4 Feb 2010

More policies for People, not special interests

...and here are five more ideas for solving collective action problems (see yesterday's post) that caught my eye.

Anna O. suggested that carbon taxes be introduced, and that revenue used to offset a end to/reduction in income taxes for people making less than $22,500/up to $77,500, respectively. I liked this idea because the majority (of voters) would probably understand their net benefit and vote for it, in the face of lobbying by the minority -- high carbon consumers. The tax is fiscally neutral but environmentally helpful.

Candace A. introduces a different nuance to carbon taxes, suggesting that above-median polluting firms pay a tax and below-median firms receive a rebate. Instead of creating a united opposition to taxes on all carbon, this idea would split the opposition, since low-carbon firms would lobby for it, in opposition to their heavy-pollution cousins.

Julia A. suggests broadening the pool of those eligible to work on renewable energy (wind farming, for example) to include scientists, non-profits, schools and communities. Since they are currently excluded from power generation (my impression is that it's "managed" by utilities and bureaucracies), this additional involvement would increase innovation and public support for these programs.

Ryan L. goes straight for propaganda, suggesting that environmental programs (carbon taxes, wind farms, etc.) be branded, so that people can have stronger positive feelings towards "save the kids" programs. In Brazil, for example, the "bolsa familia" (family grant) is part of its Zero Fome (zero hunger) campaign. It seems that rebranding "taxes" would also be useful.

Stephanie L. promotes environmental justice by "empowering" poor people likely to suffer from local pollution. She suggests that local community organizations be mobilized to educate locals on issues, increasing feedback to bureaucrats and votes to politicians who will be forced to respond to this democratic noise.

Bottom Line: New ideas require new perspectives. What have you learned from "amateurs" lately?


  1. How is taking from the rich, who probably will fight you, and giving to the poor while skimming money off in the middle for new bureaucracy any different than a nanny state or a kleptocracy.

    Also, who will employ the poor if companies are no longer viable?

  2. Eric, which one are you talking about?

    In relation to taxes and revenues, that is always, always a redistribution issue. So, redistribution per se is not unethical.

    That being the case, what one should do, then, is consider the sideboards of ethical behavior, and between those sideboards, use economic tools to choose the most appropriate methods for allocating scarce resources.

    When it comes to the latter, one oft-missing piece (because, frankly, your description is rarely missing from policy debates) is the MU of money relative to socioeconomic conditions.

    Yes, at one level, it is relative (which makes for some seriously funny microeconomics), but at the macro level, there are some values that can be figured out - namely, that the MU of money for poor people is higher than that for rich people.

    This used to be a commonly known feature of money, which is why our income tax structure has the fairest framework of any tax structure on Earth. However, today's political economy rarely revisits this notion, instead looking at supply-side arguments, and trying to shoehorn equity in at the end. What we have now are tax structures (California's is a prime example) that put the burden of government costs on poorer people precisely because the MU of money isn't considered.

  3. David,

    Very thoughprovoking post and a great assignment for your class. I'd only wish that I could have taken such exercises during my graduation! Anyway, I took it as an assignment when I read your post yesterday and thought over what could it mean in India's context. Though I do not have a new idea to propose, here is an instance of policy level innovation happening in India.

    I'd second Stephanie's idea of promoting environmental justice by "empowering" the poor. And this is exactly what has happened with the introduction of Right to Information Act in India.



    This may appear to be a very logical thing to do, but it must be understood from the perspective of a large democracy with heavy bureaucracy and red tape. By far this has been the most effective Act in the country which has shown amazing results since its inception. This Act has brought in the much desired accountability, public awareness, empowerment and justice to the people.

  4. Josh,
    As you know from some of my other posts, I just want some decent economics spelled out in quantitative detail. For instance, the marginal utility of money to the poor may be higher than to the rich but if the concerns of the rich are not considered, the rich may move their companies to places that treat them better.

    I just want full cycle analysis of proposed regulatory changes.

    I am glad that these programs worked so well in India. Do you know why they worked well and whether India is unique or could Indian solutions work in other places.

  5. Eric, I do understand your desire for quantitative analysis, and that's why I used the MU of money for you, because I thought you might appreciate it.

    In the U.S., we are lucky, because our economic foundation is demand-driven. So, companies cannot leave for other places in the same sense. Our labor is derived from our consumers, for the most part, so if companies are to have robust markets, they must pay labor enough to provide that market.

