Monday, August 9, 2010

Central Planning as a Solution to Externalities

Anyone who has really absorbed the posts I've written on calculation vs. incentive problems, and my thinking on externalities knows that I approach issues like climate change and the environment from a thoroughly market-based angle. Markets are not always the tool in the toolbox that I pull out as a solution, but there is no disillusionment about the power and simply the reality of markets and the knowledge problem.

Inevitably, of course, I'm accused of approaching the issue from an angle that is not cognizant of market processes. I'm at a loss for how this can still be thrown at me (even if you don't agree with my conclusions from a practical standpoint), but it is. I'm guessing it has more to do with ideology than anything else.

Anyway, if you want to see central planning as a solution to an externality problem, look to China. This sort of approach is, of course, disastrous according to the market-based logic that I use. By the "market failure" approach that I take, this is precisely what you shouldn't do. And yet this is exactly the sort of central planning that people like Arnold Kling want to use to test my sort of approach. This is central planning, pure and simple, and the Chinese are proceeding with it in complete contravention to a proper understanding of the market process. It is diametrically opposed to an approach like a carbon tax.


  1. I could support a carbon tax if the money didn't go to the government.

  2. Also, I wouldn't be surprised if this weren't simply symbolic. Two thousand factors sounds like a lot, but it really isn't.

    China has talked about a carbon tax forever ... they don't want to impose one because it would hamper economic growth ... and the Chinese leadership is in a race between broadening development and resentment about it not doing so.

  3. Russ Roberts' latest is about podcast about climate, etc. I'll probably listen to it on my midnight run.

  4. Excellent podcast. I'll have to listen to it again.


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