A Little Knowledge Is A Dangerous Thing

Writing in The New Yorker, Elizabeth Kolbert illustrates the power of analogy:

A man walks into a bar. He orders several rounds, downs them, and staggers out. The man has got plastered, the bar owner has got the man’s money, and the public will get stuck with the tab for the cops who have to fish the man out of the gutter.

…..

The man pulls into a gas pump. He sticks his BP or Sunoco card into the slot, fills up and drives off. He’s got a full tank; the gas station and the oil company share in the profits. Meanwhile, the carbon that spills out of his tailpipe lingers in the atmosphere, trapping heat and contributing to higher sea levels. As the oceans rise, coastal roads erode, beachfront homes wash away, and, finally, major cities flood. Once again, it’s the public at large that gets left with the bill.

In both cases, Kolbert endorses the “fair and logical” solution: The man should be taxed to incorporate the costs that his choices impose on the rest of society.

I like this game. Can I play too?

A man chooses to build his house on the oceanfront instead of 100 miles inland. This makes him especially vulnerable to rising sea levels and therefore leads him to lobby for a carbon tax. The man gets his house; the builders and contractors share in the profits, and the public at large bears the consequence of higher gas prices.

Or even:

Some people want to burn a lot of carbon, which raises global temperatures, imposing costs on owners of oceanfront property. Other people want to protect their oceanfront property, imposing costs on the people who want to burn a lot of carbon. A journalist at the New Yorker convinces her readers that the only “fair and logical” solution to this conflict of interests is to come down entirely on the side of the property owners, leading to the implementation of suboptimal policies. The journalist gets paid, the magazine editors congratulate themselves on the influence of their writers, and the general public suffers the consequences.

Should the property owner and the journalist be taxed for exerting their malign influences?

To bolster her position, Kolbert invokes the authority of Arthur Cecil Pigou. This is much like invoking the authority of Isaac Newton to prove that “absolute, true, and mathematical time, of itself, and from its own nature, flows equably without relation to anything external”, or invoking the authority of Bertrand Russell to prove that mathematics is a branch of logic.

Like Newton and Russell, Pigou was a brilliant and innovative thinker who vastly improved on the analysis that preceded him. Like Newton’s and Russell’s, Pigou’s analysis was ultimately superceded by better analysis — i.e. analysis that is universally acknowledged to be better by virtually every single person who has worked in the field. As Einstein was to Newton, as Godel was to Russell, so Coase was to Pigou.

Coase’s key insight is that all of these externality problems are fundamentally symmetric. The question is never “how do we stop A from harming B?” but instead “should we let A harm B, or should we let B harm A”? A consequence of that symmetry is that no abstract principle — including the abstract principles that guided Pigou and still guide Kolbert — can possibly be used to guide policy. Any purely abstract argument for preventing harm from A to B is an equally good argument for preventing harm from B to A.

Kolbert seems to believe that Pigou settled this question 100 years ago. So he did, just as Newton settled the issue of absolute space. But we now know that Pigou was wrong (although his insights laid the indispensable foundation for later, better insights).

Should we tax the man who comes out of the bar and passes out in the gutter? Maybe. But if your only argument is that the man should not be allowed to harm the rest of us at no cost to himself, then your argument also shows that we should not be allowed to harm the man (by taxing him) at no cost to ourselves. Should we tax the man who drives a gas guzzler? Maybe. But if your only argument is that gas guzzlers cause harm to others, you’ve got to face the fact that taxes also cause harm to others.

In other words, settling this important policy question is going to take much better arguments than Kolbert has to offer. What’s dismaying to this professor is not just that she’s got it wrong, but that she’s so sure she’s got it right.

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119 Responses to “A Little Knowledge Is A Dangerous Thing”


  1. 1 1 Mike H

    Am I right in thinking that Coase shows that Pigovian taxes are not necessarily wrong, per se, but that we can’t a priori decide on which side/whether or not to impose the costs?

    In simpler terms : would Coase support a Carbon Tax?

  2. 2 2 Steve Landsburg

    Mike H:

    Am I right in thinking that Coase shows that Pigovian taxes are not necessarily wrong, per se, but that we can’t a priori decide on which side/whether or not to impose the costs?

    Yes, exactly.

    would Coase support a Carbon Tax?

    I haven’t the foggiest idea.

  3. 3 3 Fonzy Shazam

    So would a good argument for a Pigovian carbon tax run something along the lines of this?
    Carbon causes significant externalities (let’s assume we can assume this).
    The economically most efficient way to reduce the externality is through a carbon tax because (insert thorough arguments supporting efficiency claim including that we can nearly optimize the tax).

  4. 4 4 suckmydictum

    Coase makes you show that the costs of the polluters and pollutees negotiating is too high as a justification for such a carbon tax, not just that the tax can be “optimized”

  5. 5 5 Steve Landsburg

    Fonzy Shazam: I don’t know what “nearly optimize” means. What you need to do is a) look at what’s lost as a result of failing to tax carbon (land disappearing under water, etc), b) look at what’s lost as a result of taxing carbon (lots of good stuff that we don’t get to do because it uses carbon) and c) ask which loss is bigger.

  6. 6 6 Steve Landsburg

    #4:

    Coase makes you show that the costs of the polluters and pollutees negotiating is too high as a justification for such a carbon tax

    Given that virtually everyone uses carbon based products, and almost everyone bears a share of the externalities, I don’t think is a high bar to clear.

  7. 7 7 JohnW

    How would a carbon tax work with respect to imported goods? For example, I believe that goods manufactured in China create a great deal of carbon emissions. If the US imposed a carbon tax, prices of US made goods would go up. But if there were no carbon-import tax imposed on goods made in China, many people would simply switch to the lower-cost products imported from China. So it would seem a carbon-import tax would be necessary. How would that work? Would some government agency try to determine how much carbon was emitted in manufacturing each type of good imported from China (as well as other countries)?

  8. 8 8 Keshav Srinivasan

    Steve, I think the jury’s still out regarding Frege and Russell’s belief that mathematics is “analytic a priori”, to use a philosophical term. (Your view, I assume, is that mathematics is synthetic a priori.)

    As far as Coase goes, I’ve heard that the rationale for the cap and trade system is due to Coase’s theorem. Is that true, and if so can you explain what the connection is?

  9. 9 9 Tristan

    Greg Mankiw argues consistently and passionately for Pigovian interpretations and solutions to externality problems in his textbook and in his blog (the Pigovian Club thing…). Of course he is aware of the limitations of Pigovian analysis and why Coase supersedes it in some situations. Is Mankiw just teaching Pigovian taxes like an undergraduate physics teacher teaches Newtonian mechanics? It doesn’t seem to be the case to me…

    When it comes to global warming, it seems like the Coase theorem doesn’t apply. All scientific work shows the costs of carbon reduction at this moment is going to be lower than the projected costs of not reducing emissions (the real argument is over how to efficiently reach that reduction). But in the Global warming case the injured party (the citizens of Earth) aren’t in a position to negotiate with the consumers of carbon because they are too large of a group etc. In other words, transaction costs are prohibitively high. That’s why I always thought a carbon tax (or cap and trade etc.) would be quite justified.

  10. 10 10 Biopolitical

    #5

    “What you need to do is a) look at what’s lost as a result of failing to tax carbon (land disappearing under water, etc), b) look at what’s lost as a result of taxing carbon (lots of good stuff that we don’t get to do because it uses carbon) and c) ask which loss is bigger.”

    Not only that. We should find (a) the optimal amount of coastal land, carbon emissions and everything else for human well-being (this is equivalent to your steps a, b and c), and (b) who should bear the costs and benefits of achieving the optimum, which includes deciding who, if any, should compensate whom and by how much. (a) is a matter of efficiency and (b) is a matter of fairness.

    Coase clarified that (a) and (b) are independent, and that simple Pigouvian taxes don’t necessarily lead to (a) or (b). A simple Pigouvian tax is one like this: Peter causes an amount of harm x to others, so Peter must pay a tax of x. Such a tax is inefficient if the others could avoid the harm by changing their behavior at a cost of less than x. And it is unfair if Peter has the right to harm the others by the amount x.

    By the way, making the right decisions when they affect human well-being and fairness across several generations is difficult.

  11. 11 11 suckmydictum

    Steven, yes the transaction costs are almost obviously too high, but Fonzy didn’t mention that when trying to decide taxation criteria.

  12. 12 12 Scott H.

    @Tristan…

    “All scientific work shows the costs of carbon reduction at this moment is going to be lower than the projected costs of not reducing emissions”

    I think you are going to want that one back.

  13. 13 13 Dilip

    Dr. Landsburg

    Could you find a way to extend the RSS/Atom feeds for your comments section too (i.e in addition to what you have for blog posts)? The discussions that happen there are of extremely high quality and I would rather read them from the confines of my Google Reader.

  14. 14 14 TjD__

    Yes, Dilip is correct, the comments are feed-worthy.

    T.

  15. 15 15 Maurizio Colucci

    Very insightful post! A question: does your argument also imply that economics is not really a value-free science? Because it seems to me you are essentially saying that economics alone does not allow you to decide between those two alternatives without some additional value judgement.

  16. 16 16 RPLong

    I am really starting to re-think the whole idea of negative externalities. I understand that some private decisions can and do affect other people. What I don’t get is why anyone has a right to exist in a world where they are protected from or compensated for other people’s choices.

    By tracing the effects of any given person’s chioce – whatever choice we happen to be talking about – we can justify any conceivably corrective mechanism, which I guess is Landsburg’s point here, too.

