How Can We Ensure That a Carbon Tax is a Generational Win-Win?

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A recent NBER working paper by a distinguished team of economists argues that a properly designed carbon tax can be a generational win-win. The team, led by Laurence Kotlikoff of Boston University, also includes Felix Kubler of the University of Zurich, Andrey Polbin of the Russian Presidential Academy of National Economy and Public Administration, Jeffrey D. Sachs of Columbia University, and Simon Scheidegger of the University of Lausanne.

By a generational win-win, Kotlikoff et al. mean a policy that would benefit not only future generations, who would reap the benefits of reduced warming, but also those of us who would begin paying the costs of mitigation now but would live to see only small, initial, climate improvements. The perception of a long lag between investments in climate mitigation and their full benefits has been a serious impediment to effective climate action. That is true both for democratic governments and for more authoritarian regimes, to the extent they are sensitive to public opinion. Although the paper discusses only carbon taxes, similar issues are raised by cap-and-trade, public investment, direct regulation, and other mitigation strategies.

The first section of this commentary outlines the Kotlikoff plan. The second section compares it to alternative strategies for dealing with the objection that climate action would pay off only in the distant future. The next section discusses whether the plan can properly be understood as an intergenerational “redistribution” in which the future “subsidizes” the present, as the authors contend. The concluding section examines the political realism of the plan.

Can We Put Everyone to Work? Four Ideas Compared.

Can we put everyone to work? In a way, it seems like an odd time to be asking the question. After all, the official unemployment rate is at a 50-year low and the U.S. economy has added jobs for a record 110 consecutive months.

Still, broader indexes show much greater labor market slack. Those indexes include some 4.4 million people who are working part time but would like to work full time, and an additional 4.4 million who say they want a job, but are neither working nor looking. What is more, the labor force participation rate, even for prime-age workers, is not yet back to its prerecession level and is even farther below the rates of the 1990s.

But how to do it? How to get more people to work – and better yet, at a living wage? In what follows I will discuss four proposals. The first two – guaranteed jobs, from the left, and work requirements, from the right – I view skeptically.  The other two are wage subsidies and basic income.  I see those as more promising, and more promising still if combined.

Carbon Pricing and Its Enemies

On December 4, I made a presentation to a student group on Carbon Pricing and Its Enemies. Here is a link to the slides for the presentation. Watch this space for a narrative version, hopefully available soon,

Can We Put Everyone to Work?

Temporary link to slideshow "Can We Put Everyone to Work," presented at Economic Club of Traverse City, MI, November 15, 2019.

A detailed narrative version of the presentation is now available at NiskanenCenter.com

Can Pete Buttigieg Save Democrats from the Medicare for All Trap?

The Democratic Party is at risk of falling into a trap on health care — a trap called “Medicare for All.” But at the Democrats’ October 15 debate for presidential candidates, Pete Buttigieg offered a plan that could allow a timely escape.

Buttigieg began by characterizing his plan, Medicare for All Who Want It (M4AWW), as one that “trusts you to make the right decision for your health care and for your family. Unlike the purist form of Medicare for All promoted by Warren and Bernie Sanders, Buttigieg maintained that his plan could be “delivered without an increase on the middle-class taxes.”

Warren replied, “So, let’s be clear. Whenever someone hears the term Medicare for All Who Want It, understand what that really means. It’s Medicare for all who can afford it,” clearly implying that M4AWW would leave some Americans still unable to afford the health care they need.

This attack on the Buttigieg plan misses the mark. Contrary to Warren’s claim, the approach taken by Buttigieg — and shared by several related reform proposals — would not, regardless of their income, leave out “the family whose child has been diagnosed with cancer” or “the person who’s just gotten an MS diagnosis.” It would instead protect everyone from ruinous medical bills, but do so in a way that avoids, as Buttigieg puts it, blowing a “giant multi-trillion-dollar hole” in the federal budget.

All this is easily understood by anyone who takes the time to see how Medicare for All Who Want It, and related proposals, actually work. Here are some of the plan’s key points.

What Can Welfare Experiments of the 1970s Tell Us About a UBI?

In a recent commentary, I examined what economic theory can tell us about the effects a universal basic income would have on work incentives. But theory alone is not enough. We need also to look at evidence. The following will review the evidence from a set of experiments that were conducted in the 1970s as part of an attempt to make antipoverty policies of that era more effective.

These welfare experiments — or income maintenance experiments (IMEs) as we should more properly call them — were true randomized field trials. Such trials are considered the gold standard for testing new medicines or new crop varieties, but they are used all too rarely for testing economic policies. (By way of exception, another set of welfare experiments were conducted in the 1990s in conjunction with the welfare reforms of the Clinton years.)

Critics often say that UBI supporters pay insufficient attention to the IMEs. As Bryan Caplan puts it, in a recent piece for at the Library of Economics and Liberty,

If I were an enthusiastic UBI advocate, I would know this experimental evidence forwards and backwards. Almost all of the advocates I’ve encountered, in contrast, have little interest in numbers or past experience. What excites them is the “One Ring to Rule Them All” logic of the idea: “We get rid of everything else, and replace it with an elegant, gift-wrapped UBI.” For a policy salesman, this evasive approach makes sense: Slogans sell; numbers and history don’t. For a policy analyst, however, this evasive approach is negligence itself. If you scrutinize your policy ideas less cautiously than you read Amazon reviews for your next television, something is very wrong.

Writing on the Heritage Foundation website, Robert Rector and Mimi Teixeira echo Caplan’s sentiments. They point to the IMEs of the 1970s to support their view that a UBI would harm recipients and increase dependence on government. Their conclusion:

Universal basic income policy is an idea with a record of failure; policymakers seeking to reform the welfare state should focus instead on policies proven to work.

But are those really the lessons of the IMEs?

Would a UBI Reduce Work Incentives? Some Answers from Econ 101

More than half of all U.S. college students take a basic economics course. A lot of them hate it. The course is full of graphs and charts. That would be bad enough, but what makes it worse is that the graphs in a typical Econ 101 textbook are about boring stuff — whether a farmer should grow beans or peas, whether a student should eat pizza or burritos for lunch. Who cares?

But, what if we put those Econ 101 tools to work on something we do care about — something like a Universal Basic Income? Then things could get interesting. Read on to see how we can use some basic econ graphs to answer one of the most frequently asked questions about basic income: Would a UBI reduce work incentives?

How our welfare system kills work incentives

We can begin by showing how our current welfare system kills work incentives. Welfare as we know it is based on means testing. The concept of means testing, as applied to programs like SNAP, TANF, and Medicaid, is that if you are really poor, the government gives you benefits, but if you try to work and get ahead on your own, the government takes your benefits away. Not surprisingly, that is not the way to encourage work.

Rather than go through the incentive effects of existing programs one by one (I’ve done that elsewhere), this post will keep things simple by looking at a generic means-tested income support (MTIS) policy.