Arnold Kling  


Freddie Mac: My Chapter... The Risk Animal...

Robert H. Frank writes,

Adopting some variant of a tax on carbon, as both leading presidential candidates have proposed, would help eliminate this discrepancy.

That would set the stage for our next president to explain to other leaders why eliminating fuel subsidies would make the overall economic pie larger. Because the resulting efficiency gains can be redistributed so that everyone gets a bigger slice than before, the idea should be fairly easy to sell.

I think that the United States is in a weak position on the subsidy issue. We have agriculture subsidies, mortgage subsidies, alternative energy subsidies, and so forth.

I also think that it's pretty weak to argue that other countries hurt us with their subsidies. They hurt themselves much more.

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COMMENTS (6 to date)
dWj writes:

I'm not sure that's true. Insofar as the entire subsidy accrues to the domestic purchasers, that should cancel out the cost of the subsidy; administrative costs and misallocative deadweight loss are the only costs the country retains.

Insofar as some of the subsidy will end up with the producers, I'd tack on to the previous analysis a pecuniary externality transfering money from the buyers to the sellers; the cost to a country is in proportion to its net imports. In unscaled terms, the United States is obviously going to take the biggest dollar hit from this; in terms of GDP or some like comparison, I imagine some of the countries subsidizing domestic oil distillate purchases are big importers (China), while others I think are less so (Indonesia?), though I don't actually have a great grasp on these data.

In any case, that it harms the country doing the subsidy isn't really in question; they should, on grounds of their own interests, be encourageable to eliminate this practice. How much relative harm they're doing to us versus to themselves is probably not worth worrying about -- unless they really hate us, and would be willing to continue the subsidies out of spite.

Matt writes:

When American use three times the per capita amount of fossil fuels than foreigners, it is us that is adding global warming to them.

Matt writes:

We Americans are the highest per capita users and the net global warming is from us.

Mark Wonsil writes:

Since the Beijing Olympics are in session:

Subsidies are the steroids of the economy - there might be a performance boost in the near-term, but in the end, you have probably sacrificed more than you have gained.

Burke A writes:

Having the highest per capita greenhouse emissions doesn't make the US the largest source of greenhouse gasses on a net basis. You have to take carbon sinks into account as well. Things like CRP and wetlands and other carbon sinks have a huge impact on the size of a nation's carbon footprint. Remember that the US has a much lower population density than many other developed countries. It means the transportation requires more energy, but it also means more open spaces for carbon sinks. Thus the per capita measure isn't really as telling as you might assume.

aaron writes:

Yes, and the US has increasing sinks. We're growing more trees etc (much of it due to reforestation of areas cleared in the 1800s). Not all business is CO2 producing. If you want to reduce CO2 emissions, you might want to consider using more wood and paper, it encourages businesses to grow more trees.

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