    But think about it. By moving to a new city, you marginally reduce the value of local wages and marginally increase local prices for anything you happen to buy. These, too, could be considered “externalities,” but forcing each other to compensate others for ever economic impact we have on society is a recipe for “irreconcilable hatred and war to the death.”

  17. 17 17 Steve Landsburg
  18. 18 18 JHall

    RPLong,

    I think you might find the distinction between technological and pecuniary externalities useful.

    http://faculty.citadel.edu/sobel/All%20Pubs%20PDF/Public%20Policy%20Toward%20Pecuniary%20Externalities.pdf

  19. 19 19 Ken B

    @15: No, it implies economics alone won’t give you the answer. It’s because it’s value free (or tries to be) that there is no magic economics crank you can turn to resolve conflicts like this. Pigou’s theory may or may not pop out Kolbert’s tax as the right idea, but the correct analysis, Coase’s, does not

  20. 20 20 Steve Landsburg

    RPLong: I second the response from JHall; you are confusing pecuniary and non-pecuniary externalities.

    The basic point is that when you lower wages or increase prices, you do no net harm (and no net good) because for every buyer who is hurt by a higher price, there is a seller who is helped by that same higher price, and in equal measure.

    When the effects of your action wash out like this, we say that you’ve caused a pecuniary externality. There is no efficiency-based reason to discourage pecuniary externalities. But many externalities (e.g. the externalities from carbon emissions) may not be pecuniary.

  21. 21 21 Dilip

    Indeed. Thank you!

  22. 22 22 John Jacobsen

    I’m confused. Aren’t Liquor and Gasoline already taxed? Isn’t that built into the price of the drink (via both alchohol taxes, sales taxes, property taxes, taxes on the Barternder’s wages, etc…)?

    Hasn’t the drunk paid for his actions in advance?

  23. 23 23 Fonzy Shazam

    Great post and great responses. By “nearly optimize” I was simply alluding to the difficulty of actually getting the tax rate correct. Even if we know we want to tax carbon, we still have to know how much and at whose incidence, and we would like to be reasonably sure the rate stays as correctly applied as possible.

  24. 24 24 RPLong

    It’s not that I’m confusing the two, it’s that I’m not sure we’re looking at the situation accurately.

    If I dump toxic waste into somebody’s water supply, I am clearly and obviously physically harming other people. I’m not merely “incurring a cost on others,” I am threatening their wellbeing with my negligence or outright aggression. And that has nothing to do with costs, even if costs are incurred. Similarly, if I shoot somebody, they may have to spend money on health care, but nobody would suggest that a gunshot wound is an “externality.”

    With things like “carbon emissions,” it’s impossible to tie a direct line of causality between specific carbon emissions and specific bodily injuries. We have all seen a variety of studies that suggest that carbon emissions in general have various incremental impacts on people in a very indirect and general sort of way. Even assuming the studies are 100% true, there is no logical way to tie specific carbon emissions to any specific bodily injury…

    …So, instead, we phrase the whole problem in terms of “costs,” which are easier to peg to carbon emitters because it’s impossible to peg bodily harm to them. Something`s not right about the way we`re phrasing these problems.

  25. 25 25 Ken B

    nobody would suggest that a gunshot wound is an “externality.”

    You’ve actually never met an economist have you RP?
    :)

  26. 26 26 Russ Nelson

    Has anybody *tried* asking Coase if he supports a carbon tax? Unlike Abe Vigoda, Ronald is still alive.

  27. 27 27 Floccina

    @Tristan
    I think that the cheapest method is to pay people to remove co2 from the air, cheaper than not putting it in the air. Methods include but are not limited to: biochar, enhanced weathering and deep ocean iron fertilization. I think this would be quite cheap in price per lb of co2 but on the other side we do not know, there might be a net benefit from having more CO2 in the air a warmer climate and better plant growth. People live right on the equator but no people live right at the poles.

  28. 28 28 Jimbino

    A couple walk into a church and gets married, then proceed to breed. They are happy to have dutiful kids, the priest who married them and the many obstetricians who delivered their brood are paid.

    The public suffers, not only for the irritation the brood causes in grocery-store isles, but also for the 21 years of great cost for potty-training them and mis-educating them to become unemployed English majors. The entire planet suffers from their footprint that enhances global warming, wildlife depletion, water and energy scarcity and warmongering for lebensraum.

  29. 29 29 Harold

    Scott (12). There are estimates of the “social cost” of carbon. The current central estimate by USA is $21/tonne. This is the cost after discounting for the future. http://www1.eere.energy.gov/buildings/appliance_standards/commercial/pdfs/sem_finalrule_appendix15a.pdf

    The value is disputed, some saying it should be much higher, but I don’t think there are many saying it should be zero.
    http://www.ourenergypolicy.org/wp-content/uploads/2012/09/fulltext.pdf

    I think Tristan is correct. If we want to use proper sources, we must accept a cost of emitting carbon.

    How do we apply Coase to this to arrive at the best solution to the problem?

    Coase offers the example of a railway company that runs one train a day, and is considering running two. The trains cause fires to surrounding land due to sparks. A Pigovian analysis suggests that if the train company is liable for the damages, social benefit will be maximised. It will only run the extra train if total benefit is increased. Coase disagrees, because the social benefit may be greater if the train company is not liable. That is, depending on the exact value of revenues, losses etc, the company may run no trains at all if it has liability, and this may incur the greatest social cost. Coase suggests that Pigou is asking the wrong question – rather than is it better if the train company runs an extra train or not, the question should be is it better that the train company is liable for fires or not. Change the values of costs and benefits and either outcome is possible.

    So what conditions make it likely that the train company should not be made liable? In the example, the train company has a “granularity” of 0, 1 or 2. Thus a small change in cost will reduce train output by a massive amount. This is not the case for carbon emissions. In the example, the social costs were similar to the benefits. If the external cost was small compared to value, then the train company should be liable for the most efficient outcome. From other examples, if the “victim” could take easy (low cost) action to avoid the cost, then this would be more efficient. This does not seem possible for global warming. From this comparison, whilst it is possible that the polluter should not pay, it seems likely that the most efficient solution is that they should.

  30. 30 30 Ken B

    Jimbino extrapolates from a sample size of 1.

  31. 31 31 Floccina

    Jimbino what if one the brood invents clean cold fusion? And don’t forget the division of labor. Or one of the brood might be a beautiful girl a positive externality indeed. One of the brood might invent a way to make all girls beautiful! One might be kind and generous.

    So far the growth in population has mostly been a huge positive. (Is there a word bigger that huge?)

  32. 32 32 Steve Landsburg

    Harold:

    From other examples, if the “victim” could take easy (low cost) action to avoid the cost, then this would be more efficient. This does not seem possible for global warming.

    I think you are much too quick to jump to this conclusion. The “victims” can build their houses a hundred miles inland instead of on the shore, or start up their new farms in North Dakota instead of Texas. There are many many ways to avoid the negative consequences of global warming, and a carbon tax reduces the likelihood that those ways will be found.

  33. 33 33 Ken B

    To follow up on 32, many of the costs and decisions will be made in the future. So the decision to build the widget plant in Nebraska not Miami will be made in the context of prior decisions to locate in Nebraska. Nebraska will have more infras structure etc. It would be odd to argue that we have suffered in the past century from the ‘need’ to locate stuff inland from the coast because of changes in the relative costs of locating on Long Island vs Indiana.

  34. 34 34 iceman

    A minor point perhaps, but:

    @Biopolitical: “We should find (a) the optimal amount of coastal land”

    It seems even if more land were covered by water, the amount of shoreline would be roughly the same…or are you using some advanced fractal analysis? :)

  35. 35 35 Ken B

    @iceman: Nice! I never noticed that before, but you are right.

  36. 36 36 Greg Ransom

    As Pigou implicitly admitted, all of these models assume a massive pretense of knowledge, ie they are built up out of “given given” cost numerics ‘given’ to the mind of the person stipulating the ‘given’ costs in the mental constructs used to specify who should pay what Pigouvian Tax.

    Here is Arthur Pigou: “It must be confessed, however, that we seldom know enough to decide in what fields and to what extent the State, on account of [the gaps between private and public costs] could interfere with individual choice.”

    These ‘objective’ costs are ‘given’ to know mind. In the first instance, evaluations of costs are individual, in the second instance, that are never available and ‘given’ to any one mind as they are in a math construct.

    Pigouvian Welfare economics is a magical pretense even on Pigou’s own terms.

  37. 37 37 Greg Ransom

    Make that

    These ‘objective’ costs are *not* ‘given’ to anyone. In the first instance, evaluations of costs are individual, in the second instance, that are never available and ‘given’ to any one mind as they are in a math construct.

  38. 38 38 Biopolitical

    @iceman, i thought about writing “amount of land” instead of “amount of coastal land.” i’m glad i didn’t ;)

  39. 39 39 Steve Landsburg

    Greg Ransom:

    These ‘objective’ costs are *not* ‘given’ to anyone. In the first instance, evaluations of costs are individual, in the second instance, that are never available and ‘given’ to any one mind as they are in a math construct.

    Agreed, but I don’t think this absolves us from doing the best we can with the limited information we’ve got.

  40. 40 40 Dmitry Kolyakov

    @ 34 and 35

    You wrote: “It seems even if more land were covered by water, the amount of shoreline would be roughly the same…”

    Guys, you are apparently much better mathematicians and also for no doubt better English speakers than me – could you please explain what you mean here?

