Kevin Drum

Taxing Carbon - Part 3

| Thu May 7, 2009 4:53 PM EDT

Apologies if you're getting bored with this, but here is Jeffrey Sachs weighing in on the cap-and-trade debate:

A straightforward carbon tax has vast advantages. (1) It can be levied upstream at a few dozen places — at the wellhead, the mine face, and the liquid natural gas depot — rather than at thousands or tens of thousands of businesses. (2) A carbon tax covers the entire economy, including automobiles, household use, and other units impossible to reach in cap-and-trade. (3) A carbon tax puts a clear price on carbon emissions for many years ahead, while a cap-and-trade system gives a highly fluctuating spot price. (4) A carbon tax raises a clear amount of revenue, which can be used for targeted purposes (R&D for sustainable energy) or rebated to the public in one way or another, while the revenues from a cap-and-trade system are likely to be bargained away well before the first trade ever takes place.

(Numbering mine.) This is amazing.  Sachs is a smart guy.  He's a famous economist.  But as near as I can tell, there's only one true statement in that entire paragraph.  Let's take a look.

First: Cap-and-trade can be implemented either upstream (i.e., you require permits for the inputs, like coal and oil) or downstream (i.e., you require permits for the outputs, the carbon that's actually emitted into the atmosphere).  It's just a matter of how you write the legislation.  The Waxman-Markey bill combines both methods, with electric plants and industrial sources covered downstream while refiners and other producers of liquids and gases are covered upstream.  On this score, there's no inherent difference between a tax and cap-and-trade.

Second: Cap-and-trade can cover the entire economy just as well as a tax can.  Again, it's just a matter of how you write the law.  Waxman-Markey would cover an estimated 85% of all greenhouse gas emissions.

Third: Yes, a carbon tax does place a clear price on emissions — though it's worth keeping in mind that every serious tax proposal envisions changing the tax rate regularly in order to hit emission targets.  So this sentence is sort of true.  (On the other hand, it's worth noting that under a cap-and-trade system, the price of permits naturally decreases whenever demand for energy decreases, as it does in a recession.  So cap-and-trade acts as an automatic stabilizer, which is a handy feature.)

Fourth: Revenue is revenue.  There's simply no reason to think that revenue from cap-and-trade is any more likely to be bargained away than revenue from a tax.

On balance I think cap-and-trade is superior to a carbon tax on several grounds, but there are nonetheless perfectly good arguments in favor of a tax.  So why make arguments like these instead?  It's embarrassing.

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Quote of the Day - 5.7.09

| Thu May 7, 2009 1:46 PM EDT

From Rep. Patrick McHenry (R-NC):

"Marginal tax rates are the lowest they've been in generations, and all we can talk about is tax cuts.  The people's desires have changed, but we're still stuck in our old issue set."

The noteworthy thing about this quote isn't that Patrick McHenry is a Republican, it's that he's Patrick McHenry.  This is not Olympia Snowe.  McHenry is a young man who made his bones by insisting loudly and on all occasions that, no matter who else was in the room, he was still the most right-wing guy there.  But he's also a young man who made his name as a guy willing to do whatever it took to climb the political ladder.  If he's decided that maybe taxes aren't the road to electoral glory anymore, the GOP better start looking for another issue.

For more, read "Getting Ahead in the GOP," Ben Wallace-Wells's profile of McHenry in the Washington Monthly a few years ago.

Pincus on Newspapers

| Thu May 7, 2009 1:19 PM EDT

Walter Pincus has an interesting piece about the newspaper biz in the Columbia Journalism Review this month.  The points he makes aren't exactly new, but they're worth making anyway.  For example:

We have turned into a public-relations society. Much of the news Americans get each day was created to serve just that purpose — to be the news of the day.

....In 1981, at the beginning of the Reagan administration, Michael Deaver — one of the great public-relations men of our time — began to use early-morning “tech” sessions at the White House, which had been a way to help network producers plan the use of their camera crews each day, to shape the television news story for that evening. Deaver would say that President Reagan will appear in the Rose Garden to talk about his crime-prevention program and discuss it in terms of, say, Chicago and San Francisco. That would allow the networks to shoot B-roll. The president would appear in the Rose Garden as promised, make his statement, perhaps take a question or two, and vanish.

