Why is taxing in one way superior to taxing in another?

[sdu754]

Waxman-Markey “Cap and Trade” law would have taxed carbon emissions by forcing companies to buy "carbon emission permits" if carbon emissions were deemed to be "too high". Basically the same type of punitive tax there is in Obama care for people who don't buy insurance

No.  The bill allocated 85% of the permits to polluters for free.  It was a mix of grandfathering and an auction/trading of emission permits.  That's not a tax, it's regulation using a free market approach.

"selling permits" by force or "charging a tax", either way, it's the government taking money. It's not a fine for breaking rules that is imposed after the fact, but even the supreme court ruled that "fines" are taxes, so why isn't the forced sale of permits/ Furthermore, you're missing the point. If cap & trade had been forced through congress, the resulting increased energy costs would have hurt the poor much more than the rich. Of course, you don't want to argue this point, you want to quibble over semantics, knowing you would lose the bigger argument.

Compare this to regulation of pollution under the Clean Air Act which mandates that point sources of pollution meet a technological standard of emissions control under the NSPS system.  Both create a price to comply with pollution standards but cap and trade is more efficient in allocation the savings in pollution to the least cost avoider who can reduce their emissions at the lowest marginal cost.

So the government didn't give tax incentives to home buyers? You can also look up the Community reinvestment act of 1994 as well

That's not what caused the housing bubble.  It was financial innovation and the use of structured financial instruments in combination with the secondary mortgage market and weak regulation of complicated insurance-like products and MBS products.  If you think it was caused by the consumers' behavior, you don't understand finance, financial regulation, mortgages, housing and the history of what went on in the market during the past 20 years.  People wrote books, articles and studies on this, all of the reputable histories comport with my version of events, none with yours. 

Please explain how the government driving up demand in the housing market didn't create the bubble? Not only that, take a look at the community re-investment act of 1994.

Attorney General Janet Reno warned in 1994 that “no bank” would be “immune” to an aggressive Justice Department campaign to punish discrimination in lending practices. In a similar vein, Comptroller of the Currency Eugene Ludwig told the Senate Banking Committee: “We have to use every means at our disposal to end discrimination and to end it as quickly as possible.”

Do you think the threat of federal lawsuits didn't have an affect on lenders? don't forget about Fannie Mae & Freddie Mac either

I also find it funny that "all the reputable histories comport with my version of events, none with yours Really? That quote says it all. You try to shut down debate by stating "everyone agree, case closed", another sign that you are losing the debate

And, I apologize, you might not be a troll, you might just be stupid.  I'm sorry for jumping to conclusions.

Once again, who's the troll? Calling me names isn't a winning argument, just another desperate attempt at hoping I'll go away. Would it be so hard for you to have an open, honest debate on the facts without resorting to childish attack?

[bedstuy]

That's not a tax, it's regulation using a free market approach.

That's not what caused the housing bubble.

An artificial, government-created marketplace is not a free market. In fact, the outcome of cap-and-trade is so far removed from the market outcome that the grandfather of negative externalities said artificial markets should never be used (see: Pigou)

It's sort of silly to compare cap and trade to a free market outside a regulatory context.  The free market wouldn't lead to any trading of emissions or the regulation of polluters, we're talking about government regulation here.  The proper comparison is trading to command and control regulation as under NSPS or taxes like a carbon tax.  The advantage of a market system of permits is the burden of regulation is distributed in the most economical way compared to a one size fits all approach of mandated certain costly pollution remediation measures in every point source.

Plus, the fact is that the EPA instituted NOx and S02 trading has been a resounding success. 

Bankers cannot bundle mortgages and get rich selling credit default swaps without a flood overrated AAA government-backed mortgage securities. What happens when the government needs the banking sector to launder their securities to generate more lending capital? Regulators look the other way as bankers invent new unholy ways to move securities. Why was this being done? Because the government felt that it needed to stimulate an outsource proof industry during our currency tiff with China.

The government caused the current crisis. For centuries, mortgage bankers were accused of lending only to the wealthy asset-owning classes. At the dawn of the 21st century, mortgage bankers suddenly believed subprime lending was the future? No. Government was guiding the market in the direction it believed to be best.

That's an interesting story, but it isn't what actually happened and you don't know what you're talking about at all.

Promoting homeownership has been a goal of the Federal government for years.  The secondary mortgage market has been around for years and actually serves a purpose in creating liquidity.  If those things caused the financial crisis, what took so long?

What's more, Fannie and Freddie's underwriting requirements kept them out of subprime lending until just before the crash.  GSEs had strict requirements for what types of loans they could purchase.  Actually, during the leadup to the crisis, GSEs lost a ton of market share because of all the PLS markets with subprime mortgages springing up.  You ignore the existence of these private RMBS markets, but they were the players and facilitators of the subprime crisis.

As for the CRA, it affected a very small number of risky loans (6%).  Most lendors in the subprime market were not banks so they weren't covered by the CRA. 