    I figured that if the water level in the lagoon is higher by something like 2.5 meters the “amount of shoreline” in Venice goes to 0 (unless you consider flooded man-made structures shoreline of course…). If the sea level is 9 000 meters higher the same happens to the world…

    How does your logic actually work – I am interested?

  41. 41 41 Ken B

    Dmitry: You are probably doing what I did at first, which is imagine a roundish shape with a smooth coastline. Shrink the radius you shrink the circumference (even DeLong admits this). But this ignores unevenness in terrain, valleys, etc, and assumes a large change in ‘radius’ when there may be a small one.
    Here’s a mental experiment to see what can happen. Imagine we build a smooth edge to the country just offshore, and just under the water. Now lower the ocean so that edge becomes the coast. Chesapeake Bay is now replaced by a short smooth section of this edge. Loss of shoreline. We are talking about doing that backwards.

  42. 42 42 Keshav Srinivasan

    It looks like Ronald Coase himself is in favor of taxing carbon:

    http://www.nytimes.com/2010/01/10/business/economy/10view.html

    “I chatted with Mr. Coase briefly last week, and he is still following these issues. He agreed that both taxes and tradable permits satisfy his criterion of concentrating damage abatement with those who can accomplish it at least cost. Those with inexpensive ways of reducing emissions will find it attractive to adopt them, thus avoiding carbon dioxide taxes or the need to purchase costly permits. Others will find it cheaper to pay taxes or buy permits.”

  43. 43 43 Ken B
  44. 44 44 Dmitry Kolyakov

    @ 31

    You wrote: “…what if one the brood invents clean cold fusion?…”

    What if he grows a quirky mustache and convinces his countrymen to find a “final solution of the Jewish question” and bring civilization and order to inferior neighboring nations?

    Your reasoning seems to imply that people (all people, because you are not saying more of which people you want to see in the world) are more likely to cause positive and not negative externalities to other people?

    So how come there is so much being discussed (even in this very thread) about dealing with negative externalities of other people’s behavior and not so much about promoting positive ones? Can the amount of the public attention paid somehow reflect how frequently those things occur?

  45. 45 45 Ken B

    As for the externalities of people existing. When I’m in traffic I rarely see the drivers around me as the market which makes possible the economies of scale that allow me to live in greater health and comfort than even the richest did in 1800. I rarely consider how rapidly a good idea, like Beethoven’s Third, or iPads, can spread and so how I benefit from the larger number of creative souls this enlarged population entails. But it’s true none the less.

    I freely concede Jimbino’s existence represents a negative externality.

  46. 46 46 Dmitry Kolyakov

    @ Ken B

    (sorry for using the initial – but I guess Ken is a hotly contested name here :)

    Thanks for your reply! I guess I must be honest and say that I (roughly, as I am no mathematician) understood where you were coming from… But I guess that what you really mean should be phrased differently – “Owing to complicated terrain, an incremental rise in water level (and hence, the area covered by water) will not always lead to decrease in shoreline/coastal land).”

    If not, I still would like to draw your attention to my examples – with the sea level 9 000 m higher the shoreline of the world will be 0 – I guess this is a decrease. Are you saying it is going to be all in one “quantum leap”? I doubt it – please see my Venice example – even if the rest of the world maintains its shoreline, the Venetian shoreline is lost. Are you than saying that the decrease will not be linear or will even sometimes temporarily reverse? Most likely – but that more or less equals my suggested wording :)

  47. 47 47 Ken B

    @Dmitry:
    First, the use of an intial is prudent. Otherwise Ken will see a sound argument from me attributed to him and instinctively disavow it. :)
    (It has caused confusion.)

    Of course in the extreme there must be a negative correlation, but it doesn’t follow that for relatively mild increases that the change in shore length (setting aside the fractal stuff) must get much shorter. I am saying it’s hard to tell what would happen overall with a mild change up or down. I think that’s iceman’s point too. A lot of conclusion jumping going on.

    Venice would be done for, but the Po is a shallow delta. You might gain shoreline there(even as you lose St Marks).

  48. 48 48 Ken B

    “I guess Ken is a hotly contested name here”
    Many are called, few are chosen.

  49. 49 49 Scott H.

    Harold (29)…

    No. I’m not arguing that there is no social cost to carbon. I’m arguing that the social cost is not always greater than the cost to limit carbon consumption. I thought this would be obvious, but at least it’s easy to demonstrate. To wit: stick lowering global carbon emissions to zero in your (or any) model. Now tell me how the social cost savings will outweigh the costs to limit actual carbon production to zero.

    Also, this AGW problem, and any solution, will be occurring over the next century. Our response today to limit carbon might cost 10x more (in real terms) than the same commensurate response 15 years from now. This time horizon aspect of our response needs to be considered as well.

  50. 50 50 Dmitry Kolyakov

    @ 45

    “…the market which makes possible the economies of scale that allow me to live in greater health and comfort than even the richest did in 1800…”

    I do agree. This is a solid and useful idea. I guess it was also mentioned by Professor Landsburg in one of his books where he discussed why New York City is so great (because of Ethiopian restaurants, apparently :) But let us nonetheless not jump to conclusions.

    A market here is not the same as the number of human beings – not at all! I do not know your situation but I guess you are in not rush to move to Shanghai (where they have the largest population in the world and extensive high speed rail connecting them to other enormous cities)? Or Chennai, where the population density is highest among large cities?

    A market you are talking about is most likely a concentration of purchasing power controlled by people who like things similar to what you like or might like in future. If you like cheese-steak, you will be better off in Philadelphia, if boef bourguinon is your thing – in Lyon. In the latter case will it really matter to you that Lyon is 2 times smaller than Philadelphia? (and the locals will never admit it anyway :)
    I have just consulted wikipedia – of the world’s 65 largest cities only 3 are in North America (NYC, LA and Mexico city) – does this make you want to move?

    There are sure many aspects to this, relationship of population growth with the pace of progress (which many somehow seem to consider a priori positive) and other things – but even without going too deep the simplistic cheerful optimism on population growth just does not seem to work for me, sorry.

    And another question to anyone refusing to take off rose glasses on the issue of world population growth – are you personally better or worse off for the existence of Afghanistan and its population? Somalia? No PC answers please. (I know, there are excellent people everywhere. But it does not answer my question – it is about the net effect). Than the next question – where do you think people are more likely to contribute to the world population growth – in places where they would expand your addressable “market” as in the original example or in places like those?

    Population growth can be very positive under the right circumstances – but it does not mean it will always be no matter what…

  51. 51 51 Jimbino

    “Supersede” is spelled without a ‘c’. Kurt’s last name is spelled either “Gödel” or “Goedel,” never “Godel.” The problem with spelling it Goedel is that it will be mispronounced by everyone, as is Boehner.

  52. 52 52 Dmitry Kolyakov

    @ 47
    ” I am saying it’s hard to tell what would happen overall with a mild change up or down. I think that’s iceman’s point too.” Me too, me too! :)

    But is it the same as “It seems even if more land were covered by water, the amount of shoreline would be roughly the same…”?

    Sorry, couldn’t help it… I know what you mean and you are right – I just was not 100% happy with your initial form…

  53. 53 53 Ken B

    @Dmitry: I think some of your questions have identified nicely precisely why some favor open immigration and some don’t citing exactly the same facts.

  54. 54 54 Greg Ransom

    I’m on the same page you are on Steve:

    “Agreed, but I don’t think this absolves us from doing the best we can with the limited information we’ve got.”

    Everyone would do a better job “doing the best we can” if, however, they recognized and payed attention to these limitations.

    In part your examples of the drunk and the gas guzzler are a dispute over whose ‘costs’/ ‘values’ should matter and who gets to evaluate their size.

    The pretense of the typical New Yorker writer is that this question has an obvious answer.

  55. 55 55 Greg Ransom

    “But if your only argument is …”

    There is an implicit unargued premise isn’t there?

    And who doubts they don’t believe that implicit unreflective premise?

  56. 56 56 Dmitry Kolyakov

    @ 53

    I see that you have Occam’s razor as your userpic, but I am afraid you’ve shaved off a bit too much for me… Could you please elaborate?

    You mentioned some who favor open immigration – and yet, if you remember, last time I could not find a single soul to actually stand behind open immigration – mostly vague statements about “needing more migrants”, and no specifics as to how many more, on what terms and by which procedure…

  57. 57 57 Neil

    I think the issue here is simply that the appropriate pigouvian tax should be equal to the minimum of the marginal external cost or the marginal mitigation cost.

  58. 58 58 Steve Landsburg

    Neil:

    I think the issue here is simply that the appropriate pigouvian tax should be equal to the minimum of the marginal external cost or the marginal mitigation cost.

    No, it’s not that simple. Suppose my steel mill causes $300 worth of damage to your laundry business, which you can mitigate for $100. Then by your prescription, I should be taxed $100. Which means that your laundry business has just caused $100 worth of damage to my steel mill — because taxation is a form of damage. According to your stated prescription, your laundry should now be taxed for causing that damage. Is that really where you want to go?

  59. 59 59 Neil

    Steve:

    “Then by your prescription, I should be taxed $100. Which means that your laundry business has just caused $100 worth of damage to my steel mill…”

    I don’t think that is right. The tax revenue is not a cost, it is a transfer to the government.

  60. 60 60 Steve Landsburg

    Neil:

    I don’t think that is right. The tax revenue is not a cost, it is a transfer to the government.

