Friday, May 11, 2007

Can Economics Take the Guilt out of Conspicuous Consumption?

Looking at the world through economic lenses can often take the emotional charge out of otherwise controversial decisions. Take the environmental consequences of gasoline consumption. Instead of feeling guilty about driving a big SUV or thinking ill of those who do, why not take the approach suggested by this Time magazine article on carbon budgeting?

What if everyone in the country received the same number of pollution credits regardless of whether they owned a car? The question of who gets to pollute is reduced to a matter of who is willing to incur the cost. And people who do not own cars or who seldom drive benefit from their ability to sell their credits to those who need or want them. The next time someone passed you in a Hummer, you'd know she paid a greener soul for the right to do it.

Discussion Questions

1. How would the pollution-credit scheme change the tradeoff between driving and alternative modes of transportation?

2. Harvard economist Greg Mankiw advocates a gasoline tax for a variety of reasons, including environmental considerations. How is a pollution-credit scheme different from enacting a stiffer tax on gas? How would government enforce pollution-credit usage? Which system would require fewer administrative costs?

3. Critics note that stiffer gasoline taxes would be regressive. That is, a relatively rich person with a gas-guzzling SUV would still devote a smaller share of his or her income to gas taxes than a poor person with a fuel-efficient compact. Would a pollution-credit system face similar concerns?

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  • At 3:57 PM, May 15, 2007, Blogger GruntyGinMan said…

    Hate to say it....but the underlying assumption in the blog entry seems to be that we can keep on trucking, and adjust gasoline consumption with pollution credits/taxes. Unfortunately, it is not nearly so simple or painless.

    Indeed, the article and blogger appear to be asking the wrong questions. The questions they should be asking are:

    (1) Why are POVs so popular in the United States? There are often multiple cars per household.

    Answer: Sprawl. The numbers of cars goes up with the sprawl, mostly because mass transit becomes increasingly difficult to practically implement. Carowners in urban areas, or areas where the mass transit is excellent, are far less likely to to use their vehicles if it's more convenient to ride a train/bus to work.

    So rather than directly attacking those that use cars, we should be attacking the underlying cause of our car culture. Easy-to-use mass transit should be more widespread, and ever stricter limitations in hoousing devolpement should be imposed.

    I'm not particularly expecting the Government or the country to impose these restrictions willingly, it will take something cataclysmic for the changes to seriously take place. After all, it took a world war and a massive influx of low-interest Federal homeowners loans to returning veterans to create our modern "car culture".

  • At 4:07 PM, May 15, 2007, Blogger William Chiu said…

    Potomacgeek makes a good point. The government should attack the underlying cause of gasoline consumption. However, mass transit and gasoline taxes are not mutually exclusive policies.

    If anything, a Pigovian tax on gasoline would reduce gasoline consumption in the short run and allow for revenue to increase mass transit in the long run. A Pigovian tax, as advocated by Mankiw and Pigou Club, would greatly reduce our addiction to oil.


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