Basically, what you're all missing is that the actual lending was the downstream result of the structured finance vehicles which allowed the creation of AAA RMBS securities and created a false margin of safety through CDSs.  This created an appetite for garbage loans on Wall Street whose risk could be hidden.  If you didn't have this complicated financial products, there wouldn't be the subprime lending boom because nobody would want those garbage loans on their balance sheet.

[bedstuy]

"selling permits" by force or "charging a tax", either way, it's the government taking money. It's not a fine for breaking rules that is imposed after the fact, but even the supreme court ruled that "fines" are taxes, so why isn't the forced sale of permits/ Furthermore, you're missing the point. If cap & trade had been forced through congress, the resulting increased energy costs would have hurt the poor much more than the rich. Of course, you don't want to argue this point, you want to quibble over semantics, knowing you would lose the bigger argument.

1.  The auctioned permits would have paid for subsidies to poor people to help pay their energy costs.

2.  We need to regulate to have clean air and there's a cost to any regulation.  If we adopted your principle, we would have air pollution like China.

On the housing crisis point, I addressed that above.  I don't feel the need to give you a complete history of that issue, but if you're interested, do some research.  I can point you to some great articles from the Federal Reserve and a few books that explain this stuff quite well.

[AggregateDemand]

Plus, the fact is that the EPA instituted NOx and S02 trading has been a resounding success. 

That's an interesting story, but it isn't what actually happened and you don't know what you're talking about at all.

Promoting homeownership has been a goal of the Federal government for years.  The secondary mortgage market has been around for years and actually serves a purpose in creating liquidity.  If those things caused the financial crisis, what took so long?

Anyone can build a functional artificial market using regulations to compel people to purchase securities. The fundamental problem with artificial markets is the impossibility of making them reflect an unknown social cost. Furthermore, cap-and-trade rewards polluters with windfall profits simply because they pollute less than the arbitrarily assigned break-even amount.

Cap-and-trade is absurd regulation to feed the net income of commodity trading firms and speculators.

The government mandated GSE's to make purchases based upon the affordability of the loans. The affordability volume requirements rose over time. When the market ran out of marginalized borrowers, they were created by baiting the middle class into over-extending with below-market interest rates. These middle class borrowers were not technically subprime, but their loans were obviously quite risky. Bundle them with government-backed securities, and then get regulators to look the other way when S&P rates AAA.

The change in home-ownership rates was slight. Pols raised the GSE affordability requirements to stimulate the outsource-proof housing market and draw loanable funds into the US economy. It all went pear-shaped when oil hit $140/bbl

[bedstuy]

Plus, the fact is that the EPA instituted NOx and S02 trading has been a resounding success. 

That's an interesting story, but it isn't what actually happened and you don't know what you're talking about at all.

Promoting homeownership has been a goal of the Federal government for years.  The secondary mortgage market has been around for years and actually serves a purpose in creating liquidity.  If those things caused the financial crisis, what took so long?

Anyone can build a functional artificial market using regulations to compel people to purchase securities. The fundamental problem with artificial markets is the impossibility of making them reflect an unknown social cost. Furthermore, cap-and-trade rewards polluters with windfall profits simply because they pollute less than the arbitrarily assigned break-even amount.

Cap-and-trade is absurd regulation to feed the net income of commodity trading firms and speculators.

The purpose of S02 and NOx trading was to reduce acid rain which it did.  And, the cap isn't set arbitrarily and whatever profit a polluter makes by reducing pollution is earned.

The government mandated GSE's to make purchases based upon the affordability of the loans. The affordability volume requirements rose over time. When the market ran out of marginalized borrowers, they were created by baiting the middle class into over-extending with below-market interest rates. These middle class borrowers were not technically subprime, but their loans were obviously quite risky. Bundle them with government-backed securities, and then get regulators to look the other way when S&P rates AAA.

The change in home-ownership rates was slight. Pols raised the GSE affordability requirements to stimulate the outsource-proof housing market and draw loanable funds into the US economy. It all went pear-shaped when oil hit $140/bbl

You're just repeating yourself.  I responded to this.  You can ascribe to your made up revisionist history that confirms your political beliefs.  But, it's not what actually happened and caused the financial crisis.

[AggregateDemand]

You're just repeating yourself.  I responded to this.  You can ascribe to your made up revisionist history that confirms your political beliefs.  But, it's not what actually happened and caused the financial crisis.

You asked why it took so long. I explained that the "affordability" volume percentages were increased over time to stimulate middle-class borrowing and housing starts. To get rich selling derivatives, investment banks need artificial volume and artificial AAA credit ratings. They received both from regulators in Washington DC.

No revision necessary. The degree to which the underlying corruption was compounded by other factors, like GLB, low target interest rates or irrational consumerism; is still debatable.