    Excellent point. But there is damage, nonetheless, because of the deadweight loss associated with taxes.

  61. 61 61 Neil

    No, in fact the revenue from the correcting pigouvian tax can be used to reduce distorting taxes like the income tax making possible a further welfare mprovement.

  62. 62 62 Martin-2

    Steve (58) – “Suppose my steel mill causes $300 worth of damage to your laundry business, which you can mitigate for $100. Then by your prescription, I should be taxed $100.”

    Pigou says the steel mill should be taxed at the rate of the damage, Coase says maybe no one should be taxed. What theory calls for a tax on the steel mill equivalent to the launderer’s mitigation cost? How is this supposed to align incentives and get the cheapest solution implemented?

  63. 63 63 Martin-2

    Russ Nelson (26): “Has anybody *tried* asking Coase if he supports a carbon tax? Unlike Abe Vigoda, Ronald is still alive”

    Coase’s approach assumes that we don’t know the cheapest solution to the problem, not that only Ronald Coase knows the cheapest solution to the problem.

  64. 64 64 Dave

    Steve – this is whacking my thoughts a bit.

    Is the argument essentially that carbon taxes are designed to to capture negative externalities that the market fails to capture when pricing carbon but in doing this, they essentially eliminate positive externalities also not captured by the market? And the risk is that the carbon tax removes more positive externalities than negative externalities?

    I don’t know if I’m wording this as poetically as you seem to be able to. I imagine that a carbon tax punitive enough to slow efficient food distribution to the point we are forced to one meal a day would be an example of this?

  65. 65 65 Ken B

    @Dmitry Kolyakov:
    Read some of Bryan Caplan. Econlog on the blogroll. Many libertarians are for open immigration. I suspect Steve is close.

    Also Sweeney Todd’s razor. Double duty.

  66. 66 66 Harold

    Scott H (49) I see – you were essentially re-stating Steves point – apologies. However, you say that the costs to reduce CO2 may be cheaper in the future, but there is one force pushing the cost upwards. The marginal reduction needed increases with each tonne of CO2 produced. In 1990, maybe a 1% reduction would have been sufficient, now it is higher, and in the future it will be higher still. You are suggesting not only that CO2 mitigation will be cheaper, which is probable, but that the reduction in cost will exceded the pace of keeoping up with the greater reductions needed. To put it another way, our response today to limit carbon might cost 10x more (in real terms) than the same commensurate response 15 years from now, but 15 years from now we are likely to need to do 20x more.

    There was once an objective of keeping climate change to less than 2°C. This was attainable with relatively modest reductions in CO2 emissions. Now it would take cuts of enormous magnitude. The costs of limiting the change have increased much faster than the costs of CO2 reduction have reduced. There is no particular reason to think this will change in the future.

    Any reduction in cost will presumably come through innovation. Without a tax there is no incentive to innovate in this way becasue the benefits are social and the costs private.

    Coase showed that we cannot simply assume that the Pigovian solution will produce the best answer, but I think it all stacks up in this case that the tax is better than leaving things as they are.

    The tax would remove the perceived need to subsidise particular technologies in order to try to reduce emissions. This may be a political rather than an economic benefit, but surely must count for something.

  67. 67 67 Chris H

    For at least some forms of emissions there are already specific taxes for them. The biggest example of this is gasoline which is taxed in the US at both the state and federal levels. The link Harold (29) provided gave several estimates for the social cost per ton of carbon, and this can help determine if we’re already doing Pigovian taxes on gas usage at least.

    The lowest gas tax in the country is in Alaska at 26.4 cents per gallon while the highest is New York at 69.7 cents per gallon. http://en.wikipedia.org/wiki/Fuel_taxes_in_the_United_States

    The amount of carbon released per gallon of fuel burned is .00892 metric tons. http://www.epa.gov/cleanenergy/energy-resources/refs.html

    So in Harold’s first link a range of social cost per ton of carbon for 2010 is given from a low end of $4.7 per metric ton to $64.9 per metric ton. Using all this we can determine what the proper Pigovian tax rate is and whether taxes on vehicle fuel currently meet that standard or not.

    On the low estimate of costs, even low tax Alaska is way higher than the necessary Pigovian tax rate. That rate would be 4.2 cents per gallon. At the middle of the road rate Harold gave ($21 per metric ton), again even Alaska is above the proper rate of 18.7 cents per gallon. At a somewhat higher rate of $31 per ton Alaska is only slightly below the “correct” 27.7 cents per gallon tax rate and every other states is well above it. At the highest rate of $64.9 per ton (an estimate that includes low probability negative consequences) the picture changes somewhat. The cost per gallon becomes 57.8 cents and only seven states manage higher than that level (New York, California, Hawaii, Connecticut, Illinois, Michigan, and Indiana). However, this last estimate includes events considered rather low probability. Even under this however, several US states, and almost assuredly all of Europe, are still overpaying given what would be Pigovian efficiency.

    By that regard, if a carbon tax is a good idea (something I admit I’m not fully convinced of) we should take into account taxes already levied that serve a similar function. Gasoline taxes are special sales taxes on gas in particular and thus discourage gas consumption in particular and therefore already work as a Pigovian tax. If we added on a carbon tax it would be best to exempt gasoline (and probably diesel as well though I haven’t calculated that out) since they already have higher than efficient taxes. Indeed if our only concern was the externalities of carbon emissions we’d want to lower just about every state’s gas tax rate drastically.

  68. 68 68 Dmitry Kolyakov

    @ Ken B

    While I of course appreciate an interesting link or a reading suggestion, if does not replace actual answers and explanation on positions, I am afraid… There are clearly many thousands of writers and scholars on both sides of every major issue. But should we kick each other endlessly like a football in the direction of our supportive text du jour? Why don’t we just exchange _our_ ideas? (by all means, please quote anyone’s ideas you like).

    I do not doubt that many people _say_ they are for open immigration (even more people _say_ they believe the world was created in six days, especially when saying so does not cost them much) what I have not seen so far is people actually ready to defend those words against some critical reasoning (let alone put their money where their mouth is) – as I said, in practice they very swiftly go to something shapeless like “we need more immigrants”, because that relieves them of the burden to defend any concrete position or realistic plan. (like what you are going to do with something like 2 billion people who will appear on the US soil within months of opening the borders…) Hope you read at least some of the past immigration discussion here, so I will not repeat myself.

    As to mr. Caplan’s stance on immigration – in his non-parenting book (The Myth…) he rushes to give the anti-immigration sentiment as an example of bias. (not just an ill-informed, illogical position, but a bias) He may be right for some parts of the society, sure. But at the same time he apparently assumes his own pro-immigration position is fair and balanced and is strictly a result of scientific analysis. He somehow conveniently forgets to acknowledge that he as a US academic (probably tenured) stands to gain more and lose less from increased immigration, especially unskilled and illegal that his average fellow citizen and is therefore heavily biased in the opposite direction. He may present some good analysis, but to me this is sure not a good start.

    Now that you mentioned Caplan and his blog, please allow me to reproduce the very first comment he received on one of his latest entries on immigration (discussing some international study):

    “A glance at the table shows there’s a moderately high correlation between holding theoretical open borders views and living in the kind of country that doesn’t have much experience with immigration because nobody in their right minds wants to go there.

    Here’s your top ten most pro-Open Borders countries:

    Vietnam, Burkina Faso, Rwanda , Ethiopia, Mali, Morocco, Romania, Uruguay, Peru, India.

    Yup, those are some real high desirability countries. ”

    I think this is a valuable observation, and it can be extrapolated, and the main thing here is the level of hands-on experience – the further from the southern border to the northern and the further from the streets of not-so-rich neighborhoods to the leafy university campuses you go, the more pro-immigration rhetoric you are likely to hear.

    As to you comment comment that many libertarians are for open immigration, I can only quote the late Alisa Zinov’yevna Rosenbaum: “All kinds of people today call themselves “libertarians”"…

  69. 69 69 iceman

    Dmitry & Ken B: On the “shoreline” thing — I usually prefer letting Ken B explain my reasoning for me :)
    But yes I think we tend to imagine something like a perfect circle, whereas fractals are much more interesting (e.g. it’s not even straightforward how to measure shoreline…it gets longer the more precise you want to be).
    It also struck me that even with simpler geometric shapes, to a large degree, “losing shoreline” really means replacing it with new shoreline. God forbid Venice becomes submerged, but whatever is behind Venice is now the shore.
    Perhaps one could even imagine a long contiguous land mass (like the Americas?) as a north-south rectangle, where one might say the only shoreline that is lost is along & near the short edges, some of which may be in areas nobody wants to go like the top of Canada (sorry Ken B).
    Like I said, this might be a minor point in the context of “climate change”.

  70. 70 70 Dmitry Kolyakov

    “but whatever is behind Venice is now the shore.” Well, Venice is an archipelago, so once it is submerged, there no shoreline “behind” really. Ken apparently assumes that when that happens, the shoreline of the rest of the world will not only increase, but also increase enough to compensate… Hard, but possible… What happens when the same happens to the British isles? Greenland? Australia? Do you think the compensatory jumps in the remaining world’s shoreline are plausible? Where will the shoreline increase when mt. Everest is submerged?

