I am a refrigerator
I am listening to Marketplace, and this episode links a compelling argument of regulation to service. It goes a little something like this: under a price-regulated market, competition falls not on price, but on non-price drivers, such as service. In the airline marketplace, fixed prices meant that the only thing airlines had to compete with one another with was on food, service, and internally, efficiencies.
It was the very wealthy, really, who flew. And the airlines actually competed based on their in-flight service and how luxurious they could actually make it.
In fact, that's the only way airlines could compete. Until 1978, the federal government strictly regulated air fares -- every airline had to charge the same amount for a given route. Unable to offer lower prices, they had to offer better service.
But when Congress deregulated the industry? ... everything changed. Airlines rushed to cut fares. And to make up for the lost revenue, they slowly cut back on the luxury.
-http://marketplace.publicradio.org/display/web/2010/07/05/pm-a-history-of-inflight-food/
This fundamentally flips market-based dogma on its head... sort of. You see, under our current paradigm, flying, like driving, is not a luxury, but a democratised good. Anyone, generally, rich or poor, can travel by air. Anyone, rich or poor, can (and usually must) commute by car. The problem is, both now suck for all involved. Cramped seats, security concerns, a lack of service, nickel-and-diming for baggage, the cattle-call seat arrangments; traffic, long commute times. The market-based approach says that prices will inevitably go down. The problem is, as prices go down, non-monetary quality also suffers, as we see. And sometimes, like in the case of cell phones, services and things become so ubiquitous that they increase, rather than decrease, our level of complexity (technology was supposed to simplify our lives).
In reality, this is exactly what the world of externalities predicts: costs may go down, but so do environmental and social quality. In a regulation vacuum, things rarely work out as intended. While the market may work, the foundations of the market (markets are founded upon society, which is founded upon environment... it's a holon all over again) are real issues that don't get met. The one-dimensionality of the market is a collapse in measurement. Do you need an example?
We live in three dimensions. I am approximately as tall as a refrigerator. If you measure just our height, I am practically indistinguishable from a refrigerator. Collapsing length and depth means you lose something: something very important (there are other dimensions lost, such as consciousness and other qualitative elements). Economy is one dimension of three. And when everything is market-driven, you lose the other dimensions (including consciousness and other qualitative elements). The only way a market includes these is if the foundations of the economy constrain it. That means that regulation (a social construct) or scarcity (an environmental limit) can constrain economy. Many times, regulation is intended to prevent scarcity.
This brings me to a conference call I had yesterday regarding carbon markets.
While on a conference call, there was talk about whether we should do a carbon market or a carbon tax. Each has their plusses and their minuses. But as I study this more and more, the reasons for the market-based approach are paling to the benefits tax approach. There are a couple of main reasons:
A market-based approach has the one-dimensionality that I talk about. Theoretically, the market can decide which polluters, in a carbon market, could/should mitigate their carbon. And that part isn't a huge problem. But would there be much difference under a tax scenario? If you're taxed 10$/tonne or if you let the market play out so now you are charged 2$, but later you'll be charged 25$/tonne. What do you do in each scenario? Common human psychology says that the tax is going to get more mitigation now. It also says that until the market changes, no one cares. Additionally, markets are easily manipulated by big players (monopsonies). So, if a coal-based utility retrofits their plants in one year, there is a flood of carbon credits out on the market, and they won't do it all at once because they'd shoot themselves in the foot for doing it now. Conversely, if taxes are 10$/tonne now and 25$/tonne later, the coal plants will do it now because they'd rather avoid the 15$/tonne charge later.
Additionally, playing to psychology--especially of business, which is risk-averse--a carbon tax is pre-defined. This means that the price isn't in flux or in question, so there is a lot less hand-wringing, decision making, and internal costs for each company to manage. There are a lot of benefits to the certainty, and business generally likes certainty. So, while I've seen a lot of gravity to market-based approaches, in this case, I think that a tax is indeed a better approach.
The call then led to other discussions, such as the notion of taxing 'bad' stuff and letting 'good' stuff be tax free. I like this notion, as I have for a long time. Think of this world: pollution industries are heavily taxed, which covers the costs of government, which is generally directly needed because of the social costs of the businesses. Personal income taxes are done away with; corporate income tax drops to a sustainable level. Government is less necessary, so small-government proponents are happy. Infrastructure is paid for by oil/energy taxes and/or non-locality taxes (tarriffs? The opposite of free trade, which externalises the social and environmental costs). As we need fewer and fewer trucks and as gasoline becomes more and more expensive, the noise and pollution of cars and trucks give way to bicycles; cities are redesigned to go local because there are drivers to do so... and people will care because it is more expensive to buy from China than from your proverbial back yard.