Profits "earned" from polluting less than the competition are not earned. Sequestration is earned pollution profit. Pollution taxes do not have the perverse incentives created by a cap and trade system. The sole purpose is to generate tax revenue and curb demand, not to redistribute wealth according to the workings of arcane artificial markets.

[bedstuy]

You're just repeating yourself.  I responded to this.  You can ascribe to your made up revisionist history that confirms your political beliefs.  But, it's not what actually happened and caused the financial crisis.

You asked why it took so long. I explained that the "affordability" volume percentages were increased over time to stimulate middle-class borrowing and housing starts. To get rich selling derivatives, investment banks need artificial volume and artificial AAA credit ratings. They received both from regulators in Washington DC.

No revision necessary. The degree to which the underlying corruption was compounded by other factors, like GLB, low target interest rates or irrational consumerism; is still debatable.

Why don't mainstream economists and finance experts agree with your interpretation of what caused the financial crisis?

To quote a very good article from the St. Louis Fed:

You must be logged in to read this quote.

You must be logged in to read this quote.

Profits "earned" from polluting less than the competition are not earned. Sequestration is earned pollution profit. Pollution taxes do not have the perverse incentives created by a cap and trade system. The sole purpose is to generate tax revenue and curb demand, not to redistribute wealth according to the workings of arcane artificial markets.

The advantage of cap-and-trade is that you can allocate pollution in the social welfare optimal distribution.  Regardless of who gets the profits and how you distribute the entitlements, trading will lead to an efficient allocation of pollution.  A tax will never do that.

[True Federalist (진정한 연방 주의자)]

Since either system can be gamed and politicked to the advantage of certain players, the principal difference between a carbon tax and a carbon cap and trade scheme is that the tax imposes a predictable added cost per unit of pollution, while the cap and trade scheme imposes a predictable reduction in emissions.  (Certainly we can estimate the reductions that will happen under a tax and the costs under cap and trade, but they aren't are certain.)

[AggregateDemand]

The advantage of cap-and-trade is that you can allocate pollution in the social welfare optimal distribution.  Regardless of who gets the profits and how you distribute the entitlements, trading will lead to an efficient allocation of pollution.  A tax will never do that.

What is the social optimal distribution? We have no idea because the market has been created and subscribed according to government fiat. One person cannot price a non-pecuniary externality. This is a painfully simple concept.

Cap-and-trade is popular because it makes traders wealthy, and it redistributes societal wealth to companies to pollute less than others (paid to pollute). Besides its adaptability to shifting economic sands, CaT has virtually no merit.

The Fed didn't agree with the GSE assessment because the Fed was under intense scrutiny for its role in the banking scandal. The price of everything collapsed. Was the housing bust not to blame for the collapse of oil prices because housing has nothing to do with oil? The Fed had no argument. They simply regurgitated a specious argument that had a bit of data behind it, and gathered a bit of traction after the collapse. Furthermore, everyone knew that GSE's would be necessary to reinflate prices so the Fed was willing to protect them at any cost.

[bedstuy]

The advantage of cap-and-trade is that you can allocate pollution in the social welfare optimal distribution.  Regardless of who gets the profits and how you distribute the entitlements, trading will lead to an efficient allocation of pollution.  A tax will never do that.

What is the social optimal distribution? We have no idea because the market has been created and subscribed according to government fiat. One person cannot price a non-pecuniary externality. This is a painfully simple concept.

No, the whole idea of cap-and-trade is that the initial allocation does not matter and the market sets the price.  The trading will result in a the optimal distribution, not the regulators' decision.  This is an application of the Coase theorem of property rights.

The Fed didn't agree with the GSE assessment because the Fed was under intense scrutiny for its role in the banking scandal. The price of everything collapsed. Was the housing bust not to blame for the collapse of oil prices because housing has nothing to do with oil? The Fed had no argument. They simply regurgitated a specious argument that had a bit of data behind it, and gathered a bit of traction after the collapse. Furthermore, everyone knew that GSE's would be necessary to reinflate prices so the Fed was willing to protect them at any cost.

Many respected economists, journalists and academics have examined the financial crisis and they basically all agree with my assessment and not yours. Are they all part of this Federal Reserve conspiracy?  And again, you're not really addressing the points I brought up about private secondary markets, subprime loans and the financial industry. 

[MurrayBannerman]

The basic advantage of a sales tax is that it's easier and cheaper to collect.  Politically, it's also less obtrusive since people generally do not even notice it.  

The advantage for Republicans is that it's not progressive so it hurts poor people more than a progressive income tax.

Without a refund adjustment, yes. That's definitely possible though.

You can also include a voucher system for the current, non-taxed group.

[sdu754]

Basically, what you're all missing is that the actual lending was the downstream result of the structured finance vehicles which allowed the creation of AAA RMBS securities and created a false margin of safety through CDSs.  This created an appetite for garbage loans on Wall Street whose risk could be hidden.  If you didn't have this complicated financial products, there wouldn't be the subprime lending boom because nobody would want those garbage loans on their balance sheet.

