and strip clubs if not for the psychic benefits?
When you get right down to it, don't you buy food for your children because of the psychic benefit of knowing your children aren't starving to death? Samuelson's distinction between material and psychic benefits is pointless, and not at all useful for policy analysis.
Unfortunately, these psychic benefits may be based on fantasies. What if U.S. cuts in greenhouse gases are offset by Chinese increases? What if more health insurance produces only modest gains in people's health?
Sure, the psychic benefits could be mistaken fantasies, but so could most of the material benefits. What if your new car is a lemon? What if your new clothes tear at the seams the second time you wear them? What if you buy the new Bon Jovi CD and it's not as good as you hoped it would be?
We cannot build a productive economy on the foundations of health care and "green" energy. These programs would create burdens for many, benefits for some. Indeed, their weaknesses may feed on each other, as higher health spending requires more taxes that are satisfied by stiffer terms for cap-and-trade. We clearly need changes in these areas: ways to check wasteful health spending and promote efficient energy use. I have long advocated a gasoline tax on national security grounds. But Obama's vision for economic renewal is mostly a self-serving mirage.
[Emphasis added.]
The economic argument for national security spending is that there's a free-rider problem: You can't sell national security in the free market because it's impossible to provide it only to the people who pay for it. Everyone benefits, so everyone should pay for it through a system of taxation.
The problem is that the exact same argument applies to air pollution and global warming: You can't sell clean air and a cooler planet in the free market because it's impossible to limit the benefits only to people willing to pay for them. Yet Samuelson is willing to have people endure higher energy costs for one but not the other.
There could very well be a reason for this. If he delved into the details of each policy, Samuelson might be able to show that the benefits to national security are far more certain than the benefits of clean energy. But he doesn't.
There are all kinds of problems with Obama's economic policies (e.g. the double counting that he uses to claim the benefits of both clean energy and the labor required to produce it), but Samuelson's complaint isn't one of them.
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