Thursday, June 07, 2007

Kinder, Gentler Catastrophes

Catastrophes present genuine conundrums for politicians. Here area few thoughts on this topic as it relates to tax policy and economic wellbeing.

There are different kinds of catastrophes. Those causing immediate disasters, like tornadoes, hurricanes, or floods, cause people immediate harm, and no one really favors that -- at least I hope not. But they also generate demand for government services, which can present a nearly irresistable opportunity for demogoguery. We still see this in the aftermath of Katrina nearly two years later. But such demogoguery is risky, as at some point people might evaluate whether that "caring" you manifested actually translated into some help. This kind of catastrophe is not only undesirable from the perspective of human suffering, but also from the perspective of easy political gain. Unless you can deliver, this can be risky.

Another kind of catastrophe is a kinder, gentler sort. It merely looms on the horizon, hopefully the long-term horizon. That way, the consequences won't be felt during your term of office; it will be another guy's problem. Hopefully the catastrophe may not even happen at all. But in the meantime, the looming catastrophe can be quite useful. It can distract the people from other more immediate problems (which might otherwise invite criticism and poor approval ratings if we thought about how poorly our government is doing in its basic functions). Moreover, given the long-term horizon, you can spend a lot of time doing what politicians do best -- just talking, instead of doing anything.

People's attention must be captured, however, as there are a lot of competing voices out there. For this purpose, fear is indispensible, as it makes some folks more willingly do what the government wants them to do. For example, people may not willingly and joyfully part with more of their earnings for just any reason. However, if you can tie a tax increase to averting something people fear or find undesirable, they will consent more readily. But of course, once the benefit is extracted, you need not use it to solve the long-term problem. (Witness, for example, the preferred response to Social Security deficits -- raise taxes and then spend freely on other things.)

Global warming may present an ideal catastrophe from this perspective. If it is happening, it will not impact us significantly until the future. If there is something to be done about it, it is far from clear what will be effective. And it is something that people care about enough to talk about, and they may even go so far as to make symbolic gestures about it. But the real test will come when politicians call for action, like raising your taxes or making economic development more expensive, under the guise of addressing this future catastrophe.

A story today in Canada includes comments from a Green Party spokesman that higher gasoline taxes are necessary to reduce usage and CO2 emissions from Canadian drivers. The tax is only 12 cents per litre. I don't know if this will make a significant impact on CO2 emissions, but I would guess that though it may cause people to stop contributing to the Green Party. The Green Party spokesman also promises: "We will use those additional carbon taxes to reduce taxes elsewhere." Yeah, right. Here is the story:

If you buy this, see your doctor and ask for a healthy dose of skepticism. Resist hysteria about global warming. (Has President Bush seen his physician lately?)


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