If it hadn't been for the government forcing banks to lend money to people who couldn't afford conventional loans, banks wouldn't have been forced to come up with "innovative" lending practices. Fannie Mae & Freddie Mac touch 50% of all mortgages. They were prime movers in the securities market.

[sdu754]

"selling permits" by force or "charging a tax", either way, it's the government taking money. It's not a fine for breaking rules that is imposed after the fact, but even the supreme court ruled that "fines" are taxes, so why isn't the forced sale of permits/ Furthermore, you're missing the point. If cap & trade had been forced through congress, the resulting increased energy costs would have hurt the poor much more than the rich. Of course, you don't want to argue this point, you want to quibble over semantics, knowing you would lose the bigger argument.

1.  The auctioned permits would have paid for subsidies to poor people to help pay their energy costs.

2.  We need to regulate to have clean air and there's a cost to any regulation.  If we adopted your principle, we would have air pollution like China.

On the housing crisis point, I addressed that above.  I don't feel the need to give you a complete history of that issue, but if you're interested, do some research.  I can point you to some great articles from the Federal Reserve and a few books that explain this stuff quite well.

1) What about the people who don't qualify for those subsides. There are still poor people who can't get them. The government frequently tells people money will go one place to get something passed, but when the spending passes, the money is spent elsewhere. In Ohio, state proceeds form lottery & gambling were passed under the guise that the money would go to schools, only a small portion does. In the county I live in, a sales tax was passed to repair the roads, then the money was taken for the "general fund" to cover "shortages". Apparently, if you spend too much money, it's a shortage.

2) If we adopted my principle, we'd have air like we do right now. My principle was to not passed the 2009 cap & trade" law. It failed. If we adopted your principle, poor would be suffering even more, as energy prices would have shot through the roof. You give the reason why "cap & Trade" is a bad idea. The countries that are big polluters wouldn't be affected. Not only that, the bill would have given an incentive to offshore manufacturing jobs to countries that allow worse pollution, making the environment worse on a global scale.

[bedstuy]

Basically, what you're all missing is that the actual lending was the downstream result of the structured finance vehicles which allowed the creation of AAA RMBS securities and created a false margin of safety through CDSs.  This created an appetite for garbage loans on Wall Street whose risk could be hidden.  If you didn't have this complicated financial products, there wouldn't be the subprime lending boom because nobody would want those garbage loans on their balance sheet.

If it hadn't been for the government forcing banks to lend money to people who couldn't afford conventional loans, banks wouldn't have been forced to come up with "innovative" lending practices. Fannie Mae & Freddie Mac touch 50% of all mortgages. They were prime movers in the securities market.

You keep repeating this nonsense.  But, you clearly don't have your facts straight and you don't know the basics of how the housing market works. Just to neatly rebut your point,

The Financial Crisis Inquiry Commission said:

You must be logged in to read this quote.

[sdu754]

You're just repeating yourself.  I responded to this.  You can ascribe to your made up revisionist history that confirms your political beliefs.  But, it's not what actually happened and caused the financial crisis.

You asked why it took so long. I explained that the "affordability" volume percentages were increased over time to stimulate middle-class borrowing and housing starts. To get rich selling derivatives, investment banks need artificial volume and artificial AAA credit ratings. They received both from regulators in Washington DC.

No revision necessary. The degree to which the underlying corruption was compounded by other factors, like GLB, low target interest rates or irrational consumerism; is still debatable.

Why don't mainstream economists and finance experts agree with your interpretation of what caused the financial crisis?

To quote a very good article from the St. Louis Fed:

You must be logged in to read this quote.

You must be logged in to read this quote.

Profits "earned" from polluting less than the competition are not earned. Sequestration is earned pollution profit. Pollution taxes do not have the perverse incentives created by a cap and trade system. The sole purpose is to generate tax revenue and curb demand, not to redistribute wealth according to the workings of arcane artificial markets.

The advantage of cap-and-trade is that you can allocate pollution in the social welfare optimal distribution.  Regardless of who gets the profits and how you distribute the entitlements, trading will lead to an efficient allocation of pollution.  A tax will never do that.

Quotes like the above could be found on either side all day long. Saying no "mainstream economists and finance experts agree with your interpretation " is an attempt to end a debate without using facts.

You further state: "The advantage of cap-and-trade is that you can allocate pollution in the social welfare optimal distribution.  Regardless of who gets the profits and how you distribute the entitlements, trading will lead to an efficient allocation of pollution.  A tax will never do that."

Why does the government need to "efficiently allocate pollution" in the first place? especially doing so in the "social welfare optimal"? As I said earlier, carbon taxes make manufacturing more expensive, driving that manufacturing to countries with worse pollution standards, making the worldwide environment worse.

