Hayek on a Carbon Tax: Response to Bradley

Editor note: Professor Dolan kindly submitted this rebuttal to Robert Bradley’s post yesterday, “Hayek was not a Malthusian or Global Tariff Advocate (link to a carbon tax peculiar, errant).” Bradley’s post, in turn, was a critique of Dolan’s original piece, “Friedrich Hayek on Carbon Taxes.”

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I am happy to comment on the validity of the nine points you raise regarding Hayek and a carbon tax.

1. Hayek was suspicious of scientific ‘consensus,’ given the consensus of Keynesianism and central planning in his lifetime.

I agree with what you say about Hayek’s attitude toward the Keynesian consensus. However, my reading is that he distinguished between social sciences and natural sciences, and between the ability of people to offer informed judgement on fields in which they have specific expert training compared with fields in which they do not have such training. So, for example, when he says, in “Use of Knowledge,” that “as far as scientific knowledge is concerned, a body of suitably chosen experts may be in the best position to command all the best knowledge available,” I believe he is referring to “hard sciences,” such as climatology, astrophysics, and so on.

I do not think that Hayek would have represented himself as capable of offering expert opinion on issues like the value of equilibrium climate sensitivity. To say that is not inconsistent with his capability of offering expert opinion on Keynesian economics.

2. Hayek would recognize positives, not only negatives, from increasing atmospheric concentrations of CO2. He would not have considered nature ‘optimal’ and thus the human influence as necessarily ‘disequilibrating’.

I partially agree here. As per Item 1, I do not think he would have offered expert opinion here, but as an informed layman, he likely would have found them plausible. So do I, and so do the great majority of climate scientists.

If you read what “skeptical” climate scientists like, say, Judith Curry write, you find that they do not deny the positives, nor do they argue that nature is “optimal.” The case for a carbon tax only requires that the negatives outweigh the positives, not that there are no positives. It also does not require believing that nature is “optimal,” but only the belief that uncontrolled violation of property rights by polluters is nonoptimal.

3. Hayek was not a Malthusian and actually wrote on the subject, questioning conservation for its own sake regarding mineral resource depletion (running out of minerals was the predecessor of running out of livable climate).

I do not see the point of framing the climate change issue as one of “running out of livable climate.” Rather, I think it is better to frame it (and most environmental issues) as one of competing human uses for natural resources, an approach typical of modern Austrian economists, although I don’t recall that particular formulation anywhere in Hayek. The modern Austrians believe that competing human uses for natural resources are best resolved through markets and prices.

4. Hayek would have rejected any particular carbon price as a “pretense of knowledge.”

I do not think that Hayek would ever have maintained that human actors, whether in their private life, in business, or in government, should refrain from all action in the face of uncertainty. For example, Ford does not know in advance the “optimal” price for a new model. It makes an informed guess and then adjusts it depending on how the market reacts to the initial price. Similarly, most serious carbon tax proposals envision some mechanism for adjusting the carbon price in the light of market reactions. They make no “pretense of knowledge” beyond the standard assumptions used in business, finance, and everywhere else regarding decision making under uncertainty.

I do agree, however, that Hayek, like many modern Austrians, might have been more comfortable with a cap-and-trade approach. See this link for a detailed discussion

5. Hayek would have rejected setting ‘border adjustments’ as a “pretense of knowledge.”

I don’t see what border adjustments have to do with it. The case for a carbon tax does not rest on border adjustments, although some writers consider them a useful add-on. In any event, the “pretense of knowledge” argument in the case of border adjustments is the same as for the basic carbon price itself.

6. He would have rejected carbon fee-and-dividend adjustments for income inequality as a “pretense of knowledge.”

Fee-and-dividend is not an inherent part of carbon tax policy. Most conservative and libertarian advocates of carbon taxes would prefer to have revenues used to reduce rates on other taxes that have inherently higher deadweight losses. I agree. I do not see Hayek’s views on inequality as directly relevant to the carbon tax debate.

7. Hayek would have seen government climate planning as a form of central economic planning.

The whole point of Hayek’s essay on “The Use of Knowledge” is that the price system is superior to socialist planning as a mechanism for the use of knowledge in society. The issue here is what to do when the world is so structured that markets for some resources do not exist, and therefore that prices do not emerge. The problem then becomes one of whether to live without prices, or whether to live with prices that are set by some non-market or quasi-market mechanism.

I agree that Hayek would, in every case, prefer prices that emerge spontaneously from markets. I am not sure that Hayek would have agreed that it is better to leave scarce resources unpriced than to use government as a mechanism for introducing prices. Compare, for example, the case of Alaska fisheries, where government intervention to establish tradeable quotas made pricing possible where previous unpriced fishing led to nonoptimal depletion of stocks.

8. Hayek would be suspicious of one-world government in the quest to effectively regulate carbon emissions.

Of course he would. So would I. What does that have to do with carbon taxes? One can agree that we should have laws that protect property owners against trespass, without maintaining that those laws would best be enforced by a one-world government. Ditto for administration of carbon prices.

9. Hayek would have applied Public Choice arguments to see “government failure” in the quest to correct “market failure.”

Yes, very likely Hayek would have endorsed much of modern public choice theory, even though it was only just emerging during his lifetime. Today, conservative, libertarian, and classical liberal proponents of carbon taxes explicitly take public choice arguments into account in discussions of carbon taxes.

However, public choice theory only cautions us to weigh the shortcomings of government against those of markets, not to reject government in every case—especially not in cases where the alternative is not a market, but one of no market, no property rights, no prices.

Thank you for the opportunity to respond.