Comments on: Alan Greenspan is Very Overrated: Part I, Energy

By: Ronald

Ronald — Wed, 19 Sep 2007 13:37:22 +0000

I remember reading that there are 2 kinds of economists, those that believe markets work when they don’t and those that believe that markets don’t work when they do. Economics only teaches people how to count things, not to understand the value of things, which they will admit. A person has to go outside economics for morals, ethics, values, etc. To apply those things to markets means to go outside economics for the values needed for a society to value things other than money.

That he would now say that we should have a 3 dollar per gallon of gasoline, I first thought, was incredible. But after thinking about it, he was in a position where he had to keep respect for the office that the held. Wading into energy arguments would have distracted him from his main job as the interest rate man.

At least he has come out now to say what he has. Lets hope that some of main stream media picks it up, although I have not heard it yet.

By: John

John — Wed, 19 Sep 2007 15:06:16 +0000

In 2004, a gallon of gasoline cost about $1.20. It hit $3.20 earlier this year, and no doubt it will again (and then some). So in effect, we’ve already seen a $2.00 “tax” on gas. The effect on driving and consumption was negligible.

Neoclassical economists prefer a Pigouvian tax because they believe it is the least intrusive means of intervening in markets. Problem is, they don’t work — at least not at any level that is politically feasible.

But then, reality has never been high on economist’s agenda.

By: Earl Killian

Earl Killian — Wed, 19 Sep 2007 18:01:32 +0000

One major justification for government is to help markets see the true costs of things when there is market failure. (Every Economics text talks about such things, often called “externalities”–there is no question that markets have problems that must be corrected if markets are to give good results.) In that sense, a tax is often preferable to a mandate because it more directly reflects the underlying externalities. A mandate may be appropriate however when the amount of the tax is uncertain, which is probably the case with gasoline. Given the uncertainties, either government would constantly need to adjust the tax to bring greenhouse emissions to zero on some sane timescale, or it would use a different mechanism. Given the downsides to failure, I think different mechanisms are called for with global warming externalities. Perhaps in 1990 a tax would have worked, but we don’t have the luxury for that now, given the urgency of the problem. So I disagree with Greenspan here. Similarly, CAFE standards are less certain than a cap-auction-rebate system. Imagine carmakers having to buy at auction greenhouse gas emission rights for the expected lifetime of any vehicle they produce (e.g. 10+ years). Emissions are capped and decline each year. The auction fees are divided equally by car buyers in any given year as a rebate, making this revenue neutral. This is superior to CAFE standards, because (1) the effect is more certain (because of the cap), and (2) buyers of gross emitters pay more up front for their vehicle choice, whereas buyers of efficient vehicles get a rebate, encouraging the right choice.

By: Addie Blissard

Addie Blissard — Wed, 19 Sep 2007 18:29:33 +0000

Greenspan , never was for anybody but himself.

By: Shannon Moore

Shannon Moore — Wed, 19 Sep 2007 20:23:01 +0000

Thanks for the link!

When I saw Greenspan on the Daily Show last night, I was impressed by his gravity and his ability to explain complicated concepts in a simple way. But his positions on carbon taxation and on fuel economy standards show that intelligence can easily be overruled by loyalties.