After a while, the network White House correspondents began to attend these sessions, and later print reporters began showing up, too. On days when the president went off to Camp David or his California ranch, Sam Donaldson, the ABC News White House correspondent, began his shouted questions to Reagan, and Reagan’s flip answers became the nightly news — and not just on television. The Washington Post, which prior to that time did not have a standing White House story each day (publishing one only when the president did something newsworthy), began to have similar daily coverage.

At the end of Reagan’s first year, David Broder, the Post’s political reporter, wrote a column about Reagan being among the least-involved presidents he had covered. In response, he got an onslaught of mail from people who said they saw Reagan every night on TV, working different issues. It was a triumph of public relations.

....Today, mainstream print and electronic media want to be neutral, presenting both or all sides as if they were refereeing a game in which only the players — the government and its opponents — can participate. They have increasingly become common carriers, transmitters of other people’s ideas and thoughts, irrespective of import, relevance, and at times even accuracy.

Read the whole thing.

Specter Gets a Chairmanship

| Thu May 7, 2009 12:30 PM EDT

Arlen Specter may have lost his seniority when he defected to the Democratic Party, but thanks to the generosity of Dick Durbin (D–Ill.) he's getting his hands on a gavel nonetheless:

Senate Democratic leaders have reached agreement with Sen. Arlen Specter to partially restore the party switcher's status on the Judiciary Committee, by granting Specter the chairmanship of the Crime and Drugs Subcommittee.

Under the deal, which Senate Democratic aides outlined this morning, Senate Majority Whip Richard Durbin (D-Ill.) would give up the gavel of the prestigious post, which holds jurisdiction over most Justice Department activities.

So Specter now controls the hearings for "most Justice Department activities."  Not bad.  No wonder he took the news of his demotion the other day so calmly.

Factlet of the Day

| Thu May 7, 2009 12:24 PM EDT

Over at the mothership, James Ridgeway points to a piece at the New Rules Project by Stacy Mitchell about credit card fees.  Not the million and one consumer fees that sting us all like a horde of angry gnats, but the plain vanilla transaction fees that are charged on every single credit card purchase:

Although the exact rate charged on any given transaction varies widely depending on many factors, including the size of the business and the type of card, the average interchange fee in the U.S. is now about 2% of the value of the sale — two to six times the regulated rates imposed on Visa and MasterCard in Australia and much of Europe.

....Interchange fees now comprise a substantial share of the income these companies make on credit cards.  In 2004, card issuers took in $28 billion in interchange.  By 2008, that figure had shot up to $48 billion.  That's more than one-quarter of all credit card revenue and more than the total collected by banks in credit card late fees, over-the-limit fees, and ATM fees combined.

Needless to say, merchants have no bargaining power at all here, since they can hardly stop taking credit cards and rules prohibit them from directly passing along the transaction fees to consumers.  In Europe, transaction fees have been cut to 0.3%, but that took EU-level government action.

This leads James to say that "piecemeal laws to protect consumers from a handful of the most devious practices will never get to the real problems. The answer to the credit card mess is a full fledged investigation by Congress, followed by meaningful regulation that takes in all the powerful players in the credit card business, including the banks that are at the bottom of it all."  Alternatively, there's my proposal: round up all the credit card company CEOs and have them shot at dawn.  Just as a warning to others, you understand.

Local News

| Thu May 7, 2009 12:00 PM EDT

Here in Los Angeles, one of the most common media laments is about how poorly the LA Times covers local news.  Matt Yglesias, writing from the other end of the country, wonders if this is inevitable:

While it’s true that the coverage of local issues in DC offered by The Washington Post is not all it could be, the fact of the matter is that most people don’t even know what you could be learning by reading the Post. Not only is it going to be intrinsically difficult to ever find a viable revenue model for paying a reporter to cover the zoning board if people don’t want to read about the zoning board, I’m not actually sure how much social value is created by unread articles about zoning boards. If an article about proposed modifications to the Purple Line falls in the wilderness and nobody’s there to read it, are we really making a difference?