[bedstuy]

Quotes like the above could be found on either side all day long. Saying no "mainstream economists and finance experts agree with your interpretation " is an attempt to end a debate without using facts.

I also stated plenty of facts that have refuted your argument about the CRA and GSEs which you have completely ignored.  My point on saying that is to challenge you to produce evidence from a reputable source like an article by a research institution, academic or an economist that supports your version of events.  I suspect that's impossible because you're absolutely wrong.  But, try to find some evidence instead of repeating the same canards over and over again.

You further state: "The advantage of cap-and-trade is that you can allocate pollution in the social welfare optimal distribution.  Regardless of who gets the profits and how you distribute the entitlements, trading will lead to an efficient allocation of pollution.  A tax will never do that."

Why does the government need to "efficiently allocate pollution" in the first place? especially doing so in the "social welfare optimal"? As I said earlier, carbon taxes make manufacturing more expensive, driving that manufacturing to countries with worse pollution standards, making the worldwide environment worse.

We need to efficiently allocate pollution so we can get the cleanest air at the lowest cost to the economy as a whole.  You're right that there's a cost to having clean air, I completely agree.  But, surely, we don't want unregulated emissions of mercury and lead, and we want to do something about climate change.  Thus, the question is how do you strike the appropriate balance between the costs of regulation and the benefits of regulation.  You seem to want to look only at the costs which is wholly myopic.

[traininthedistance]

The advantage of cap-and-trade is that you can allocate pollution in the social welfare optimal distribution.  Regardless of who gets the profits and how you distribute the entitlements, trading will lead to an efficient allocation of pollution.  A tax will never do that.

What is the social optimal distribution? We have no idea because the market has been created and subscribed according to government fiat. One person cannot price a non-pecuniary externality. This is a painfully simple concept.

No, the whole idea of cap-and-trade is that the initial allocation does not matter and the market sets the price.  The trading will result in a the optimal distribution, not the regulators' decision.  This is an application of the Coase theorem of property rights.

I'm afraid this is where I part ways with you; I prefer a carbon tax and I'm pretty confident in my preference here (which is far from always the case).  While the Coase theorem is a nice thought experiment given the overly simplistic hothouse assumptions of textbook microecon, you forgot to mention its major failing, a caveat that to his credit Coase himself acknowledged (and, which I might add, is so common as to render the practical use of Coasean solutions to be virtually nil)- namely, transaction costs.  While a cap-and-trade system works pretty well in cases such as NOx and the like, where you really just have these large institutional polluters, and you have a well-defined cap that you know how to reach, carbon doesn't really work that way, for two huge reasons.

First, there is a greater risk of setting the market up poorly- note the example in Europe where they gave out so many credits to start that trading was useless and it didn't do anything to cut emissions.  Whereas with a carbon tax, if you're not hitting your emissions targets, you can much more easily adjust up or down.  Early mistakes thus aren't potentially fatal.  In addition to that particular risk, there's the more conventional understanding of transaction cost: it would be insanely impossible for everyone with an internal combustion engine or home heating oil or anything like that to have to go onto some sophisticated trading floor that they shouldn't have to understand, but if you're serious about tackling the CO2 problem (and, really, most of our currently problematic water and air issues) you do need to pay attention to the millions of so-called "non-point" sources.

At the end of the day, I'd rather have cap-and-trade than nothing, the problem is too severe for inaction to be a reasonable alternative.  But Pigou is definitely to be preferred to Coase here; and I'd argue that such is true upwards of 90 percent of the time.

[AggregateDemand]

I also stated plenty of facts that have refuted your argument about the CRA and GSEs which you have completely ignored.  My point on saying that is to challenge you to produce evidence from a reputable source like an article by a research institution, academic or an economist that supports your version of events.  I suspect that's impossible because you're absolutely wrong.  But, try to find some evidence instead of repeating the same canards over and over again.

You're clutching at straws. The moderately informed citizen knows that the affordability mandates were increased by 50% between 1994 and 2008, and mandated volume accounted for more than half of the entire mortgage market. In retrospect, the AAA government-secured mortgage bundles were obviously not AAA.

Some people argue that other factors contributed. A vocal minority, who've received a great deal of press, argue that the CRA did not cause the crisis. None of them would continue the previous CRA arrangement. They act as shills to protect the concept of mortgage regulations. Some of them are technocratic pragmatists who know GSE activity could not be repealed without dire economic consequences, but others are attempting to exculpate their misguided socialist agenda.

[sdu754]

Quotes like the above could be found on either side all day long. Saying no "mainstream economists and finance experts agree with your interpretation " is an attempt to end a debate without using facts.

I also stated plenty of facts that have refuted your argument about the CRA and GSEs which you have completely ignored.  My point on saying that is to challenge you to produce evidence from a reputable source like an article by a research institution, academic or an economist that supports your version of events.  I suspect that's impossible because you're absolutely wrong.  But, try to find some evidence instead of repeating the same canards over and over again.

