ECO 481:Public Choice Theory

Lecture #10:Lecture #10:Coercive Coercive

RedistributionRedistributionEnvironmental Environmental

GoodsGoods

Dr. Dennis Foster

Why is their caring?Why is their caring? • We expect wealthier to pursue rent-

seeking.

• We have a strong altruistic streak.

• Especially for those close to us.

• We give a lot . . . to civic organizations.

• Are we just bribing the poor? [Does it even work?]

I. Coercive RedistributionI. Coercive Redistribution

Support for WelfareSupport for Welfare

• From bureaucrats.

• From private suppliers of transfer goods.

• From “intellectuals.”

• From politicians – the New Deal & Great Society

• Complicated programs that garner votes.

What is the solution?What is the solution? • Economic growth!

• Capitalists denigrated “An ideology of equality and entitlement borne of desperate conditions has now taken such hold that even able supporters of effective capitalistic institutions are placed on the defensive.”

• Keep a low profile!

EqualityEquality

• 53% get some direct benefits (mostly feds).

• Doesn’t include “public goods!”

• Leaky bucket of federal redistribution.

• Est. 66% - 75% doesn’t go to beneficiary.

• Esp. $7800 > claimed amt. needed.

• It’s easy being “politically generous.”So, why doesn’t that “cure” poverty.

Politics & RedistributionPolitics & Redistribution • Must form coalitions.

• Results in a lot of unintended indirect transfers.

• Includes monetary & fiscal policies.

• Distribution can go sideways or up!

“Whenever vast new government programs come into being the consequences are apt

to be widespread, consequential, and somewhat unpredictable.”

Politics & RedistributionPolitics & Redistribution • Generally from poorly organized to well

organized.

• It’s not about the poor!

• Does “social justice” meananything other than, “More forme and less for you?”

• We bias results against what a market would do.

“State redistribution is not morally superior tothat of markets or private charity.”

The Demand for The Demand for AmenitiesAmenities

• Growth in environmental “awareness” inthe U.S. in the 1980s.

• A direct outgrowth of capitalism and rising living standards.--How do we make LDCs environmentally friendly???

• Government actions: illusory, costly (>benefits) & worsening.

II. Environmental GoodsII. Environmental Goods

Optimal level of pollutionOptimal level of pollution

• Market - overproduces.

• Not on purpose!

• Reaching efficiency:--Tax = 0T--Mandate = E-s

• Both can/are likely to be inefficient!

Quantity of pollution

$

MC-aMC-p

E-s

$

E-m

T

0

Environmental problems must be understood more as failures by gov’t to specify property rights than as offshoots of private profit-seeking.

Inefficient OutcomesInefficient Outcomes• Coal & the Clean Air Act (1970, 1977, 1990)

• Choices: scrubbers, washing, use low-SO2 coal.

• Mandate on scrubbers benefits . . .

• 1990 introduced permit trading.Did EPA get estimated costs right?Did vested industry get it right?

Doesn’t anybody read Hayek?

Selling Pollution RightsSelling Pollution RightsGoal: Goal: Reduce Pollution by 3 UnitsReduce Pollution by 3 Units

How? Cost? Price of permits? Issue 2 each?

Cost to reduce

by:

Firm X

Firm Y Firm Z

1st unit $50 $70 $800

2nd unit $75 $130 $1000

3rd unit $100 $200 $2000

Property RightsProperty Rights

• Coase – As long as transaction costs are low.

• Not a market problem--Airspace.--Fish.--Endangered species.--Wild species.

• GroupOn and solving the free rider problem.

ElephantsElephants& Property Rights& Property Rights

• Elephants in Africa1970s - 1.2 million1980s - 600,000

1970s 2000Zimbabwe 30,000 70,000Botswana 20,000 68,000

Kenya 140,000 16,000Tanzania 250,000 61,000Uganda 20,000 1,600

With property rights

Without prop. rts.

LimitationsLimitations• Transactions costs must be low.

• Assignment of rights will be contentious.

• What is optimal level of pollution?

• It is not a scientific question!!

• Who will set the tax? Who will be exempt?

• Do we really want to treat symptoms rather than the source?

Information and incentive problems are well-handled by the market and are “at the heart of

government mismanagement.”

What about global warmingwarming?• What are we talking about?• What is the basis for the alarm?• Do the alarmists have a good track record?• Why is the debate over if conclusions are

model-driven?• What is the criteria for being wrong?• What’s wrong with the McKitrick tax?

ECO 481:Public Choice Theory

Lecture #10:Lecture #10:Coercive Coercive

RedistributionRedistributionEnvironmental Environmental

GoodsGoods

Dr. Dennis Foster