    Our current economic crisis illuminates this situation; we've been underpaid for a long time, and instead of pushing for higher wages (either through movement, gov't. price floors, or collective action), we relied on borrowing. That doesn't last. In addition, if we don't take into account the MU of money, and rely too heavily on poorer people to pay, we create another unstable situation.

    The only stable course of action, long-term, is to have folks pay an equitable share of their earnings, and use these earnings for government services and to impact fiscal policy. That simply means that richer people are going to have to pay a larger percentage of their income than poorer people. That, or the system breaks down.

    Tangentially, other countries don't have the demand clout that we have, and their rulers make up for this by forcing themselves to be comparatively advantageous per labor. This sets up a post-neo-colonial relationship, if you will, that has other problems. In the U.S., however, with a few exceptions (the Central Valley in Ca. being one of them), this sort of thing doesn't happen.

  6. Josh,
    Where in your analysis do

    1. Call centers in India
    2. Brokerage firms backoffices in India.
    3. Driving to Canada to buy pharmaceuticals.
    4. Building coal plants in Utah.
    5. Companies moving out of California, New York, and Massachusetts
    6. Fab plants in China or in rural US states,
    7. Electronics production in Taiwan
    8. Outsourcing shipbuilding to the rest of the world and
    9. migrant labor for fruits and vegetables

    fit? It seems that companies have to be global to survive and use labor that allows them to compete.

    I, for instance, know of more than a hundred defunct biotech companies that ignored costs and customers.

  7. @Eric -- you missed the point. I asked them to reform policies or propose new policies that would reverse the typical pattern of the RICH taking from the POOR.

    @Josh -- your defense of income redistribution (i.e., the marginal utility of income and/or equity considerations) is fine, but see above.

    @Praveena -- Great example and thanks for doing your homework! Empowering citizens can only work for the better to improve India's democracy from an exercise in rhetoric to one in practice :)

  8. David,
    I do not think that I missed the point.

    I was saying that invoking the government to 'save' the poor does not work. It does not work for many reasons. California is an exemplar of how to 'save' the poor by increasing the size of government and making the poor worse off.

    Most of your examples of dysfunctional water districts seem to be viewed, internal to the bureaucracy, as saving the poor.

    My simple drumbeat is:

    "Ideology is nice. Does it work?"

  9. @Eric -- yes, you did. The government is the REASON that those policies (that hurt the poor) are in place. This is about UNDOING a problematic intervention, not starting a new one...

  10. Eric, I understand your concerns, and I addressed them. I wrote:

    "Our current economic crisis illuminates this situation; we've been underpaid for a long time, and instead of pushing for higher wages (either through movement, gov't. price floors, or collective action), we relied on borrowing."

    Government can influence the movement of companies. You perfectly illustrate the catch-22 in our current illusion of free markets. Labor is not a free market, neither are any markets that don't price in their carbon emissions (they are subsidized by social costs). These two effects, then, create artificial incentives for locations whose "comparative advantage" is labor, because both their low labor prices and their transportation is subsidized.

    Your concerns with globalization are warranted, but if you only allow yourself to see the situation from the inside, then you can provide no answer, because then only one of two conclusions seems inevitable: 1) we "artificially" raise prices for labor, thus driving out jobs, leaving us poorer; or 2) we accept labor markets in oligopoly, and allow labor prices that create distribution patterns that make us poorer.

    But, economies are demand driven, period.

    At this point, we have to go right back to the very foundation of economics: It's purpose.

    In that economies are demand driven, then, for the best interest of economic efficiency, we do need to redistribute income, to maintain a healthy economy. This is the beauty of estate taxes and stepped income taxes, as well as Pigouvian taxes coupled with equal rebate redistribution.

  11. Eric,
    Right to Information(RTI) Act isn't unique to India. Its equivalent would be the Freedom of Information Act (FOIA) of USA and UK. The only difference is that India introduced this in 2005, much later than the others. The difference lies in the ambit of the RTI Act, which has come to include the judiciary as well. As I see it, the form and implementation of the Act has a lot to do with its success in any country. Here is a report on RTI Act with some background (http://www.hinduonnet.com/fline/fl2604/stories/20090227260404400.htm).


    Indeed, the indian story has been much about rhetoric. Although slow, changes are happening and transforming India.. an act at a time! :-)

  12. @Praveena -- indeed, and I am glad to see it. India has always been good on intentions but slow in execution :)


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