  71. 71 71 Dmitry Kolyakov

    @ Ken B

    Thanks again for reminding me of this Caplan guy, I have actually just read several discussions in his blog regarding immigration issues. The general quality of discussion is quite high and there are some good points from both sides. But who do you think I find the least impressive there (except some one-time commenters)?
    You might’ve guessed it – Bryan Caplan :)

  72. 72 72 Chris H

    Dmitry Kolyakov writes:

    “As to mr. Caplan’s stance on immigration – in his non-parenting book (The Myth…) he rushes to give the anti-immigration sentiment as an example of bias. (not just an ill-informed, illogical position, but a bias) He may be right for some parts of the society, sure. But at the same time he apparently assumes his own pro-immigration position is fair and balanced and is strictly a result of scientific analysis. He somehow conveniently forgets to acknowledge that he as a US academic (probably tenured) stands to gain more and lose less from increased immigration, especially unskilled and illegal that his average fellow citizen and is therefore heavily biased in the opposite direction. He may present some good analysis, but to me this is sure not a good start.”

    Two points here (both of which were covered in “Myth”). First, you’re ignoring the point Bryan’s brought up multiple times that academia already effectively has open borders and this means that he and his colleagues already face the depressed wages and greater job competition than the average American. Even if he’s tenured that doesn’t mean Bryan couldn’t make higher wages if competition from foreign academics in American universities was cut off. Second, you’re ignoring how in “Myth” he controlled for economists job security and wealth and this “enlightened” public was still less anti-foreign and pro-immigration than the general public.

  73. 73 73 Chris H

    That last sentence should have said “less anti-foreign and more pro-immigration.” My apologies.

  74. 74 74 Harold

    Regarding the shoreline – taken to the limit, higher sea levels must surely lead to less shore, since ultimately there will be no shore at all, and it wouldn’t just all vanish in one go. I think think sea level rises we are considering will not reduce total shore significantly, if at all, because there will be ups and downs in the general downward trend. Venice may disapear, but a new archipelago may arise from the hills around Padua. This illustrates the problem, since we will have lost a city of huge value (measured by tourist income if nothing else) and gained an some islands with trees on them. Total shore may be nuch the same, but that is not really the point.

  75. 75 75 Martin

    What Martin-2 says. As far as I know, the proposed Pigou tax on carbon dioxide emission, i.e. basically the social costs of carbon, is calculated with regard to marginal costs of emissions, not total costs. Is anybody suggesting that one pay for total (discounted) damage costs?

  76. 76 76 Dmitry Kolyakov

    Chris H:

    First, as I said, even if he presents some good analysis later on, it does not relieve him of the duty to acknowledge his own bias, once he starts accusing his opponents of being biased. Even if he asserts that members of his peer group would still be supporting the same views if some variables are controlled for (and I do not think he is controlling for all the relevant variables), he still has a bias in the first place when he writes his books or formulates his opinions (unless he “controls himself” for all the bias factors somehow in the process).

    You also wrote: “First, you’re ignoring the point Bryan’s brought up multiple times that academia already effectively has open borders…”
    Well I am not bringing this apparent fallacy up, because there are just too many such fallacies in his argument – can not cover all of them…
    So you (along with Caplan) apparently believe that I can freely enter the US and set up my own university, and hire other foreigners, if I like, to work there? Probably even without showing my passport at the border? That would be open borders in academia.

    Thanks to its cartel structure, the academia easily picks up slack (if any) left for foreign entrants by immigration authorities.

    If the evidence you are relying on is that getting a student’s visa is relatively easier than getting a work visa – it is probably true, but is a classic case of comparing apples and oranges. A student’s visa should be compared to a tourist visa – because a student is a client of the system, not an employee. US dept of commerce estimated that foreign students contributed about $20 bn to the US economy in 2010 (mostly by bringing in their foreign money).
    You can say that a post-doc researcher still can stay in the US easier than some other professional – but this is still not a fair analogy. First, good luck trying to become a post-doc if you are foreign educated (have not contributed to the system) and are roughly as good as your local peers (you can if you are like 5 times better, but this is not exactly open…) And secondly, as a post-doc, you are still contributing to a Ponzi scheme, with much of your results being appropriated by your professors in exchange for a chance to join their cartel in future. So post-docs’ work visas are best compared to some work-study visas – they are half-way between students and employees in most respects.

    So let us look at the fully-fledged members of the academia – tenure-track and tenured. Those would be a fair like-for-like comparison to other professions. The estimates I’ve seen say between 10 and 20% are foreign born (please feel free to supply better statistics if you have it). Probably much lower if we only take tenured proper. Percentage of tenure-track illegals and low-skilled migrants (most relevant categories for immigration opponents)? – not material.

    Now consider world-wide national distribution of experienced scholars – are they 80%+ American worldwide? If not, how on Earth is this open? Or do you think all those Indian, Chinese and Russian professors staying behind simply prefer their local salaries despite the open US borders in their profession?

    Much more to say, but I guess that should suffice. Thanks for your attention!

  77. 77 77 Harold

    @76. I think academia is free-er than many other employment groups. A professor anywhere in the world could probably apply for most USA profs. jobs, and if offered the post would probably not be prevented from taking it up by immigration issues. This is not quite the same as saying that there are open borders, just that the key to the border is easier to get for academics.

  78. 78 78 Ken B

    @icemen re 69: The start of your comment has earned forgiveness for the top of Canada thing :)
    Actually my sister did live up there for a while (Whitehorse, Yukon). Never tempted me much.

  79. 79 79 Ken B

    It might be heresy to say so on this blog but … rather than Godel’s Theorem I recommend anyone new to this look into Turing Machines and the Halting Problem. It’s a lot more natural and intuitive, and a more direct path to a couple key ideas. I am not saying skip Godel, I am saying if you are new to this Turing’s Halting Theorem is an easier and probably more interesting way to start. Think of it as a gateway theorem …

  80. 80 80 Dmitry Kolyakov

    @77

    Harold, I guess you are right when you say “…that the key to the border is easier to get for academics”. But to me that only applies to the narrow set of issues that are handled by the INS (or what is the proper name now?). Once you past that fence, you face another, higher one (and that is exactly the reason the first one does not need to be too big).

    You say: “A professor anywhere in the world could probably apply for most USA profs. jobs, and if offered the post would probably not be prevented from taking it up by immigration issues” – and what do you think, if he is roughly as good as his local counterparts (and not like 3 times more talented and productive) – does he have anything but a snowball’s chance in hell to be offered a job?
    You know, if you fence is low but your doors are armored and guard dogs are running around – you do not exactly have an open house, do you?
    So while there can be different opinions as to whether the academia is freer or less free than other groups (it really depends on what and how you are comparing), two things are clear to me:

    1. The academia is nowhere close to “Open borders” and this claim should be closed once and for all.
    2. The people in the academia have materially above average exposure to the positive effects of migration and below average exposure to the negative ones and hence are biased in favor, which would be prudent to acknowledge, especially if their reasoning includes implying other people are biased.

    And no, I am not saying that any academic who supports more immigration is dishonest or ill-informed (in fact with a good plan how to do it I will support it as well). I am just saying that such theorists should acknowledge their own natural biases and give a bit more respect to their opponents, because a different prospective is not necessarily a wrong one.

    Also, people who are talking about extreme things like “open borders” or “impenetrable barriers” at this stage of the development of the humanity, are just not being realistic.

  81. 81 81 Ken B

    My problem with ‘open borders’ isn’t so much the plausible effects — I favor more immigration — but the argument from principle. People who argue from a principle like this are usually claiming a higher ground: our position is pure, it follows from simple principles. It allows one to ignore details and costs. But the principle never is simple. So I like to imagine scenarios where suddenly we hear a caveat. My stock example is the unrestricted immigration of similarly dressed German males into Denmark in 1940. This usually draws forth an objection. Exactly; your principle is not so clear, there are caveats and exceptions that have gone unmentioned. But now it’s not just a simple straightforward thing is it? You need to get down into the muck like the rest of us and argue details, effects, costs.

  82. 82 82 Harold

    Arguments from principle are great starting places. Without some principle it is difficult to even start to formulate policy. But you have to understand the assumptions you make. Thus given a world of rational actors and free markets, open borders will produce the most efficient outcome. It is a matter of principle if you think the most efficient outcome is desirable, as it does not favor residents of the USA over others. It is a fine principle, but probably not one that is shared by most USA citizens. It would be good to clear up that distinction at the start.

    Simple economics says that open borders and rational people will give the most efficient outcome, but it not so simple to say what favors the current residents of USA, or how rational the actors are. After all many people fear immigrants, if there were too many of them, would change the system of the USA and make everybody worse off. That is hardly the action of rational people.

    So there is an implicit recognition of the irrationality of foreigners, but a great reluctance to acknowledge a similar irrationality in everyone.

    It is a bit like the assumption that people can detect dishonesty or incincerity in others, but simultaneously think they can fool everyone else with their own deceits.

  83. 83 83 Ken B

    Harold: “After all many people fear immigrants, if there were too many of them, would change the system of the USA and make everybody worse off. That is hardly the action of rational people.”

    Well i don’t know the referant of people, but my question is the same in each case. Why not?

    Case 1. It is hardly irrational for natives to fear the adverse consequences of new arrivals. Danes in 1940, the Hurons were all but wiped out by the Iroquois.

    Case 2. It is not a matter of rationality to damage the new country. It can be individually rational and ollectively harmful. Or people can just make mistakes. Canada has a proven record of not getting its government too horribly wrong. Not all countries and cultures can say that. Import enough to Canada, might it not break without anyone wanting to break it, with newcomers behaving in a way that seems to them rational?

  84. 84 84 Chris H

    @Dmitry:

    The open borders case is about government actions not the actions of private actors. If the government effectively puts no restrictions then that’s open borders.

