Arnold Kling  

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Bryan Caplan says that maybe liberals and libertarians can agree that farm subsidies are bad. However, I am not impressed by this. Liberals have no problem reducing government support for groups they dislike, such as "corporate farmers." But they still want the government to support groups that they like--locavores, or what have you.

I think that (non-classical) liberals and libertarians see the problem of "special interests" differently. Liberals view special interests as exogenous to the policy process. You have to overcome special interests to create good policy. Libertarians see special interests as endogenous. Policy is what creates them.

I saw this last week in a discussion of energy subsidies. Liberals have no problem if you want to get rid of subsidies to oil companies. But they cannot really accept the notion that "green energy" deserves no subsidy. What's not to like about wind and solar?

Most important, liberals will always say that we need government involvement in food policy, energy policy, education policy, health policy, etc. When they observe that a particular policy serves only special interests, they may appear to side with libertarians by supporting a rollback of the offending program. However, while the libertarian will put forth the notions that public policy is often self-defeating and that it is impossible for policy to be immaculately removed from special interests, the liberal is never going to concede those points.


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COMMENTS (12 to date)
ChacoKevy writes:

"Liberals have no problem if you want to get rid of subsidies to oil companies. But they cannot really accept the notion that "green energy" deserves no subsidy."

I would have agreed with this up until about 6 months ago. With deficit considerations in the vogue, the new strategy is "I'll give up mine if you give up yours", with the knowledge that fossil fuel subsidies greatly exceed green subsidies.

Al Gore already admitted ethanol was a vote-getting mistake. Could Obama in '12 do the same now that he doesn't have the Iowa primary as a chief concern this time around?

[irrelevant url removed. Please note that the URL link surrounding your name is intended for personal identification, such as a blog, bio, or other website where your name or nick is listed.--Econlib Ed.]

Lucas Reis writes:

Solar and wind power is not as "green" as people thought recently.

The problem with the "green" argument is that we don't know for sure what is green and what is not.

Oil was considered an eco-friendly fuel before, and today it is the villain. Maybe solar and wind power will be the villains tomorrow.

John Thacker writes:

I've had plenty of conversations with liberals and moderates who echo critiques about government farm subsidies going towards the wrong type of foods-- but then are quick to assure me that they still want farm subsidies, they just want them aimed at the right type of foods.

Various writes:

In less than politically correct terms, I would describe some modern day Liberals as having a control obsession. Such a trait speaks to the core of such a person. Control is the numero uno objective, and things such as policy are only second order concerns that support the first order objective. For example, such persons may not like corporate interests because these interests compete with their view of the world. On the other hand, green energy companies support their view of a less commercial world, ergo they support green energy.

By control obsession, I am not implying that such persons are, on the whole, of poor character. Rather, I think during their lifetime experiences, such persons have observed what they believe is a positive correlation between top-down control and pleasant outcomes. I think they are just analogizing between their own life experiences and society and the economy as a whole. I find this to be a badly misplaced analogy, but that of course is just my opinion

Russ Nelson writes:

ChacoKevy, that's a tactic, not a strategy. The liberal strategy still remains: people won't do the right thing unless you FORCE them to. Thus, all the interventions in the market are REQUIRED for the market to be truly free.

stickman writes:

I can easily agree with you on the distinction between libertarians (who dismiss all manner of subsidies) and liberals (who hold that favoured projects deserve support). However, allow me to play devil's advocate. Two things:

1) If virtually everyone can agree that certain subsidies are stupid, I don't see why you have to remain "unimpressed" by this. Low hanging fruit, man!

2) The ideological views vis-a-vis energy subsidisation cannot be disentangled from the climate change question. I've yet to see meaningful acknowledgement from many libertarians that this represents an astounding form of market failure. (And, yes, I'll leave scepticism of the science to one side for the moment.) Anyway, some thoughts from Rob Stavins on why we need public R&D support for non-carbon energy sources here. More on this subject here.

Much of the latter argument is predicated on the belief that firms will under-invest in new technologies from a social perspective, as a result of unexploited positive externalities. Or, as a top executives at Statoil recently said of Carbon Capture and Storage (CCS): "There is a first-mover disadvantage, as the one who builds (later) will not make the same mistakes and learn from others."

David C writes:

"However, while the libertarian will put forth the notions that public policy is often self-defeating and that it is impossible for policy to be immaculately removed from special interests, the liberal is never going to concede those points."

I've never heard a liberal argue that public policy is never self-defeating, and most will argue that public policy can improve outcomes despite problems created by special interests. They don't try and pretend that the problem won't arise. However, I have seen libertarians gloss over the problems of special interests when arguing for deregulation. It cuts both ways, after all.

Ryan Vann writes:

"I have seen libertarians gloss over the problems of special interests when arguing for deregulation. It cuts both ways, after all."

