Yesterday I talked about the strange system we have for converting large quantities of natural resources into small quantities of amusement. Today, a solution!
OK, not really. I don’t think anyone has a solution, or rather I don’t think anyone knows they have a solution (using ‘know’ to indicate fact, rather than internal certainty). But as this is partially a result of the free market, it only seems fair to let the market have a crack at solving it. A good start would be a tax on pollution, which would affect extractive industries among others. Now I’d support this on general environmental grounds, but putting that argument aside there are real costs involved in pollution that are currently paid by society rather than by the people causing those costs.
So how does that solve the problem? Well it doesn’t, it just changes the problem. Assuming that China levies this tax directly, but lowers other taxes to compensate, it pushes manufacturers to save a little on raw materials, perhaps by employing more people to control waste. If China doesn’t enact the tax but the importing countries do (which I’d guess is less likely) then we have a direct incentive not to consume so much, and China is still pushed to use fewer resources. Either way the stupidity of the current system is tempered, without forcing a negative impact on the average worker.
2 Comments
Isn’t this just VAT i.e. a consumption tax? A couple of real problems with this sort of tax:
1) how in the world do you calculate the “full cost” from which to base the tax rate? I think this is called an “externality” in economics and it’s the devil in the details of all these types of proposals. We can guess at some of the costs e.g. cleanup, tree-planting, but others such as “what is the cost to the ozone?” wow, I wouldn’t know where to start!
2) if it’s a tax, what will the revenues be spent on? Cleanup? If we’re just shifting the costs of cleanup to the taxpayer, then you’ve created a moral hazard similar to a “bailout” of subprime mortgage lenders i.e. if someone’s going to take on your risk, you tend to take riskier actions as a consequence. I think consumers would find it pretty intolerable to pay twice for the toy helicopter (once for the purchase which includes the externalities factored in and the second time for the manufacturer’s cleanup costs). Still, that might be your point — make it intolerable and thereby squash demand.
Well I guess it’s a consumption tax, but at the point of initial consumption, not on the ultimate consumer. But to address the concerns you raise:
1. Doesn’t matter. It’s not a tax to try to compensate specifically for any harms, it’s just a recognition that some things are bad, and should be discouraged. Taxes are raised to fund projects and to discourage behavior; this is one of the latter.
2. Ditto! Once the revenue is raised it doesn’t matter what it’s used for, that’s why I mentioned it could be used to offset other taxes. Obviously I’d like for it to be spent constructively, but that’s a separate issue.
So the idea isn’t to squash demand, it’s just to put up barriers that should exist in a more informed market. That’s because there’s nothing inherently wrong with the trade I’ve described, except for the resources it uses up. If a way can be found to cut that resource use then that’s fine.