    Furthermore, why would foreign academics have a harder time being hired? For reasons which would almost assuredly exist with any other field in the event of truly open borders. 1) Concerns over English language skills, 2) concerns over cultural incompatibilities, 3) concerns over the quality of foreign education, and 4) the reluctance of the foreign professors themselves to leave their home. Everyone of these concerns would operate for every job under an open borders scenario and they are the primary limiting factors for academics coming to the United States. So saying that because only 10-20% of academics in the US are foreign born is proof that they don’t exist in open borders situation is incorrect.

    @Ken B

    First off I think you’re wrong to think that open borders advocates never consider costs and benefits. The Openborders.info blog I’m a part of certainly tries to do that.

    But more fundamentally, I’m with Harold on the idea of principles. Unless the principles are proven to be in error what is the problem with holding to them? When free trade advocates say that the distinction between, say, a national and a provincial border is arbitrary in terms of the value of tariffs, and that if Canada decides to block foreign imports why shouldn’t Ontario? The same holds true of immigration.

    Now the examples you give are not actually immigration. They are invasions which are different in terms of how they operate. In those instances, people are not individually deciding to freely move to new areas making agreements with landlords/employers, but where another nation has moved in with military force, uses it to control the government of the area and give special privileges to the groups moving in. Conquest is not the same as immigration and most of the problems of conquest come from the military actions and abuse of government not from people freely making agreements.

    Finally, with your concern about political externalities, even ignoring that immigrants are a self-selected group likely to not be more open to adopting their destination country’s ideas on governance and culture than their home countries and ignoring the strength of founder effects, this is still an easy problem to solve without resorting to immigration limits. Just restrict voting rights to immigrants. Maybe also the right to get government jobs if you’re worried about bad cultural practices infecting the bureaucracy. Do that and a country like Canada or the United States isn’t at all likely to face the problems of killing the goose that lays the golden egg. Immigrant interactions with Canadians in the market place will be kept rational through market discipline, it’s only in government that we might expect persistent and large-scale irrationality, and so limit rights of the immigrants to impact government and everyone wins.

  85. 85 85 Chris H

    Bah! I really should be more careful when typing these comments. To be clear in my last paragraph I mean “make sure immigrants don’t receive voting rights” not “only give immigrants voting rights.”

  86. 86 86 Ken B

    @Chris H: It’s the first principles oen borders advocates who ignore costs. I count Bryan Caplan as one; he has argued there is no right to bar anyone who wants to come. That sounds like ignoring costs.

  87. 87 87 Ken B

    “Unless the principles are proven to be in error what is the problem with holding to them?”

    We always know more about the specific situation under discussion than we do about the alleged general principle.

    What do you do when general principles conflict? Usually you discover that at least one of the principles has a caveat. Well that’s just the first caveat, there will be more. List them all and your principles have now become so unwieldy you are probably better off just looking at the specifics. Principles can rarely be more than rough guides. Usually they are a distillation of experience anyway.

    Moral principles are especially problematic. Morality is usually based on vague feelings and conflicting emotions. Morality from strict principles tends to be sub-optimal. And they are rarely sueful in persuading those who don’t share them up front. Just when you want them most they fail most. (Haidt’s book elaborates this really well.)

    There is a special value in legal principles. Using them allows messy situations to be a bit predictable, and debated carefully. Even then though you find it gets complicated. That’s what common law and precedent is all about. Legal principles cut transaction costs in other words. That makes them useful and important, not perfect.

  88. 88 88 Ken B

    @Chris H: You are misunderstanding my argument. I am addressing such alleged principles as “We have no right to bar anyone who wants to come” or “They ahve an absolute right to come here” or other such broad claims. That’s what my Denmark example is aimed at. Their broad statemetns are so broad that they allow for Nazi invasions. Hence the caveats begin. Well then you are no longer on high, you’re debating particulars.
    Read some of Bryan Caplan and I think you’ll understand where I’m coming from.

  89. 89 89 Dmitry Kolyakov

    @ 84

    Chris, you wrote “The open borders case is about government actions not the actions of private actors. If the government effectively puts no restrictions then that’s open borders.”
    While I do not really agree with your definition, it does not even matter because the government _does_ put restrictions anyway. They are, from what I heard, in fact only marginally lighter than for many other education-intensive professions, like IT, for everyone but the few really outstanding scientists.

    So apparently you think that if in my suggested scenario I try to cross the US border to set up a University and have my foreign colleagues teach there, I should only worry about my prospective students’ “1) Concerns over English language skills, 2) concerns over cultural incompatibilities, 3) concerns over the quality of foreign education” of my colleagues? Let’s assume my prospective faculty can overcome “4) the reluctance of the foreign professors themselves to leave their home”
    Or, more realistically, are you saying, that if I want to set up a university for the Chinese, Indian or Mexican students with part of instruction in their native languages, so your concerns 1-3 will not apply I can freely invite faculty from their respective countries? Because there are no other reasons there are not so many foreign professors, right?
    Well, that is an interesting prospective… But let me first wait before someone else does it, I am somewhat risk-averse, you know…

    And of course it is difficult to give some stand-alone proof that the borders somewhere are not open. Unless you try to cross yourself and realize they are anything but.

    “where another nation has moved in with military force” – so if they are not sent by a “nation”, but are just a group of arms-bearing individuals, individually deciding to join forces for added efficiency and freely deciding to move in some country to offer protection services to house owners and busineses (which some also may see quite similar to your “control of the government”) – will it make a whole lot of difference to you?

    “likely to not be more open to adopting their destination country’s ideas on governance” – I’d say this can be true for some groups of immigrants, especially illegal, but is this what you wanted to say?

    ” Just restrict voting rights to immigrants. ” – wow, you corrected it elsewhere, but your true intentions are probably just jumping out of sub-conscience :)

    This can be a good idea, but I have doubts about implementation. How are you going to implement it politically? Most voters sympathizing with your other ideas will be very critical of this one. Also – how will it work? Will a person have no right to vote for the rest of his life if he immigrated? What if he is particularly successful in integration? What will happen voting rights-wise to his children if the are not integrating at all ad pose exactly the same risks as the new migrants?

  90. 90 90 iceman

    Harold #74 sums up the shoreline issue nicely. Yes I was considering reasonable ‘baseline’ not apocalyptic scenarios. Clearly there is an ultimate case of zero shoreline. And Venice may be a bad example. There I’d just point out there may be a bit of generational bias in “but look at what we lost”…eventually newer structures will be thousands of years old while others will have crumbled.

  91. 91 91 Chris H

    @Ken B 86

    Have you considered the costs in allowing open borders within Canada? Do you qualify the right of Canadians to move and live were they please within Canada with “so long as this doesn’t cause economic disruptions?” If not then I assert you have little room to complain when Caplan does this.

    @87 and 88

    Then it seems like your complaint is more against sloppy language. Fair enough, saying “anyone who wants to come” should be restated as any “immigrant” with the understanding that an immigrant is not an invading soldier. Theoretically I’m even willing to extend that to violent criminals, though landlords/employers checking out criminal backgrounds from the country of origin of the individual might mostly solve that issue anyways. So if your plea is for more controlled language I can sympathize, though I don’t see that as a particularly significant issue.

    @Dmitry Kolyakov

    Apparently we’re both working from second-hand sources here, so I’ll suffice to say that I think Dr. Caplan’s argument that universities can tailor the job “requirements” to specifically foreign professors they want does make quite a bit of sense and your thought experiment as a counter-example I don’t think works.

    So alright, let’s set up a university for foreign students with foreign professors in the United States. Why isn’t this typically done? The most probable reason is that it makes little economic sense to do so. What is the advantage to setting up a university like that in the United States? The students would be placed in an alien culture, that is likely significantly more expensive than their home country, that will probably not be any more prestigious than their home universities (probably less so given the greater reluctance of faculty to come) and at a school that will likely have a more difficult time making connections with businesses back in the home country. Put on top of that the different levels of government aid available to students coming to the US as opposed to their home countries (which is a welfare state issue not an open borders issue) and it would be very hard to make that sort of university worthwhile regardless of whether there are significant restrictions on immigration from academia. Thus even if you are correct about there existing significant government restrictions with this, your thought experiment wouldn’t actually give evidence for that given there is no compelling economic reason why such a university would be viable and several important considerations why it wouldn’t be.

    To your private security example, given the language you used yes it does matter. Offering a service for protection means it can be turned down. If the offer is more of an “offer you can’t refuse” type deal then that is the crime not the immigration. If natives did that it would be illegal and punished. I’m not arguing to get rid of laws against extortion or theft, only that whether the perpetrator is a native-born person or an immigrant is not a meaningful distinction.

    “‘likely to not be more open to adopting their destination country’s ideas on governance’ – I’d say this can be true for some groups of immigrants, especially illegal, but is this what you wanted to say?”

    Nope, good catch, I really need to read over my comments before posting. remove the “not” there. If you doubt this point, it’s worth remembering that over the course of the 19th century the United States had open immigration from many autocratic countries and the result wasn’t the United States becoming Germany or Poland.

    “This can be a good idea, but I have doubts about implementation. How are you going to implement it politically? Most voters sympathizing with your other ideas will be very critical of this one. Also – how will it work? Will a person have no right to vote for the rest of his life if he immigrated? What if he is particularly successful in integration? What will happen voting rights-wise to his children if the are not integrating at all ad pose exactly the same risks as the new migrants?”