It was the very wealthy, really, who flew. And the airlines actually competed based on their in-flight service and how luxurious they could actually make it.
In fact, that's the only way airlines could compete. Until 1978, the federal government strictly regulated air fares -- every airline had to charge the same amount for a given route. Unable to offer lower prices, they had to offer better service.
But when Congress deregulated the industry? ... everything changed. Airlines rushed to cut fares. And to make up for the lost revenue, they slowly cut back on the luxury.
-http://marketplace.publicradio.org/display/web/2010/07/05/pm-a-history-of-inflight-food/
This fundamentally flips market-based dogma on its head... sort of. You see, under our current paradigm, flying, like driving, is not a luxury, but a democratised good. Anyone, generally, rich or poor, can travel by air. Anyone, rich or poor, can (and usually must) commute by car. The problem is, both now suck for all involved. Cramped seats, security concerns, a lack of service, nickel-and-diming for baggage, the cattle-call seat arrangments; traffic, long commute times. The market-based approach says that prices will inevitably go down. The problem is, as prices go down, non-monetary quality also suffers, as we see. And sometimes, like in the case of cell phones, services and things become so ubiquitous that they increase, rather than decrease, our level of complexity (technology was supposed to simplify our lives).
In reality, this is exactly what the world of externalities predicts: costs may go down, but so do environmental and social quality. In a regulation vacuum, things rarely work out as intended. While the market may work, the foundations of the market (markets are founded upon society, which is founded upon environment... it's a holon all over again) are real issues that don't get met. The one-dimensionality of the market is a collapse in measurement. Do you need an example?
We live in three dimensions. I am approximately as tall as a refrigerator. If you measure just our height, I am practically indistinguishable from a refrigerator. Collapsing length and depth means you lose something: something very important (there are other dimensions lost, such as consciousness and other qualitative elements). Economy is one dimension of three. And when everything is market-driven, you lose the other dimensions (including consciousness and other qualitative elements). The only way a market includes these is if the foundations of the economy constrain it. That means that regulation (a social construct) or scarcity (an environmental limit) can constrain economy. Many times, regulation is intended to prevent scarcity.
This brings me to a conference call I had yesterday regarding carbon markets.
While on a conference call, there was talk about whether we should do a carbon market or a carbon tax. Each has their plusses and their minuses. But as I study this more and more, the reasons for the market-based approach are paling to the benefits tax approach. There are a couple of main reasons:
A market-based approach has the one-dimensionality that I talk about. Theoretically, the market can decide which polluters, in a carbon market, could/should mitigate their carbon. And that part isn't a huge problem. But would there be much difference under a tax scenario? If you're taxed 10$/tonne or if you let the market play out so now you are charged 2$, but later you'll be charged 25$/tonne. What do you do in each scenario? Common human psychology says that the tax is going to get more mitigation now. It also says that until the market changes, no one cares. Additionally, markets are easily manipulated by big players (monopsonies). So, if a coal-based utility retrofits their plants in one year, there is a flood of carbon credits out on the market, and they won't do it all at once because they'd shoot themselves in the foot for doing it now. Conversely, if taxes are 10$/tonne now and 25$/tonne later, the coal plants will do it now because they'd rather avoid the 15$/tonne charge later.
Additionally, playing to psychology--especially of business, which is risk-averse--a carbon tax is pre-defined. This means that the price isn't in flux or in question, so there is a lot less hand-wringing, decision making, and internal costs for each company to manage. There are a lot of benefits to the certainty, and business generally likes certainty. So, while I've seen a lot of gravity to market-based approaches, in this case, I think that a tax is indeed a better approach.
The call then led to other discussions, such as the notion of taxing 'bad' stuff and letting 'good' stuff be tax free. I like this notion, as I have for a long time. Think of this world: pollution industries are heavily taxed, which covers the costs of government, which is generally directly needed because of the social costs of the businesses. Personal income taxes are done away with; corporate income tax drops to a sustainable level. Government is less necessary, so small-government proponents are happy. Infrastructure is paid for by oil/energy taxes and/or non-locality taxes (tarriffs? The opposite of free trade, which externalises the social and environmental costs). As we need fewer and fewer trucks and as gasoline becomes more and more expensive, the noise and pollution of cars and trucks give way to bicycles; cities are redesigned to go local because there are drivers to do so... and people will care because it is more expensive to buy from China than from your proverbial back yard.