Cap and Trade and Irrationality

Posted by ThomPaine on June 21, 2010 · Leave a Comment

There’s a lot of talk now about how the Transocean Deepwater Horizon oil spill in the Gulf may make it easier for Obama to pass ‘cap-and-trade’ legislation. This legislation would cap the amount of pollution that is allowed in America, and then let companies buy and sell the ability to pollute. If your company pollutes less, then you can sell your excess pollution capacity and make money. If you pollute more, you can buy excess capacity to pollute, and this would act as a market pressure to reduce your level of pollution. The whole idea is to let market forces mitigate the pain caused when you reduce the overall level of pollution.

This is a horrible idea. I know I’m usually for market solutions, but this is a fake market solution. The whole point of the free hand of the invisible market is that it is free. Obama wants to put limits on what the market can trade. Essentially, he wants to grab the free hand of the invisible market and make it punch itself, just like in 5th grade. But instead of chanting ‘stop hitting yourself’ over and over until the playground monitor stops him, Obama wants to sit back and pretend like he’s done us all a favor.

Here’s the real market solution. If pollution is a real issue, then enlightened customers will do business with companies that pollute less. That’s the market force that’ll reduce pollution. And if there’s no market pressure to reduce pollution, then it can’t be a real issue. After all, if the market isn’t rational, and companies can’t be trusted to act in the interest of the long-term good rather than short-term gain,then laissez faire capitalism is a dangerous farce.

But let’s not even consider that. It’s ridiculous on the face of it. After all, when’s the last time you heard of a company that caused a long-term problem just for the sake of short-term profit?