Why I can't support the "Green Shift"

I like the premise, I really do - make polluters and C02 emitters internalize the cost of their actions, rather than externalize that cost for the rest of us.

Prima facie, it seems like a sound idea. Stephane Dion and the Liberals are proposing using the tax system to push those external costs onto polluters while trying to remove the public cost. It is costed, planned and well thought out.

The problem is, of course, it won't work. It runs counter not only to sound economics, but counter to human economic behaviour. The plan, as with most attempts by the government to regulate and engineer the economy and society, holds within it the seeds of "unintended consequences" which will have absolutely paradoxical effects - it may cause more pollution and Co2 emissions than it stops.

The problem is the regulation and taxation may destroy the normal "moral sentiment" and give polluters the ability to merely pay for permission to pollute.

As Ronald Bailey points out at Reason in a review of the work of Samuel Bowles, it comes down to both insentive AND our inate sense of what is right. The example given is the Israeli Daycare fines case. In that case, 6 daycare centres in Haifa implemented fines for parents who picked up their kids late. But rather than encouraging parents to be more prompt, it had the exact opposite effect:

Instead, parents reacted to the fine by coming even later. Why? According to Bowles: "The fine seems to have undermined the parents' sense of ethical obligation to avoid inconveniencing the teachers and led them to think of lateness as just another commodity they could purchase."

That is, parents felt they could just purchase the ability to be late as a comodity. Extrapolate this to the directors of heavy polluters and C02 emmiters - they can merely purchase, through taxes and fines, the ability to pollute with out having to justify or explain it in the more moral sense - to the public anxious to see something done.

The Green Shift can be seen as allowing polluters to buy the ability to pollute with impunity. Given that Bowles research is based on 41 behaviour economics experiments around the world and he comes to this conclusion:

"[I]ndividuals from the more market-oriented societies were also more fair-minded in that they made more generous offers to their experimental partners and more often chose to receive nothing rather than accept an unfair offer. A plausible explanation is that this kind of fair-mindedness is essential to the exchange process and that in market-oriented societies individuals engaging in mutually beneficial exchanges with strangers represent models of successful behavior who are then copied by others."

Or as Bailey puts it "as people gain more experience with markets, morals and material incentives pull together."

Given this research, and the research in behavioural economics previously cited in my post on Michael Shermer's "Mind of the Market", I believe that the entire scheme runs contrary to human behaviour in the market. It will not work.

There is another problem as well. I could not find where the Liberals would end the years of subsidies to the oil and gas industry, the most polluting and C02 emitting industry in Canada. As I stated nearly 18 months ago, the federal government provides about $1.4 billion in subsidies, totalling over 8 billion between 1990 and 2003. Add 5 more years to that and its up over $10 billion. Under Dion and the Liberals when they were in government, that is $2 for subsidies to pollution industries for every $1 in environmental funds.

I don't see in the Green Shift where this is fixed or addressed. Rather, we have one market distorting factor being used to try to offset another market distorting factor. That's like taking Quaaludes to counteract all the Amphetamines you just took - it would be better to lay off the pills altogether.

A better solution would be one that followed not just the climate science, but the science of economics and human behaviour. One where the public as well as the industries are forced, as CD Howe Institute President Bill Robson said, by incentive to change :

"If you seriously want to reduce greenhouse gas emissions the consumer has to feel pain,"

A plan that would have worked, in my opinion, would have been one that meant less government, not more:

• Get rid of all Federal subsidies to the oil and gas industry
• Get rid of all subsidies to the auto industry
• Force the industries to negotiate with the local people, rather than distant governments, over land use and dumping (rather than quietly telling them its ok to dump pollution into 16 lakes and streams)
• Allow individuals and groups to sue polluters for damages.
• Get rid of regulations that prevent alternatives from entering the market - if I could buy a Zenn car for zipping around the city, I would. Imagine how many out of work CAW members would get a new job if this car took off and needed an Ontario manufacturing plant.
• End monopolies on power generation and subsidies for the industry. The biggest polluters are provincial government owned electricity utilities. How about lowering the barrier to entry so that power needs can be satisfied by multiple means and sources - wind, solar, nuclear, hydro etc, where reasonable - and decentralized.
  

All of this, and more, working in concert with normal, human economic behaviour, would work to reduce greenhouse gases and pollution without distorting government interference, allowing our "morals and material incentives [to] pull together."

