I've long favored a tax system that moved tax burdens from labor to resource consumption. One can argue that natural resources (especially air) are public goods. Gasoline works by combining gas with air to produce energy. People pay for the gas, but not the air. As we are all using the same air, it makes sense to tax gas for the amount of air consumed.
Many experts favor a system called cap and trade.
The experts argue that cap-and-trade works somewhat like the free market. Policy makers would establish social and environmental goals, then companies would buy and sell abstract entities as they try to achieve the stated goals.
To be honest, I think that large contrived markets designed to resemble the free market are far more damaging to the market that cleanly stated taxes. The contrived markets give the inside players the ability to make out like bandits as they adjust the rules. When the market fails, they blame the free market.
Look at the way our gas prices get thrashed about by the speculative market in oil.
The implosion of the mortgage market in 2009 provides another great example. Two GSEs name Fannie Mae and Freddie Mac had used their role as government backed insurers to define the market. This caused a bubble in housing and lined the balance sheets of banks with toxic assets.
In the wake of the fiasco with the Credit Default Swaps, I wish that Congress would just slam the brakes on the cap and trade and go with the much more straight forward option of raising taxes on natural resources.
Just because a system has competitive elements and trading does not mean it is a free market. Any market that begins with politicians sitting behind closed doors to set social objectives is not a free market. Systems that start with the government and trickles down to the people is a fascist economy, not a free market.
The drum I want to pound is that freedom is the key element to the free market.
Professors, pundits and politicians seem to fall for the line that if something involves people making trades on an exchange that it must be a free market.
Not long ago, white people were buying and selling black people on the market. People made loans on slaves and even bred their fellow man for the market. Slave trading is the antithesis of the free market.
Simply because a system involves trading does not mean that it is a free market solution. In cap-and-trade, people are trading a contrivance of regulators. It appears to be a very dangerous direction to follow. A trillion dollar cap-and-trade program could easily turn into a bubble … just as credit default swaps did last year.
In 2008, we saw the contrived markets swamp the entire economy. Predictibly, when these contrived markets implode, pundits turn their anger toward the free market.
Returning to the discussion of the free market: The key element of the free market is freedom. The classical liberal tradition found that freedom is best enhanced by having a clean straight forward set of rules centered on property rights.
The ten thousand page bill that created and regulated Credit Default Swaps was anything but straight forward. The ten thousand page bill creating cap and trade equally convoluted.
Even worse, as the system is driven by social engineers masquerading as environmentalists, the rules are apt to change as the engineers experiment with ways to re-engineer with society.