Thursday, July 2, 2009

Cap the crap

Cap and Trade is a simple concept. You cap the amount of x that you want to limit. Then, in order to allow the economy some leeway to deal with the problem, you allow companies to exceed the limit by purchasing an exception from another company that is falling below the limit. Now, it's important to understand this this plan is itself a compromise. You could simply tax the x or ban it, and be done with it. Instead, cap and trade allows variation in order to help businesses survive.

Now, since it's already a compromise, any added conditions must be to help particular businesses. This is called lobbying or interest group influence. The more of it you have, the less well the original plan will work. Of course, you can tighten the exceptions later, or, as well, continue to loosen them. In any case, you've damaged the simplicity and effectiveness of the plan by fiddling with it.

I have two reactions to this. My Milton Friedman response is that, by allowing interest groups to alter the plan, you've irreparably harmed it. It will turn out to be hellish tightening the plan in the future. My Edmund Burke response is to pass it, and get set for a long drawn out battle to tighten the plan.

But there's another Edmund Burke response. You can stand firm on Cap and Trade, and compromise on other things. If the health of the planet is truly at stake, than either this Edmund Burke response or the Milton Friedman response should win out.

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