These argumentation seems odd to me, are you saying favoritism will be shown in the way deregulation is enacted or industries are deregulated at the expense of others? If it is the second point you are making, it is rather self defeating.

Arnold,
The bit about endogenous and exogenous comes off as a shoehorning of economics terms into a place they don't quite fit. People in general probably see private-public partnerships holistically, with some policy being paid for privately, and some policies essentially establishing constituencies. After conceding that, it is all a matter of magnitudes and isolating variables.

John Thacker writes:
I've yet to see meaningful acknowledgement from many libertarians that this represents an astounding form of market failure.

And I am astounded that despite the government's track record being the SynFuels Corporation, the corn ethanol subsidy, and payments to companies that promptly move or go out of business, liberals can still insist with a straight face that "this time it's different."

I've read your post, stickman, and it's completely unpersuasive. Your "R&D market failure" argument should apply equally in every single type of industry. Are you really willing to trust a few executives that "first mover disadvantage" outweighs "first mover advantage" in general? That seems like a rather enormous claim to make, particularly considering that even in environmental matters, there has been first mover advantage, such as with Toyota and the Prius.

I suppose that there is the risk that certain advances will be thought of as "too important" by governments and governments will seize the ideas or otherwise mandate a lower price or technology transfer and sharing, refusing to let the companies obtain their first mover advantage. There's some evidence of that negatively affecting vaccine research.

Seth writes:

I'd say conservatives are similar to liberals in that they want to reduce government support for things they don't like and keep their sacred cows. I was like that when I was conservative.

Their arguments for government support of their sacred cows address the intentions of their pet programs, not the results or second order consequences; nor the political difficulty of unwinding or changing the program once in motion; nor the idea that the government the even the intention-based arguments were flawed in the first place.

David C writes:

RE: Ryan Vann

Just to give you one example, there's currently a push to remove the individual mandate from health care reform. However, if that is done without making other changes to the law, it will create massive moral hazard problems in the insurance market. Because the individual mandate is the least popular element of the bill, that's a very real danger.

http://theincidentaleconomist.com/wordpress/so-what-happens-without-a-mandate/

stickman writes:

John,

Apologies for the delay in replying to your comments, which I have only just seen. At the risk of talking passed each other, I'm afraid that I don't find your criticisms persuasive. Some thoughts:

Your "R&D market failure" argument should apply equally in every single type of industry. Are you really willing to trust a few executives that "first mover disadvantage" outweighs "first mover advantage" in general?
Certainly not, but your critique here hinges primarily on guilt by association, some anecdotal evidence, and is countered by a great deal of empirical research on this particular topic, as highlighted in the Stavins post. (I would be equally unsatisfied with someone arguing for widespread government intervention in all sectors of the economy, on the simple basis of previous successes in developing, say, semi-conductor technology, or the internet/DARPA.) As such, I am really only interested in debating the merits specific to the issue at hand; namely, energy policy in the context of confronting climate change. So...

Do you really dispute that, since they are unlikely to capture the full benefits of their efforts, firms are reluctant to (unilaterally) invest in developing new technologies such as CCS? In other words, do you propose that – contrary to a raft of evidence – there is no knowledge externality? If we can agree that this is real issue and that it will hamstring private research then I ask you to consider some additional factors.

First, we are again confronted by the fundamental problem of trying to rectify a massive form of market failure. I’m not sure how familiar you are with the literature, but at best guess we require a host of innovation breakthroughs if we are to achieve something close to an optimal emissions path.[*] And that brings us to the specific form of subsidy under discussion here: R&D support. We are trying to confront innovation failure, not promote the special interests of specific energy companies. Importantly, we want information breakthroughs to be made available as widely as possible to leverage knowledge spillovers and further promote a move to a viable (low-carbon?) economy. Instead of being about blindly "picking winners", there are various ways to structure public R&D funding to make it as efficient as possible, including matching grants and innovation prizes.

Second (related to the first point), we want to achieve climate policy at least possible cost. This a primary focus of both Rob Stavins’ and my posts, as well as the numerous papers that he links to. For example, this Daron Acemoglu, Philippe Aghion et al paper... Which – if you don’t feel like reading through – you can read a decent summary of either here or here. More on the complementary role of R&D support, regulatory standards and energy prices here (JSTOR).

Finally, I just want to point out that you hardly need to be a "libertarian" to condemn the current biofuels policy as especially ill-conceived. You need only be open to the evidence presented by a multitude of both private and public institutions (regarding water consumption, poor net energy yield, etc). Indeed, I would suggest the some of the biggest critics of mandated biofuels policy come from what you would probably term "liberal" corners.

[*] Of course, notions of what constitutes an “optimal” emissions path is hotly debated in of itself, as I am sure you are aware. However, in the interest of space, I will leave that aside as a subject for another day.

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