    To the point about the details of the system, honestly I’m completely open. Voting “rights” are not a form of natural rights so I really don’t have much attachment to them. At best voting is a weak and often ineffective attempt at self-defense against bad policies. At worst it can be used as a means for some groups to push their misguided ideas about how to control the economy and other people. This is a problem that arises with natives so it’s not really specifically an immigrant problem. Indeed I think there might be reason to think that at least certain kinds of immigrants (typically high education ones which tends to be correlated with more capitalist leanings) might be an improvement. But to be honest I’m open to whatever system makes people feel more secure. Restrict immigrant voting for life? OK. For their kids too? Also OK. Maybe only if they get certain levels of education? That works as well. Since the self-selection of immigrants combined with founder effects means I think immigrants will tend to have low impact on policies anyways it hardly bothers me which system is chosen.

    As for convincing other people, I think liberals would be the hardest sell, but conservatives and libertarians I think could come around to this much more easily. For conservatives this could be sold on a small government level as well as the fact that conservatives tend to live in rural and suburban areas with less immigration anyways so they don’t have to involve themselves in interacting with immigrants much if they don’t want to. The restriction on voting rights could seem natural to them given immigrant’s non-American culture. For libertarians, natural rights should trump voting rights every time. If the choice is between forcing tens of millions of people to be kept out of this country and forced to live in poverty or letting them have the right to interact and form contracts more freely but stopping them from voting I think most libertarians will choose the latter. Liberals would be a hard sell, but they aren’t necessarily the real base of support for open borders anyways given their ties with labor unions.

    So is it conceivably possible? Sure. I admit that it wouldn’t be easy but better to support a difficult to pass policy that could be a huge improvement to the lives of most people on the planet (and probably to most Americans as well) than to just give up and accept a frankly horrendous status quo.

  92. 92 92 Jeffrey

    I hate to change the subject and go back to the original post…

    Suppose we lay out the options as:
    A. We tax neither carbon nor costal residences.
    B. We tax only carbon consumption.
    C. We tax only costal residences (and other people that don’t want temperatures to rise.)
    D. Some mix of B and C.

    I understand Coase’s argument that abstract thinking cannot tell us which of B, C, or D is the best idea. That’s quite fascinating – I had never encountered this idea before.

    But am I correct in still accepting Pigou’s/Kolbert’s argument that B is better than A? The argument, as I understand it, is simply that due to the externalities, the tax increases efficiency rather than causing a deadweight loss. This argument still sounds valid, even if a similar argument shows that D is better than A.

    (Of course, if one happens to favor D, then believing that B is better than A is consistent with not wanting to change from A to B.)

  93. 93 93 Jeffrey

    After thinking a bit longer, I see at least one mistake in my post. In order to make coastal residences pay for part of the damage, no tax on coastal residences is needed. The government simply needs to not reimburse them for their flood property.

  94. 94 94 Jeffrey

    Here’s a better attempt at the question I’m trying to ask:

    It seems that there is a clear best way to get the incentives right. We should tax carbon consumption enough to hypothetically pay for all the damage, and then not pay for the damage. (And then use the revenue to lower all other taxes.)

    As a result, carbon consumption choices are more efficient, costal residence choices are unchanged, and any other choice influenced by the tax cuts are more efficient.

    Even though the government could never get the tax rate just right, any tax between 0 and the optimal rate would have the same effect to a smaller extent. Somewhere between 0 and optimal is realistic goal.

    What am I missing? Is there another plan with the same advantages?

  95. 95 95 Harold

    @83 “Case 1. It is hardly irrational for natives to fear the adverse consequences of new arrivals. Danes in 1940, the Hurons were all but wiped out by the Iroquois.”
    This shows the importance of defining the principles. Are we doing whats best for everyone, or whats best for Danes, (or Hurons)? I think most Americans would say that they were interested mainly in promoting the interests of Americans, just as the Huron were probably most interested in the interests of the Huron. In this case, preventing or limiting immigration may (or may not) be the best course. Simple economics does not, I think, make this distinction between groups. It can inform whether currently more immigration is of benefit, but that requires empirical data, I think, so has to be continually assesed.

    Case 2. Economic theory assumes rational and informed people. If they are going to make mistakes on a grand scale, then the theory can say little about the outcomes in the same way as if they were irrational.

    If you believe that people from abroad are mis-informed, then this gives a case for allowing in people only at a rate that they can be informed to allow the market to work.

    Iceman also has a point here which ties in the two issues. He says that eventually new structures will be thousands of years old. I think Keynes had something to say about the long run. It is an interesting point. Eventually, the effects of global warming will be adjusted to, and probably there will be a stable and prosperous society in a warmer world. Similarly, after much increased immigration, society will settle into a new and prosperous pattern. Similarly, if trade unions do not enforce a closed-shop, industries will continue to prosper. However, in each case, the current, self-identified group may be worse off. Are we to say that as things will probably work out in the distant future the current costs do not matter?

  96. 96 96 Dmitry Kolyakov

    @ Chris Hendrix

    “Apparently we’re both working from second-hand sources here” – I am not sure what you mean, I was a foreign student considering joining the academia in the US, I discussed it with several immigrant professors and post-docs and decided to reconsider because of obstacles I saw. Who would be first-hand? Someone arrested for an immigration violation?

    And tailoring job descriptions for foreign applicants is by far no know-how of the academia, it is quite ubiquitous and international.

    “So alright, let’s set up a university for foreign students with foreign professors in the United States. Why isn’t this typically done?”

    Just wait a minute. Please just hold this game of trying to guess other peoples’ motives and let us consider the actual question – if I decide to do it – will I be able to do it freely? Can I quote you as someone who advised me to do it when I am arrested by the immigration authorities for trying to do this? If I can not do it, the borders are not open.

    And by the way, I am pretty sure that there is a good business case for at least some bi-lingual or even foreign language colleges to be started provided free access to the foreign faculty talent pool – but I will not elaborate as this is completely tangential.

    “To your private security example, given the language you used yes it does matter. Offering a service for protection means it can be turned down” It is not really a private security example, but ok. You do not know if those those people are going to offer services that can’t be turned down or something else, when they are just crossing the border. Likewise you do no know whether similar guys crossing the border _yet_ unarmed are up to any good. If you turn the immigration policy upside down and apply presumption of innocence to all aliens seeking entry, you severely compromise security and well being of current residents in a number of ways.

    As a matter of fact, government services can also be “turned down” by leaving the country and denouncing your citizenship, no? What is a government if not a group of individuals linked with other individuals by a framework of implicit and explicit contracts? For someone who is for no borders aren’t you creating too many artificial ones?

    ” I’m not arguing to get rid of laws against extortion or theft, only that whether the perpetrator is a native-born person or an immigrant is not a meaningful distinction.”
    Very true. I can also give you a smaller scale analogy: “I’m not arguing to get rid of laws against battery or theft, only that whether the perpetrator is a person living the house or a stranger is not a meaningful distinction.” So far, so good. Now how exactly do you transition from there to a) “You should have open borders” (for statement 1) and, accordingly b) “Your house should have no door locks” (for statement 2)?

    ” over the course of the 19th century the United States had open immigration” – can you say that in Chinese? :)

    This beloved “good old days” example works excellent – if you re-create a number of conditions that existed back than:
    a. Natural obstacles and high costs of traveling to the US and settling there
    b. Almost total absence of welfare state, especially for new arrivals
    c. Immense amounts of unoccupied land, that needed to be settled before someone else does it
    and a couple of others.
    Without this condition this is little more than (a not very factual) history lesson.
    Immigration to the US was a great risk that was mostly taken by those who had a reasonable expectation to become a productive and hence self-sufficient member of the society, a payoff by parasitism on welfare was not possible, but lawlessness was an unavoidable by-product. So the existing conditions filtered out most people who would be considered unwanted today anyway and then some (but maybe not all criminals). And the state had little need to supplant the natural barriers with official ones. Than the situation changed.

    Assuming some your ancestor lived on a ranch with miles and miles till the next house and strangers come once a year to trade cattle, he most likely didn’t lock his doors. Is this a good example to follow for you now if you live in a big city?

    “…the result wasn’t the United States becoming Germany or Poland.” – do you think it was the worst possible result? :)

    “Voting “rights” are not a form of natural rights so I really don’t have much attachment to them.” (and the rest of the paragraph) – bravo! I have not had too much support for similar statements here in past discussions, good to see that you share this.

    ” …frankly horrendous status quo…” – I would agree it is quite sub-optimal (not only in the US, but in most countries), and I also think a better solution would involve more total migration. But I am concerned that many proponents do not really have a plan and so it all de-facto comes to scaling the current system – making the “horrendous status quo” horrendous on steroids…

    A good plan is good, no plan, or just slogans are no good.

  97. 97 97 Steve Landsburg

    Jeffrey:

    It seems that there is a clear best way to get the incentives right. We should tax carbon consumption enough to hypothetically pay for all the damage, and then not pay for the damage. (And then use the revenue to lower all other taxes.)

    This can still be suboptimal. Suppose that for $100, the victims can shield themselves from damage. Suppose that the damage comes to $120, but if we tax carbon, it will fall to $80. And suppose, finally, that the tax does $100 worth of damage to consumers and producers of carbon.

    Then, without the tax, victims take precautions, which costs $100. With the tax, it’s no longer worth their while to take precautions, so total damage is $180 ($80 to the victims and $100 to the consumers/producers).

  98. 98 98 Ken B

    @Chris H 91:
    Yes I object to preening and moral bullying. Exactly.
    I do not object to immigration; I have repeated this often enough.