My sense of local news isn't that great, but it's always been a little bit different than this.  The fact is that most communities have a pretty hard core of activists who do go to planning board meetings and city council meetings and so forth.  And 99% of the time, they just do their thing and the local paper does no more than print short blurbs about what's going on.  And the rest of us ignore it.

But every once in a while, something becomes a big deal.  Not because the Times or the Post does or doesn't have a reporter at a board meeting, but because the activists suddenly start screaming louder and the community gets up in arms about something.  Then the local press starts to pay attention.

In other words, it doesn't matter that much if the local paper reports assiduously on local zoning board meetings.  What matters is that the community itself has some minimum level of activist organization and that the local press still exists and can pick up a story when it gets hot.  Unfortunately, the local press can't do even that much if there's no more local press.  That's why they matter.

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Slashing the Budget

| Thu May 7, 2009 11:07 AM EDT

The Obama administration released its budget today, and among other things it includes $17 billion in program cuts, which, as the Washington Post reminds us, "would amount to only about one-half of 1 percent of the $3.4 trillion federal budget."  Fair enough, even though I think these exercises are useful anyway.  There's less room for discretionary spending cuts than people think, but just being willing to admit that some programs don't work is a worthwhile signal to send regardless of whether or not the dollar amount ends up being huge. Take this, for example:

Educational attaché, Paris, France ($632,000).  The Department of Education can use e-mail, video conferencing, and modest travel to replace a full-time representative to UNESCO in Paris, France.

Seriously?  A single UNESCO rep costs us $632,000?  Does he live at Versailles?  Nice gig if you can get it, I guess.

UPDATE: Matt Yglesias has the official explanation here.

Stress Test Finale

| Thu May 7, 2009 2:04 AM EDT

The Wall Street Journal reports on the results of the stress tests:

The Federal Reserve directed at least seven of the nation's biggest banks to bolster their capital levels by $65 billion while effectively blessing the stability of six others, marking for the first time a bold line between some of the nation's stronger and weaker banks.

All I can say at this point is that I'm baffled.  If Geithner is right, then everything is fine and the banking system was never really in very big trouble.  $65 billion is nothing.  But if the IMF is right, American banks are nearly $300 billion short.  If Nouriel Roubini is right, the shortfall might be even greater.

So who is right?  I have no idea.  "All Americans should be confident that these institutions are going to be viable institutions going forward," Geithner said tonight, and I sure hope that's the straight dope.  But these discrepancies are simply too large to wave away.  Somebody is way, way off base, and I'd sure like to know who it is.

Too Good to Check

| Thu May 7, 2009 1:32 AM EDT

In the current issue of the New Yorker, Malcolm Gladwell has an article about how scrappy underdogs using insurgent tactics can beat the big guys, and the whole piece is wrapped around the story of a kids' basketball team that did really well using a full court press against better teams.  So why doesn't every underdog basketball team use a full court press?  Huh?

Reading this, I got sort of interested because I've wondered more or less the same thing from time to time.  It seems to me that the full court press is pretty effective.  On the other hand, I don't know squat about basketball, and I sort of vaguely figured that professional basketball coaches do, which means there's probably a pretty good reason that the press isn't ubiquitous.  Chad Orzel provides the answer:

The press works, as long as the other team isn't ready for it. The idea of a full-court press is to force the opponent into a rushed and frenetic game and get them out of their routine. A team that's ready for it, though, and has skilled and disciplined players, won't get rattled by the press, and can pick the press apart for lots of easy baskets. You can use the full-court press to rattle a superior team that isn't expecting it, but if they know it's coming, there are a lot of ways that pressure defense can fall apart — missed traps in the back court lead to two- or three-on-one breaks, over-aggressive defense leads to fouls, etc. The teams that have won titles using pressure basketball have also had lots of talent, because you need something to fall back on if the press doesn't work.

