Consulting by RPM || Free Advice Blog

Yglesias Wants to Abolish the EPA!!

(Hint: At least skim this whole post. There’s a surprise at the end.)

Wow, I stand corrected. I recently implied that on the great scientist/ideologue divided, Matt Yglesias came down on the side of Krugman. Yet in a recent post on Pigovian theory, Yglesias totally proved me wrong (HT2 Daniel Kuehn):

Against Pigovian Taxes, For Private Virtue

John Quiggin says Pigovian externality economics is the most underrated line of thought in today’s profession.

While of course I agree with many of the specific observations made under the banner of Pigovian analysis (private businessmen often do environmentally harmful and self-interested things), I don’t really “get” Pigou’s approach and think I never will. The basic theory (here’s a good recent example from William Nordhaus) seems to go like this:

1) Spread cynicism about private corporations.
2) …
3) Fascism!

The psychological and sociological links here seem clear enough. Both fascist political ideology and spreading cynicism about private businessmen serve to raise the status of government officials and lower the status of businessmen. But as a political agenda it doesn’t work at all.

For starters, even in Nazi Germany we still have private businesses. We’re keeping the agricultural producers, the pharmaceuticals, the utility companies, the software developers, the mobile phone providers. These — rather than, say, the smog-belching factory cranking out Chia pets — are the really dangerous part of big business. If you look at a place with no real corporate structure (North Korea, say) the problem isn’t that the businessmen are dumping too many chemicals in the river. The problem is the tyrannical State crushes private enterprise and literally leads to millions of deaths from starvation. When I was in Ethiopa in the 1980s, I gave some of my crackers to a handful of children so that they would be able to eat that day. In the United States, that has never happened to me. Even the homeless here generally get enough to eat, because of the cornucopia made possible by capitalism. The existence of an advanced and self-regulating market place is, where it exists, a triumph of private integrity against the assumption of cynicism.

The observation that bad business practices are a major source of human ills is quite correct, but embracing fatalism about it only exacerbates the problem. What’s needed are efforts to push societies in the direction of taking honor and corporate obligation more seriously, not less so. You want CEOs and shareholders to feel worse, not better about behaving cynically. You want consumers to broaden the interests they consider, not narrow them. In the early 19th century, “let’s kill whales for their oil” was a winning business plan. In the 21st century, “let’s do mountaintop removal to get more oil” is not. That makes all the difference. Suggesting that instances of private environmental harm and self-dealing simply show that such harm and self-dealing are inevitable just eats away at the moral and social fabric that underlies any kind of prosperity.

Last week I was outside my office and I saw a $5 bill on the ground. Famously, economists say you never see a $5 bill on the ground because someone would pick it up. But instead of picking it up, I stood around watching to see if anyone else would. A bunch of people walked by not noticing it. Then one guy saw it, saw me, and asked if it was mine. I said no it wasn’t, I was just curious what would happen. He laughed and made a joke about economists. Then a second guy came by, picked it up, and said I’d dropped five dollars. I said no, actually it was there before me. He looked around, noticed a homeless guy across the street, said “I think he needs it more than me,” walked over and gave it to him.

You may want to click on the link to Yglesias’ original post; I took just a bit of creative license with it.