The following link explains how the government did exactly what I said it did. Through The Community Re-investment act Fannie Mae & Freddie Mac the government affected lending practices. It is from Forbes Magazine, I would call that a reputable source.
http://www.forbes.com/2009/02/13/housing-bubble-subprime-opinions-contributors_0216_peter_wallison_edward_pinto.html

You further state: "The advantage of cap-and-trade is that you can allocate pollution in the social welfare optimal distribution.  Regardless of who gets the profits and how you distribute the entitlements, trading will lead to an efficient allocation of pollution.  A tax will never do that."

Why does the government need to "efficiently allocate pollution" in the first place? especially doing so in the "social welfare optimal"? As I said earlier, carbon taxes make manufacturing more expensive, driving that manufacturing to countries with worse pollution standards, making the worldwide environment worse.

We need to efficiently allocate pollution so we can get the cleanest air at the lowest cost to the economy as a whole.  You're right that there's a cost to having clean air, I completely agree.  But, surely, we don't want unregulated emissions of mercury and lead, and we want to do something about climate change.  Thus, the question is how do you strike the appropriate balance between the costs of regulation and the benefits of regulation.  You seem to want to look only at the costs which is wholly myopic.

Actually it's the environmentalist that only want to look at possible harm to nature without any other considerations. I never said I was against all regulations, just those that the harm they cause far outweigh the benefits. You also have to remember, the law didn't pass. I am against the proposed 2009 C&T law. You stated earlier "If we adopted your principle, we would have air pollution like China." I can counter, that isn't happening.

[bedstuy]

The advantage of cap-and-trade is that you can allocate pollution in the social welfare optimal distribution.  Regardless of who gets the profits and how you distribute the entitlements, trading will lead to an efficient allocation of pollution.  A tax will never do that.

What is the social optimal distribution? We have no idea because the market has been created and subscribed according to government fiat. One person cannot price a non-pecuniary externality. This is a painfully simple concept.

No, the whole idea of cap-and-trade is that the initial allocation does not matter and the market sets the price.  The trading will result in a the optimal distribution, not the regulators' decision.  This is an application of the Coase theorem of property rights.

I'm afraid this is where I part ways with you; I prefer a carbon tax and I'm pretty confident in my preference here (which is far from always the case).  While the Coase theorem is a nice thought experiment given the overly simplistic hothouse assumptions of textbook microecon, you forgot to mention its major failing, a caveat that to his credit Coase himself acknowledged (and, which I might add, is so common as to render the practical use of Coasean solutions to be virtually nil)- namely, transaction costs.  While a cap-and-trade system works pretty well in cases such as NOx and the like, where you really just have these large institutional polluters, and you have a well-defined cap that you know how to reach, carbon doesn't really work that way, for two huge reasons.

First, there is a greater risk of setting the market up poorly- note the example in Europe where they gave out so many credits to start that trading was useless and it didn't do anything to cut emissions.  Whereas with a carbon tax, if you're not hitting your emissions targets, you can much more easily adjust up or down.  Early mistakes thus aren't potentially fatal.  In addition to that particular risk, there's the more conventional understanding of transaction cost: it would be insanely impossible for everyone with an internal combustion engine or home heating oil or anything like that to have to go onto some sophisticated trading floor that they shouldn't have to understand, but if you're serious about tackling the CO2 problem (and, really, most of our currently problematic water and air issues) you do need to pay attention to the millions of so-called "non-point" sources.

At the end of the day, I'd rather have cap-and-trade than nothing, the problem is too severe for inaction to be a reasonable alternative.  But Pigou is definitely to be preferred to Coase here; and I'd argue that such is true upwards of 90 percent of the time.

Here's the response to that:

1.  You set up the market intelligently with the best trading technology and take into account the lessons learned from previous cap-and-trade systems. 

2.  You're right about non-point sources.  But, that's a sort of frivolous argument.  There isn't a choice of only one regulation, we're going to have a mix of regulations.  We have a gas tax, we have NSPS standards, we have two technological standards for cars in Title II of the CAA, we have SIPs.  For non-point sources, you do a few things, you increase the gas tax and you implement a higher technological performance standards for emissions and mileage.  There's no reason that can't go hand in hand with cap-and-trade.  Then, you've covered point sources and mobile sources.  The rest is less than 5% of emissions which is covered by SIPs which will include GHGs eventually.

I also stated plenty of facts that have refuted your argument about the CRA and GSEs which you have completely ignored.  My point on saying that is to challenge you to produce evidence from a reputable source like an article by a research institution, academic or an economist that supports your version of events.  I suspect that's impossible because you're absolutely wrong.  But, try to find some evidence instead of repeating the same canards over and over again.

You're clutching at straws. The moderately informed citizen knows that the affordability mandates were increased by 50% between 1994 and 2008, and mandated volume accounted for more than half of the entire mortgage market. In retrospect, the AAA government-secured mortgage bundles were obviously not AAA.