I will give Stephane Dion credit though. He has, at least, presented a policy and a plan of action to do something rather than nothing, or actively undermining environmental efforts, as the Conservative government is doing. The Green Shift should be argued on its merits, and on its merits, I do not think it will work.

Rather than taxes and top down enforcement, bottom up, self-organizing, voluntary behaviour will be what works in the long term.

"[P]aying taxes does produce a neural reward. But we're showing that the neural reward is even higher when you have voluntary giving."

Let's base an effort to reduce C02 and pollution on that assumption, rather than running contrary to human nature.

Edit: fixed link and added power generation to the less government list.

Evolution and Economics

A few weeks ago, I posted the following on my other blog, theConverted:

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Dr. Michael Shermer, of the Skeptics Society, has a fascinating article at Scientific American entitled 'Evonomics'. He postulates that evolution and economics are both part and parcel of the same phenomenon - complex adaptive systems.

In biological evolution, nature selects from the variation produced by random genetic mutations and the mixing of parental genes. Out of that process of cumulative selection emerges complexity and diversity. In economic evolution, our material economy proceeds through the production and selection of numerous permutations of countless products.

Quoting both Mises ("Socialism") and Basitat, Shermer shows that top-down government "design" of the economy is a ludicrous as "design" in evolution.

As with living organisms and ecosystems, the economy looks designed—so just as humans naturally deduce the existence of a top-down intelligent designer, humans also (understandably) infer that a top-down government designer is needed in nearly every aspect of the economy. But just as living organisms are shaped from the bottom up by natural selection, the economy is molded from the bottom up by the invisible hand. [emphasis mine]

He still thinks (sadly) some interference is necessary to ensure "free and fair trade", but he is, at least headed in the right direction.

But what this really points to is yet another example of hypocrisy that seems to plague both the 'left' and the 'right', both so-called liberals and conservatives. Each has their own cognitive dissonance here. The conservative right, staunchly defends the idea (for the most part) that the economy is molded "from the bottom up by the invisible hand" of the market, while denying the identical process that occurs in biology. Of course, the liberal left seems to have the opposite problem - while rightly defending the process of evolution and natural selection, they fail to see this exact same process in the field of economics and claim that the government is needed to manage the market.

One cannot support true free market economics and deny evolution nor can one deny the power of the true free market while vehemently supporting evolution. Interference in the market causes unexpected distortions and unintended consequences just as interfering with evolution does.

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Since then, Dr. Shermer has appeared on Skepticality and on ReasonTV, explaining in greater detail his thesis outlined above.

In that time I have also bought and read the book The Mind of the Market. It is, of course, brilliant. Dr. Shermer also takes his thesis one step further, in explaining how a free market has an evolutionary basis, how a truly free market and truly free trade are the best ways to foster both peace and human happiness. He touches on the evolutionary basis of morality, as well as good and evil. In his chapter on it and through ongoing discussion, Dr. Shermer points to the evolution-driven biological basis for "folk economics" - why people want the egalitarian, fairness and cooperative model of society as well as the accumulation and consumer based market society; why they hate the rich but also strive to be them. And in dispelling the myth that evolution is about "survival of the fittest" and "red in tooth and claw", he not only demonstrates that cooperation and altruism are the dominant, most effective strategy for the survival of one's genes, but that this is not incompatible with a free market.

He does not, thankfully, fall into the "vulgar libertarian mode". He does not become an apologist for corporate greed. His chapter entitled "Don't be evil" dissects all that was wrong with Enron (no transperancy, destruction of team work, micromanagement, divide and conquer mentality - sound familiar CPC supporters?) and all that is right with Google (the opposite of everything that is wrong with Enron). He rightly identifies the kind of KBR-Haliburton-Enron kind of capitalism as properly corporatism and mercantilism, not true free market capitalism that Adam Smith envisioned.

All in all, he makes an excellent arguement in favour of actual freed markets and trade, based on evolution-driven human nature and behaviour. The science is solid, and Dr. Shermer provides copious endnotes to primary sources, so you can check it out for yourself.

So here is the challenge, to both those on the left and the right. Read the article, listen to the podcast, watch the video and read the book. Discuss the ideas, but keep an open mind and try to reconcile how you can believe in a bottom-up, emergent system in one area, but not in another, nearly identical area.

Consider new approaches and different solutions with these ideas in mind.