Like Chad, it's stuff like this that makes me wonder about Gladwell.  He's an engaging writer and he picks interesting subjects, but there are really only two alternatives here.  Either (a) he wrote this piece without bothering to learn enough about basketball to understand why the press isn't used much above the kiddie league level or (b) he knew the answer but chose not to share it with his readers because it would wreck his story.  Unfortunately, I suspect the answer is (b).  He seems like a guy who sometimes decides not to let the facts get in his way once he's settled on a good narrative.

Plus, as Chad says, Gladwell seems oddly insensitive to the criticism that "playing '40 Minutes of Hell' is kind of a dick move in a league of twelve-year-old girls."  But, really, it is.  The coach who did this isn't a brilliant innovator, he's kind of a dick.

Taxing Carbon - Part 2

| Wed May 6, 2009 9:24 PM EDT

Yesterday, after reviewing the problems with a carbon tax, I asked why anyone would support going down that road vs. supporting a cap-and-trade plan.  Andrew Sullivan responds:

Because we actually believe that a carbon tax will bring green benefits without the kind of crude regulatory scheme that could stigmatize environmentalism for a long time? Because we think it will work better?

This deserves some unpacking.  For starters, you need to think about the kind of regulation and oversight that's required to reduce carbon emissions.  Take power plants, for example.  First you have to have technology in place to monitor carbon emissions from each plant, and then you have to have a regulatory bureaucracy in place to make sure the monitoring takes place properly.  That's a big job.  Once that's done and we know how much carbon is being emitted, plants have to either (a) pay a tax for each ton of carbon or (b) buy a permit for each ton of carbon.

The difference there is tiny.  You can pay the tax or you can buy permits on an electronic carbon exchange.  From the point of view of the plant, they each require about the same amount of work.

The carbon exchange itself, of course, does need to be set up and kept in operation by a government agency.  That's extra work compared to a tax, and it has to be done right.  Still, this is hardly untrod territory.  There are hundreds of electronic commodity exchanges around the world and we know how to set one up.  In fact, we've done it before for other cap-and-trade programs, and the operation of the exchange itself has never been that big a deal.

So far from being a "crude regulatory scheme," it's actually pretty elegant.  Emitters can buy permits depending on their needs while companies that make big cuts and have excess permits can sell them.  In terms of overhead at the corporate level it's hardly different from a tax at all.

As for a tax working better than cap-and-trade, why?  Both approaches put a price on carbon.  That either works or it doesn't.  It's true that there are some theoretical technical advantages to a tax, but there are some technical advantages to cap-and-trade too.  In the real world, they probably wash out.

Overall, the idea that cap-and-trade requires some kind of monstrous bureaucracy that a tax avoids simply doesn't stand up to scrutiny.  Most of the bureaucracy is dedicated to monitoring and enforcement, and you have that no matter what.  And cap-and-trade has the advantage of setting a cap and deriving the permit price from that, rather than letting Congress set a tax rate that will (supposedly) produce a suitable cap.  The former is relatively transparent, since the cap level is right in the legislation and the public knows precisely what it is.  The latter isn't, since the public has to decide which expert is right about the tax level needed to reduce emissions to the desired level.  The scope for fiddling and lying and delaying on this score is obviously immense.

As for vulnerability to loopholes and special interest breaks — well, both plans are about even on that score.  It's simply naive to think that either one will be more immune than the other.  Horsetrading is what politicians do, fine print is what lobbyists specialize in, and eternal vigilance is the only way to keep them under control.

In the real world, cap-and-trade requires Congress to set a transparent cap.  It uses a mechanism that's straightforward and proven.  It puts us in sync with Europe, which is already committed to cap-and-trade and has no interest in the tax approach.  And it's politically feasible.  Simply put, that's why it's the better approach for anyone who's serious about real-world results.

POSTSCRIPT: Mike O'Hare has a longer and more technical defense of a carbon tax here.  For now, let me just say that I disagree profoundly with his political analysis.  He's right that cap-and-trade is no cheaper than a tax (and it would be dishonest to imply otherwise), but I think he's wrong to believe that setting the proper tax level is easier and more efficient than setting the cap level directly.  From the point of view of both politics and public support, I think it's exactly the opposite.

More later on this, perhaps.