Some people argue that other factors contributed. A vocal minority, who've received a great deal of press, argue that the CRA did not cause the crisis. None of them would continue the previous CRA arrangement. They act as shills to protect the concept of mortgage regulations. Some of them are technocratic pragmatists who know GSE activity could not be repealed without dire economic consequences, but others are attempting to exculpate their misguided socialist agenda.

You're welcome to believe whatever you want and I suppose you will.  I've read a stack of books about the financial crisis, I've talked to a bunch of people who worked at the NY Fed, Morgan Stanley and Goldman during the crisis and I have a basic understanding of the housing market and finance.  I'm basing my opinion off those experts, you can base your opinion off of Rush Limbaugh or whatever.  You like repeating yourself apparently, but if you're not going to engage with my points and the actual facts, I'm done with this.

Quotes like the above could be found on either side all day long. Saying no "mainstream economists and finance experts agree with your interpretation " is an attempt to end a debate without using facts.

I also stated plenty of facts that have refuted your argument about the CRA and GSEs which you have completely ignored.  My point on saying that is to challenge you to produce evidence from a reputable source like an article by a research institution, academic or an economist that supports your version of events.  I suspect that's impossible because you're absolutely wrong.  But, try to find some evidence instead of repeating the same canards over and over again.

The following link explains how the government did exactly what I said it did. Through The Community Re-investment act Fannie Mae & Freddie Mac the government affected lending practices. It is from Forbes Magazine, I would call that a reputable source.
http://www.forbes.com/2009/02/13/housing-bubble-subprime-opinions-contributors_0216_peter_wallison_edward_pinto.html

To quote the Roosevelt Institute:

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[sdu754]

1.  You set up the market intelligently with the best trading technology and take into account the lessons learned from previous cap-and-trade systems. 

2.  You're right about non-point sources.  But, that's a sort of frivolous argument.  There isn't a choice of only one regulation, we're going to have a mix of regulations.  We have a gas tax, we have NSPS standards, we have two technological standards for cars in Title II of the CAA, we have SIPs.  For non-point sources, you do a few things, you increase the gas tax and you implement a higher technological performance standards for emissions and mileage.  There's no reason that can't go hand in hand with cap-and-trade.  Then, you've covered point sources and mobile sources.  The rest is less than 5% of emissions which is covered by SIPs which will include GHGs eventually.

1) You seem to be missing the point that the government doesn't need to levy new carbon taxes. The current regulations are more than enough. The government shouldn't be "setting the market up" that type of thinking didn't really work out well for the USSR or in Cuba.

2) Raising gas taxes, once again a regressive tax proposal. The government doesn't need to increase mileage standards, people started buying more fuel efficient cars without those standards going up. The real problem you have here is that you don't trust the free market to work.

You're welcome to believe whatever you want and I suppose you will.  I've read a stack of books about the financial crisis, I've talked to a bunch of people who worked at the NY Fed, Morgan Stanley and Goldman during the crisis and I have a basic understanding of the housing market and finance.  I'm basing my opinion off those experts, you can base your opinion off of Rush Limbaugh or whatever.  You like repeating yourself apparently, but if you're not going to engage with my points and the actual facts, I'm done with this.

I put up a reputable source, Forbes magazine, but you just ignored it.

To quote the Roosevelt Institute:

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Once again, an attempt at a "case closed" argument to shut down debate. What do you expect a bunch of government entities to say? Do you really think they are going to admit that they caused the whole mess? The FCIC had 10 members, 6 appointed by Democrats, the 6 Democrats made up the Financial Crisis Inquiry Commission majority. It was a partisan line vote.

Another article you can read:
http://articles.sun-sentinel.com/2011-10-14/news/fl-cmcol-cra-failure-mishra-1014-20111014_1_soundness-act-fannie-mae-fannie-and-freddie

It states the following: "The CRA also resulted in lowering the lending standards in the banking industry"

This was among the reasons the FCIC gave for the market crash.

[bedstuy]

Here's why the CRA argument is nonsense.

1.  The subprime market was dominated by non-depository loan originators like Countrywide.  Only banks (depository institutions) are covered by the CRA.

2.  The CRA only covered specific zip codes and low-income borrowers, but subprime mortgages and subsequent defaults were widespread in areas not covered by the CRA. 

3.  So, if you combine these two facts, that many subprime mortgages went to middle class and above people and were orginated by non-bank institutions, the result is a small, small number of subprime loans were covered by the CRA (6% according to the St. Louis Fed study).

This was among the reasons the FCIC gave for the market crash.

Not according to the FCIC, they said.

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[AggregateDemand]

Here's why the CRA argument is nonsense.

1.  The subprime market was dominated by non-depository loan originators like Countrywide.  Only banks (depository institutions) are covered by the CRA.

