Cap and Trade vs a Carbon Tax...

Gregory Mankiw had a great article in the New York Times this weekend on Climate Change and the proposed Cap and Trade program that is making its way through congress -- you can read it yourself, here.

Whether you are a believer in global warming or not (and the commission knows that some of you are not convinced), this article does a good job of highlighting the differences in the Cap and Trade program that President Obama campaigned on, and the one proposed by Congress.

Basic economics teaches us that if we want to actively reduce the carbon emitted as part of economic activity a Carbon Tax would be the most effective way to do so. Even those who do not believe in global warming would agree. The higher cost of releasing carbon as a byproduct of production would drive increasing efficiency and the search for new methods of production that did not reduce carbon. At the same time, prices for those products would increase. The revenue from the Carbon tax would be used to offset these higher prices through tax reductions.

Despite the fact that it would be the most efficient, a Carbon Tax is not politically viable. That leaves Cap and Trade. What Mr. Mankiw points out so effectively in his piece is that the Cap and Trade legislation is substantially less efficient than that proposed by President Obama when he was running.

The numbers involved are not trivial. From Congressional Budget Office estimates, one can calculate that if all the allowances were auctioned, the government could raise $989 billion in proceeds over 10 years. But in the bill as written, the auction proceeds are only $276 billion.

The issue is by lowering the proceeds to $276 billion -- that reduces the possible taxes to be offset -- which will mean higher prices in the rest of the economy.

As Mr. Mankiw explains:

The hard question is whether, on net, such a policy is good or bad. Here you can find policy wonks on both sides. To those who view climate change as an impending catastrophe and the distorting effects of the tax system as a mere annoyance, an imperfect bill is better than none at all. To those not fully convinced of the enormity of global warming but deeply worried about the adverse effects of high current and prospective tax rates, the bill is a step in the wrong direction.

The Commission feels that if we are going to try and do something about global warming, we should do it in the most efficient way possible. Unfortunately, Congress is hardly the place to go for efficiency...

Shattering myths about the Subprime crisis...

John Carney at The Business Insider republishes an essay by Fed economist Yuliya Demyanykon on 10 Myths About the Subprime Crisis. This is absolutely worth reading!

Among the myths that Ms. Demyanykon busts are the belief that Subprime loans went only to borrowers with impaired credit, and that subprime borrowers were offered low"teaser rates."

Mr. Carney correctly points out that this is a good "reminder that many of the popular explanations for our mess are way too simple," but he seems to have missed the part that the 108Warren Commission finds so troubling. A significant portion of the new regulatory framework that is being debated on Capital Hill is based on exactly these same myths.

When we legislate and regulate based on an inaccurate understanding of what happened, how can we even hope that this legislation or regulation will do any good?

Knee-jerk legislation and regulation is very dangerous...

Consumer Product Safety (and the CPSIA)

Rick Woldenberg has written yet another compelling post on the impact of the Consumer Product Safety Improvement Act on his Blog.

Here is the link to today's article: http://learningresourcesinc.blogspot.com/2009/07/cpsia-how-to-solve-your-problems.html

Written in an AnswerMan format, the post highlights the contradictions and confusion surrounding the CPSIA.

Regular 108Warren Commission readers will recognize this as a familiar topic -- see my earlier post here -- and others will recognize the topic from other writings over the past few months.

For those of you who may have missed it, the Consumer Product Safety Improvement Act was passed by Congress and signed by President Bush in response to the rash of recall notices on products made in China during 2007 and 2008. It was passed in 2008, with provisions going into effect in staggered fashion throughout 2009.

This should go without saying, but 108Warren Commission is completely in favor of product safety -- particularly for children's products. Unfortunately this law does absolutely nothing to make children's products safer -- instead, because of its complexity and contradictory nature it hurts those company's that try to comply, and simply eases the way for the unscrupulous to compete with honorable companies.

The issues with this law are legion, and are better covered in other places -- see Amend the CPSIA, Overlawyered.com, CPSIA-Central, and many others...

What is particularly troubling is that despite the deep and thoughtful issues raised by the people who are affected by this law, there has been no response from Congress. The legitimate concerns are routinely ignored, or even worse, are tossed aside as carping. Even the Consumer Product Safety Commission has made it clear that the law, as written, is too restrictive, and does not allow the CPSC to use its institutional experience and expertise to actually make products safer for children.

Instead of working to resolve fundamental issues, Congress is ignoring them, and small businesses across the country are failing. Libraries and schools are restricting access to books published before 1985.

In the coming month, companies are going to be required to comply with another part of the CPSIA -- new tracking labels that identify the source factory (whether that is proprietary information or not), and batch and run information. While this sounds reasonable at first, think about how to put it into practice, and the problems start to jump out at you... Where does the label go? How large does it have to be? do I have to list my actual factory so that my competitors can go then go contact them directly? What about for small items -- how do I fit a label on something small... the list goes on and on.

And that doesn't even begin to cover the problem for folks whose business is crafting handmade items... Milagros Boutique has written a good piece on the impact: http://milagrosboutique.com/2009/07/06/imagine-no-handmade-items/.

Sadly, with just over a month to go before this provision is active, there is ZERO guidance on how businesses can comply with this law... Faced with these burdens, and in a down economy, this will push even more businesses into trouble, and will put more people out of work.