Here is another incoherent piece on the Cliven Bundy’s case, this time, by Krugman.

1. Let’s indeed “start with the narrow issue of land use.” Why is the land owned by the government? Why the socialism? For “historical” reasons, the government of the Soviet Union owned all the means to production. Unless Krugman is still a commie, he should agree that this was bad. And it’s not this way anymore. Socialist “history” and traditionalist “the way it’s always been” in and of themselves are no arguments against a capitalist reform.

2. Krugman insists that Bundy was stealing from the federal government. And therefore, he is no “libertarian hero.” But no so fast. Bundy said: “I don’t recognize the United States government as even existing.” Libertarians do recognize that it exists as a definite organization, but only as a vicious gang of thieves and murderers who cannot — by reasons of their inherent criminality — legitimately own anything. Both Bundy and sufficiently radical libertarians come to the same conclusion — though for their slightly different reasons — namely, that Bundy owed nothing to the state.

3. Krugman further uses bad rhetoric. Failure to impose taxes or user fees does not constitute a subsidy. A subsidy is taking from Peter and giving to Paul, in which case it is a subsidy to Paul; failing to tax Peter is not a subsidy to Peter.

It is possible to use the term “subsidy” in the way Krugman does responsibly. Let a certain community be composed of 5 people, A, B, C, D, and E. The government taxes A – D and produces a definite public good X, yet fails to tax E who enjoys X (which by definition of “public” is non-excludable) for free. We can say that the government then subsidizes E, because if E, too, was taxed, then the tax burden on A – D would be reduced. But this scenario does not apply to the Bundy’s situation. In general, whenever the IRS finds a new victim to tax, it does not ipso facto reduce taxes on everyone else.

4. Krugman warns us darkly about externalities, as though any libertarian has not thoroughly grasped the problem. And here I was under the impression that he was still talking about Bundy. Which negative externalities did Bundy create? In his zeal to make an unrelated economic point, Krugman forgets all about him.

5. Suppose for the sake of argument that the government does have a role in controlling the externalities and that Bundy imposed costs on his fellow men. A libertarian could still object that in his case the government has gone too far. The marginal benefit of the smaller negative externality in Bundy’s case (whatever it may be; again, Krugman does not tell us) is dwarfed by the marginal cost to the private economy. To say that “the government can solve an externality” says nothing about whether a particular externality is at any moment being solved by the party presently in power correctly.

For example, a politician who runs for office promising to tax air polluters has not invented a wonderful new technology to produce the same amount of goods yet pollute less in so doing. The tax will discourage both pollution and production, and the presumed problem is to find an optimal point at which further reduction in pollution is not justified by reduction in material prosperity. The politician, then, is taking a side in an unpleasant choice. This choice is not made by each consumer for himself but by the people collectively or by the organization that manages the air commons, such as the government. However the decision is made, almost everyone will be disappointed: some people would have preferred more production than was ultimately decided; others, less pollution. Moreover, the market responds to changing preferences in real time, daily; opportunities to change the rate of the tax come far less often.

6. Krugman imagines the government as a convenient tool to nudge society to the greatest good for the greatest number, whenever absolute property rights have failed — through their invisible hand and all that — to yield the best possible result. Government is an ever-watchful presence in the market, penetrating deep into every human action to detect negative externalities and to neutralize them.

Of course, in the first place, this instantly does away with the very concept of freedom. For every human action will have to be screened for externalities and either permitted or checked by the authorities. The government will allow the market to operate only if it yields results that the externalities-watching bureaucrats approve of. Every innovation, every deviation from the already approved routine, no matter how small, will then be stalled in its last phase until it is formally approved by the Externalities Bureau. Life for every individual on the planet will come to resemble the miserable existence of drug companies under the rule of the US Food and Drug Administration.

(Here is a headline on the FDA’s website: FDA proposes to extend its tobacco authority to additional tobacco products, including e-cigarettes. What a surprise. Has the FDA ever proposed to withdraw its authority from anything? I didn’t think so.)

For this reason, most externalities are resolved according to the “live and let live” principle (hat tip to Walter Block for introducing me to it). For example, human breathing may contribute to climate change. Making all the assumptions in favor of the dangers of climate change, even Krugman should admit that having the government suffocate everyone is not a solution. Thus, each person can be said to enter into a “social contract” with everyone else, permitting them to “pollute” in order himself to receive the same right.

There are more problems. When the purpose of taxation is for the government to raise revenue, there is at final accounting a point of diminishing returns a la the Laffer curve. Tax rates beyond this point actually decrease revenues. But if taxing is meant to discourage a harmful activity, then there is no such equilibrium. An ambitious and fanatical bureaucrat can decide that no pollution at all is best. But every industrial process emits waste or contributes to climate change. The power to tax polluters is the power to destroy the economy, if the government chooses to set the maximum allowed pollution to zero. Further, we cannot give the government the power to regulate every company in the realm under pretext of pollution control. The government in conspiracy with big business can cartelize an industry, all the while publicly claiming that they are saving us from pollution. But what can we do? As long as air is owned in common, there will be neither justice in society nor peace. The market is not at fault; the absence of the market is.

Then there is the calculation problem. How can the government find out the “social costs” of “pesticides that contaminate the water supply, or antibiotics that speed the evolution of drug-resistant microbes”? Krugman is right that solutions based on “cap-and-trade or emissions taxes rather than rigid rules” have been proposed. The former are instances of market socialism; the latter, of using the tax system to discourage harmful behavior. However, one can engage in economic calculation of costs and benefits, profits and losses only within the market. There is no such thing as “environmental economics,” only environmental politics, precisely because one cannot calculate the “social costs” or social benefits and “correct the divergence between private costs and social costs,” as John Cassidy proposes. One cannot economize, when he cannot quantify benefits and costs. It is no surprise that “there remains little consensus on how far to restrict future greenhouse gas emissions, or — and this comes to the same thing — how high to set the carbon tax.” Any such decision is going to be arbitrary from the market point of view.

In addition, there is the issue of the market process. The market moves at the speed of business; the government moves at the speed of a snail. A given law may right now seem to improve an outcome regarding the externality. But should the market conditions change with economic progress, the law may no longer apply. Yet repealing it would likely be a monumental endeavor. In my book, I take on Steven Landsburg’s case for subsidizing anti-theft devices called LowJacks and argue against it as follows:

Second, let LoJacks be subsidized; perhaps the government pays some of the costs of their production. We may imagine the story unfold somewhere along the following lines. LoJack exists for a while and becomes an established company on the free market. At some point the government notices the positive externalities of this product and legislates a subsidy in order to spread these externalities far and wide. Suppose a new entrepreneur, Smith, invents an improvement to the LoJack, call it 0Jack. How is Smith supposed to compete with LoJacks, given the subsidy? Despite their higher quality and comparable to LoJacks cost to the consumer as it would be in the free market, the subsidy makes 0Jacks too pricey. As a result, Smith’s company never gets started in the first place, which deprives the public of an important innovation. For no entrepreneur embarks upon a business venture and begins to manufacture a product, the indispensable condition for whose success is first to change government policy, in particular, to convince the bureaucrats in change of taxing and subsidizing things to withdraw the subsidy from LoJacks and extend it to 0Jacks. Business does not work this way.

Last point: most if not all externalities are local occurring especially in cities between neighbors. I will concede that if an externality is serious enough and cannot negotiated away in a Coasean manner, then the city government can step in. The feds, including in Bundy’s case, however, have zero use in externalities control.

If government is some sort of a “tool,” then it’s an extremely crude and primitive one. To be skeptical about this “tool’s” utility is the opposite of anti-intellectualism.


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