2.  The CRA only covered specific zip codes and low-income borrowers, but subprime mortgages and subsequent defaults were widespread in areas not covered by the CRA. 

3.  So, if you combine these two facts, that many subprime mortgages went to middle class and above people and were orginated by non-bank institutions, the result is a small, small number of subprime loans were covered by the CRA (6% according to the St. Louis Fed study).

Besides uninformed politically-motivated commentators, no one has claimed that the CRA loans themselves were responsible for the crisis. The allegation is that CRA created mandatory affordability guidelines for GSE's, which encouraged the loan pooling, bundling, and credit derivative phenomenon. If the government requires 57% percent affordability, but the market only yields 37%, the market will have to create more questionable loans by over-lending at below market rates. Sounds like Countrywide. To mitigate the risk of these unstable loans, Wall Street creates 101 new credit derivative instruments.

It's funny that you quote a stat from the Federal Reserve Bank of St. Louis. They are indeed a respected source for mortgage market information. Use their website to find editorials and studies about bundling, pooling, and securitizing. The fed bankers and outside analysts for the reserve state clearly that GSE activities represented a moral hazard and reform was necessary. I'm not providing any links because there are so many hundreds of studies and analyses, I'm not certain I'd direct you to the best ones.

Quite a few of the articles also delve into the political science of the failure by explaining that R's and D's both looked the other way because the GSE system satisfies the concept of affordable housing and the notion of ownership society. After the crisis, Republicans have become enraged (mainly conservatives and libertarians), but most Democrats have become defensive. This is the underlying problem in our nation, imo. The party of moveon.org doesn't actually move on after something fails. We are stuck with a legacy of failure from the welfare state to government healthcare to GSE mortgage financing.

[sdu754]

Here's why the CRA argument is nonsense.

1.  The subprime market was dominated by non-depository loan originators like Countrywide.  Only banks (depository institutions) are covered by the CRA.

2.  The CRA only covered specific zip codes and low-income borrowers, but subprime mortgages and subsequent defaults were widespread in areas not covered by the CRA. 

3.  So, if you combine these two facts, that many subprime mortgages went to middle class and above people and were orginated by non-bank institutions, the result is a small, small number of subprime loans were covered by the CRA (6% according to the St. Louis Fed study).

This was among the reasons the FCIC gave for the market crash.

Not according to the FCIC, they said.

You must be logged in to read this quote.

You also have to remember the following: Attorney General Janet Reno warned in 1994 that “no bank” would be “immune” to an aggressive Justice Department campaign to punish discrimination in lending practices. In a similar vein, Comptroller of the Currency Eugene Ludwig told the Senate Banking Committee: “We have to use every means at our disposal to end discrimination and to end it as quickly as possible.”

The CRA, along with Fannie Mae and Freddie Mac, changed the lending environment. Not only did banks need to comply with the CRA for their expansion and growth but they also needed to compete with non-banking mortgage companies, like Countrywide. These independent mortgage companies lowered their lending standards to become more competitive with banks, as long as Fannie and Freddie would purchase these loans and these mortgage companies didn't have to carry the loans on their balance sheets.

The FCIC didn't want to admit the governments culpability in the crisis. What I said was It states the following: "The CRA also resulted in lowering the lending standards in the banking industry" This was among the reasons the FCIC gave for the market crash. The problem is the Democrat backed opinion didn't look at WHY banks started to make bad mortgages. This was due to governmental interference in the economy.

[AggregateDemand]

You also have to remember the following: Attorney General Janet Reno warned in 1994 that “no bank” would be “immune” to an aggressive Justice Department campaign to punish discrimination in lending practices. In a similar vein, Comptroller of the Currency Eugene Ludwig told the Senate Banking Committee: “We have to use every means at our disposal to end discrimination and to end it as quickly as possible.”

The CRA, along with Fannie Mae and Freddie Mac, changed the lending environment. Not only did banks need to comply with the CRA for their expansion and growth but they also needed to compete with non-banking mortgage companies, like Countrywide. These independent mortgage companies lowered their lending standards to become more competitive with banks, as long as Fannie and Freddie would purchase these loans and these mortgage companies didn't have to carry the loans on their balance sheets.

The FCIC didn't want to admit the governments culpability in the crisis. What I said was It states the following: "The CRA also resulted in lowering the lending standards in the banking industry" This was among the reasons the FCIC gave for the market crash. The problem is the Democrat backed opinion didn't look at WHY banks started to make bad mortgages. This was due to governmental interference in the economy.

To be fair to the DOJ, Reno was just grand-standing. What really mattered is that the CRA had no special affordability requirements in 1994. By 2008, GSE's had to acquire assets of which 27% were special affordability by volume. The same regulation still exists. When we ran out of poor people, the market baited the middle class into making themselves poor. Conventional banks were leery. Countrywide saw an opportunity to create a subprime jumbo-loan bonanza.