Economists often fall victim to the naive view that government technocrats can measure the external costs or benefits of an activity accurately. Having performed the necessary calculations, the idea is that optimal taxes or subsidies can be promulgated through the political process and applied to an activity in order to correct or “internalize” these kinds of social effluents. In their focus on private market failure, many economists fail to appreciate the extent to which governments usually “fail” in these and many other efforts. At best, one might hope that such intrusions are directionally correct, but even that is fraught with risk.
A particularly good example involves the presumed social costs of carbon emissions. Carbon tax proposals are very much in vogue, but they are not without controversy. The well-meaning assertions of climate alarmists rely on rather fatuous claims about anthropomorphic warming and an overly broad and unwise application of the precautionary principle. There is a vocal minority of climate researchers who do not believe we have sufficient knowledge about climate sensitivities to make judgements about the true social costs and even some likely benefits of a warmer climate, should that be an ultimate consequence. Moreover, accurately measuring the presumed costs is out of the question. Meanwhile, carbon taxes impose costly burdens in the here and now that are difficult to justify.
This response to Irwin Selzer on carbon taxes is worth reading (with a link to Selzer’s article).
Here is a review and further links regarding the disastrous Australian carbon tax.
And here is Robert Murphy on carbon taxes, in which he discusses some prominent estimates of costs and benefits which show the sometimes enormous danger of setting non-optimal carbon taxes (granting the conceit that an optimal tax is positive).
FYI, the unfortunate Julia in the cartoon above refers to Julia Gillard, the former PM of Australia who pushed for the country’s ill-fated carbon tax.