    Look at Steve’s 97. That’s a good example of an argument about specifics. It is not some vague ‘principle’ like ‘polluters should pay for the damage they do’. You cannot decide situations like that with grand principles and “philawwwwwwwwwsophy”. You need to look at specifics. And if you can make the specifics quantitative, even better.

  99. 99 99 Harold

    It seeems that there is no way to know the optimal solution from simple priciples such as Pigou and the Jeffrey (and myself along the way) have proposed. However, in Steves example above, there is again a large “all-or-nothing” effect that renders the counter-intuitive result. The victims take either $100 worth of precautions and totally ameliorate the harm, or nothing, and suffer all the harm. If there is a sliding scale of direct proportionality – e.g. if they spend $50 they save themselves from half the harm, then does that allow us to draw firmer conclusions?

    It seems that the latter approach is more akin to the usual economic way of looking at the margins. Global warming will not just affect owners of coastal property, there is a huge variety of effects. It seems much more likely that looked at as a whole, the costs/benefits would be a smooth slope rather than a series of large steps.

    It would be nice if this approach would return us to the Pigovian case, or the one suggested by Jeffrey. It seems that it does get us closer to that result.

  100. 100 100 Harold

    @98. You cannot have sub-optimal unless you know what optimal is. That is the underlying principle. Once you have defined your principle, then you can get into specifics. It is no good you arguing to maximise efficiency if my goal is to eat as much cheese as poossible. Similarly, it is no good arguing that immigration or carbon taxes will maximise efficiency if efficiency is not my goal.

  101. 101 101 Ken B

    re 100: I think you have your numbering wrong, this seems like an answer to 97.

    “You cannot have sub-optimal unless you know what optimal is.”

    What is truth? said jesting Pilate and would not stay for answer.

  102. 102 102 Neil

    Steve @97

    This is confused.

    First, you have defined the problem away. If a unit of carbon (let us suppose the effect of the tax) can be mitigated for $100 and it costs $100 to abate a unit of carbon, the economy is already efficient so no tax is needed.

    Second, your accounting is wrong. The net efficiency cost of imposing the tax is $20 not $180. Imposing the tax causes $100 damage to emitters but causes them to abate one unit of carbon (that is why it costs them something) saving $80 damages on others leaving a net damage of $20.

  103. 103 103 Ken B

    102: “This is confused.”

    Oops, I really do need to learn to type. I put quotation marks around my comment!

  104. 104 104 Ken

    Neil,

    Second, your accounting is wrong. The net efficiency cost of imposing the tax is $20 not $180. Imposing the tax causes $100 damage to emitters but causes them to abate one unit of carbon (that is why it costs them something) saving $80 damages on others leaving a net damage of $20.

    It is you who have done the accounting wrong. Read Steve’s 97 post again.

    If the producer did no abatement, the victim suffers $120 worth of damage.

    If the producer is charged $100 tax, he does some abatement, reducing the damage to the victim to $80, saving $40 in damage to the victim. The $100 tax added to the $80 damage is $180.

  105. 105 105 Neil

    I was interpreting the example to mean that the marginal damage falls from $120 to $80, which makes more sense. If the marginal damage is $40 (total cost of $120 minus a total cost of $80) while the abatement or mitigation cost is $100 then obviously it is inefficient to do anything about the carbon emission. This assumes away the problem.

    In any case, the tax revenue is a transfer to the government, not a cost, you cannot add it to social cost as I pointed out earlier.

  106. 106 106 Ken B

    105: “This assumes away the problem.”
    No, it proves Jeffrey’s way need not be optimal.

  107. 107 107 Ken B

    @Dmitry re 68: I missed this earlier. I meant Caplan is an example of the kind of open borders advocate I meant. I was citing Caplan as evidence not as a reference!

  108. 108 108 Jeffrey

    @ Steve, 97

    Due to 60 (and your books), I’m supposing that “$100 worth of damage to consumers and producers of carbon” refers exlusively to lost transaction costs, and not to the tax bill itself.

    A $100 loss due to skipped transactions and $40 in averted damages are not consistent with each other and the general setup. For a transaction to be skipped, the gains to the consumer/producer must have been less than the tax. But an optimal tax is equal to the damage caused. Therefore, with a tax in the range from 0 to optimal, the losses from skipped transations must be less than the damage averted.

    So change one number in the example: now there are only $39 of losses to consumers/producers while $40 of damage is averted. This still makes my plan suboptimal as the costs are $100 + $39 instead of $120.

    But I disagree with another number/definition. If it’s possible for victims to shield themselves for $100, I would consider the damage to be at most $100. Just define “damage” is as “the cost of the least expensive option available to the victim” when defining the optimal tax rate as the one where the tax on consuming carbon equals the “damage” caused by consuming it.

    If this is changed too, then I think that with any set of numbers, my plan will reduce the costs. This follows from the claim that the damage averted is greater than the skipped transaction losses.

  109. 109 109 Dmitry Kolyakov

    @ 107

    Point taken. But I never assumed you fully seconded his views.

  110. 110 110 Steve Landsburg

    Jeffrey: I will soon write a separate blog post detailing the problem with your plan.

  111. 111 111 RichardR

    I think Pigovian taxes are better than Coase’s solutions.
    Firstly, I think that in the majority of cases you can work out who is morally at fault and therefore who should pay. In the example of the train causing sparks which damage a farmer’s crop clearly the train company is at fault and therefore should pay the tax.
    Secondly, if it turns out the the Pigovian solution is economically suboptimal the two parties can agree a better solution, for example the train company can pay the farmer to leave land near the track barren.

  112. 112 112 Ken B

    111: “morally at fault” is the problem. It prejudges and thus cuts off consideration of better solutions. We are usually talking about situations of conflicting interests, all legitimate, and undecided property rights. Deciding who should have the property rights can be a subtle question.
    Externalities, aside from being logically symmetric in many ways, are costs not sins.

  113. 113 113 Steve Landsburg

    RichardR:

    So: A railroad runs trains near farmland, which causes fires. Or: A farmer plants crops near train tracks, which causes fires. These are, of course, alternative descriptions of exactly the same situation.

    Given these facts, how do I determine which party is “morally at fault”? If the answer is “ask RichardR”, that’s a pretty poor basis for policy. If the answer is something I can discover on my own without having to ask you, then I’d like to know how to go about it — because as of now, I haven’t the foggiest idea.

  114. 114 114 Jonathan Campbell

    63 – “I don’t think that is right. The tax revenue is not a cost, it is a transfer to the government.

    Excellent point. But there is damage, nonetheless, because of the deadweight loss associated with taxes.”

    Steve I think you conceded to soon on that — tax is not a “damage” to society on the whole, but tax does simply “damage” the person who is being taxed (i.e. shifts the damage from the person who otherwise would have been damaged to the taxpayer)

  115. 115 115 RichardR

    Re 113, sparks from the train are going onto the farmer’s land. There is nothing stopping the railroad company buying more land either side of its tracks to act as a buffer to protect its neighbours’ land from its actions.

    Suppose your neighbour has a a fire in their garden and sparks go over onto your property burning it down, would you say that it is your own fault for having a house next to your neighbour’s house?

    We know who is at fault because society creates rules. One simple rule is that if you cause a fire on someone else’s land that is a crime, called arson, and it carries a heavy punishment.

    Also suppose that the train tracks run adjacent to a tree plantation. The sparks cause a fire burning down lots of tree. The owner of the tree plantation is not very happy and cuts down lots of trees close to the track. Previously they had always been careful ensuring that trees fall away from the railroad but now he is not feeling so generous and if some trees accidentally fall on the railroad, hey that’s not his problem because the railroad shouldn’t have been built next to his plantation in the first place.

    It’s much better for society to have rules to prevent people causing damage to other people’s land. The problem with Coase is that people will have to spend a lot of resources negotiating contracts. Rules make life simple but in certain cases, when the benefits justify the costs, people can negotiate new rules for their particular case.

  116. 116 116 Paul T

    #4: “Coase makes you show that the costs of the polluters and pollutees negotiating is too high as a justification for such a carbon tax.”

    SL: “Given that virtually everyone uses carbon based products, and almost everyone bears a share of the externalities, I don’t think is a high bar to clear.”

    You think 6 billion carbon consumers, negotiating with 6 billion climate consumers, is feasible?

  117. 117 117 Ken B

    @PaulT 116: I think you are reading Steve backwards here. But granting that the negotiation is impossible it still does not follow that the carbon tax is optimal.

  118. 118 118 Paul T

    Ken B: “But granting that the negotiation is impossible it still does not follow that the carbon tax is optimal.”

    Maybe I’m missing something – if the transaction costs are too high, then Coase’s idea is inapplicable, and we must fall back on the Pigou tax, yes/no?

    Though I will grant, and it seems most here concur, that we have no clue what the externalities are, or who should bear them.

    Anyway, the climate dilemma illustrates the problem of unowned property, on a grand scale; the tragedy of the commons. Property rights solve most any conflict.

    Hence, the cap & trade program strikes me as the best approach: each is assigned his piece of the atmosphere, so to speak. You can trash your bit (the cap), then have to purchase others’ bits (the trade), to trash more. A market develops, etc.

    But some economists oppose this idea, I don’t know why.

  119. 119 119 Ken B

    @PaulT:
    “we must fall back on the Pigou tax, yes/no”
    That’s part of what Steve’s next post is about. But it’s also not what I said. I only said it could be sub-optimal. It might be the best option realistically available.

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