The visible hand in economics

Reply: Climate change: the heresy of pragmatism

Posted on: July 28, 2008

Idiot/Savant disputed our claim that market mechanisms are the best way to fight climate change on pragmatic grounds – namely stating that a regulatory solution that works would be better than a “market-based” solution that does nothing. Now I don’t disagree with this – however, I do think that I/S heavily mis-represented both our claim, and our initial criticism of what he said.

As comments are disabled on I/S’s blog No Right Turn, I have to reply by way of a blog post 🙂

In this post, I/S makes a number of claims I would like to dispute:

  1. We accuse I/S of anti-market bias for considering regulation,
  2. We state that a market mechanism is always superior to regulation,
  3. The argument is whether regulation is better than nothing – not better than the ETS,

Now it is best to answer these claims backwards – lets start with 3:

The argument is whether regulation is better than nothing.

Actually, my criticism was on the language that was used to discuss climate change issues, language that consistently attacked the idea of a market mechanism, eg

What’s important is that we reduce emissions now, not whether our chosen policy is perfect and cleaves to neo-liberal orthodoxy.

When I questioned this quote I was not criticising the issue that we have to cut emissions now, I was criticising the unnecessary dig on “neo-liberal” thought – namely the use of a market mechanism to deal with climate change.

The purpose of my post was to defend the idea of a market mechanism for climate change in the face of the consistent attacks it faced in the I/S series of climate change posts (*) (*).

As a result, the question I was answering was “Why are we using market mechanisms to fight climate change” just as I titled the post – and the reason I asked this question was so I could provide a response to the ideologically based attacks on market methods in I/S posts.

Now this position is not too far removed from I/S’s actual position that was painted out in this comment (*) – and so I accept that in terms of normative climate change recommendations we would think very similar things. However, I’m not sure that a Naomi Klein style attack on some “neo-liberal/neo-conservative” conspiracy actually serves any purpose here (if it ever really does 😉 ).

But you say that market mechanisms are always better than regulation

I recall that I wrote:

I completely agree that there are times when “banning” will provide a superior outcome than trying to set a price. However, these times have to be carefully defined – they are times when the imposition of the social cost (including the fiscal cost of running the scheme!) associated with the activity would stop the market existing, and when the cost of enforcing a ban is cheaper than the cost of running a non-existent market.

I think that this quote more than illustrates that the claim was false.

But you did accuse I/S of anti-market bias

Yes. And what I have said over the last two questions illustrates what I meant by this.

If I/S believes that regulation will be politically easier to implement and will give us similar solutions then that is fine – this is a defensible position which I would have great sympathy with. However, it is a position he should be able to make without making ideological claims about market mechanisms – which he has been doing consistently.

I also don’t understand why I/S becomes annoyed when we defend the idea of a market mechanism. I realise that the political process may not let it occur – however, what is wrong with people describing what they think would be the best solution. If we didn’t say what we believed would be the best solution, who would ever fight to make it a reality?

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5 Responses to "Reply: Climate change: the heresy of pragmatism"

Transport of the mails, transport of the human voice, transport of flickering pictures–in this century as in others our highest accomplishments still have the single aim of bringing men together.AntoinedeSaint-Exup%E9ryAntoine de Saint-Exup?ry

Is “implement a flawed solution now rather than wait for a better policy” really a position that I/S would embrace if the topic was anything other than climate change? The gnashing of teeth is particularly hard to understand because – since we are already a Kyoto signatory – our actual choice of policy has no environmental impact. We’re just debating how to minimize the cost (and who bears it).

Rushing regulatory approaches through seems especially counter-productive in this case because when we introduce the market-based scheme it would become welfare-enhancing to “unregulate” again.

Finally, I can’t say I’m convinced that a bias towards market-solutions is the main reason that climate change policy keeps being delayed. I suspect delays can be traced to the fact that climate change policy has always been unpopular with sectors or groups that will be big losers. For that reason I doubt that a regulatory-based approach would have achieved results any sooner.

The plain fact is that I am not a fair man and don’t want to hear both sides.HenryLouisMenckenHenry Louis Mencken

The sickness of our times for me has been just this damn thing that everything has been getting smaller and smaller and less and less important, that the romantic spirit has dried up, that there is no shame today. We’re all getting so mean and small and petty and ridiculous, and we all live under the threat of extermination.NormanMailerNorman Mailer

“We’re just debating how to minimize the cost (and who bears it).”

I 100% agree with you here.

“I suspect delays can be traced to the fact that climate change policy has always been unpopular with sectors or groups that will be big losers.”


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