The issue of Newsweek currently in my bathroom concludes with the usual nugget of pungent wisdom from George Will, this one titled Bootleggers’ Delights. The topic is unintended consequences of government regulation, in this case the stimulus bill and the enrichment opportunities it offers to attentive and focused bad actors.
To illustrate his point Will talks about acid rain. Referencing work from economist Russell Roberts that I have not read, he writes that
[i]n the 1970s … sulfur dioxide emitted by Midwestern power plants caused acid rain to fall on the Northeast. Encouraged by environmentalists, the public demanded cleaner air. The most efficient way to get less of something is to make it more expensive, so the obvious solution was to tax smokestack emissions. “But Congress didn’t impose a tax,” Roberts says, “it imposed a technology.”
Cue creepy music for the unintended consequence fade:
It required extremely expensive scrubbers on every utility’s smokestacks, the costs of which were passed on to consumers of electricity. The air became cleaner, and scrubber manufacturers, who joined environmentalists in lobbying for the requirement, became richer.
But wait: it wasn’t just the scrubber peddlers who got rich farming overfertilized government soil.
But the biggest bootleggers were West Virginia coal companies. A tax would have been an efficient incentive to burn the cleanest coal, much of which comes from the West. By pushing the requirement that utilities use scrubbers, Senator Robert Byrd of West Virginia was able to preserve the market for West Virginia’s dirtier—high sulfur—coal. Hence, says Roberts, improved air quality was purchased at an unnecessarily high price.
So here’s how ideology works. Will argues that the way to get less of something is to make it more expensive. He then complains that the scrubbers were extremely expensive. Why doesn’t this way of making pollution expensive count? Well, maybe because this cost was passed on to consumers. And the cost of a smokestack tax wouldn’t have been?
But apparently only a tax will do. Because you see, unlike the threat of mandated expensive scrubbers, a tax would have been incentive to burn cleaner coal! Which comes from the West, home of notoriously ineffective legislators — easy pickins for feckless environmentalists and that old sharpie Robert Byrd. And was apparently not attractive enough to the electrical industry just on the basis of it not destroying the environment.
Given an ideology of free markets, small government and regulatory parsimony a tax is, for sure, the obvious choice. Assuming, of course, that you can precisely calibrate for all bad actors in all market fractions for all market conditions exactly the price point where paying extra for clean coal makes sense but passing on that extra cost to consumers doesn’t. And assuming that burning clean coal without scrubbers would actually solve the problem, and that this changeover would happen universally and immediately enough to avoid critical tipping points of environmental degradation. And assuming we’ve got something else for all those West Virginia coal miners to do, and that there’s enough of the clean coal to make the dirty coal superfluous (until later, when dirty coal is all there is and we’ll need scrubbers anyway). Not to mention how attractively cheap dirty coal would get when its market fell out.
And what were the nefarious consequences of the bad scrubber regulation? Immediately and certainly cleaner air. Employment and profit for the scrubber industry. Continued livelihood for West Virginia coal miners at no one’s expense. Higher prices for electricity that would have happened with a tax too. Energy sourcing flexibility for the electric industry. Some foregone tax revenue that would likely not have covered the remedy cost of further pollution. A win for environmental groups. And incrementally bigger, more powerful and intrusive government.
A mixed bag, I’d say, but with ideology premises become conclusions without too much disturbance from mixed evidence.