Baptists, Bootleggers, and Global Warming

by Will Wilkinson on June 4, 2008

Some of you might be interested in this 2001 essay from Bruce Yandle. The analysis applies to an international scheme under Kyoto, but the logic of a national permit system is the same.

This isn’t just crude public choice theory. It accounts for actual corporate and political behavior rather well. Journalist Tim Carney has been doing an outstanding job reporting on corporate welfare — including the “green” kind — for the Washington Examiner. His column on hedge fund billionaire Julian Robertson is an excellent example:

[...]

Big businesses have long been lobbying for federal restrictions on greenhouse gases. Enron, General Electric, DuPont, Goldman Sachs and many top energy companies have lobbied hard for “cap-and-trade” laws that would impose federal restrictions on greenhouse gas emissions by manufacturers and power plants, but allow firms to buy or sell excess emissions credits. In many of these cases, it’s easy to see the financial motive of these “socially responsible” corporations.

[...]

[U]nless you spend time going through federal lobbying records, you probably haven’t heard of Robertson’s big push for cap-and-trade laws. Robertson has hired top lobbying firm Akin Gump to advance such restrictions on Capitol Hill, in the public and in policy arenas. Akin Gump even runs a global warming blog now called “Climate Intel.”

Akin Gump lobbyists doing Robertson’s bidding on Capitol Hill include former Republican National Committee Chairman Ken Mehlman and former Reps. Bill Paxon, R-N.Y., and Vic Fazio, D-Calif. What’s Robertson’s angle? Environmental publication Greenwire described Robertson as a “former hedge fund tycoon and now a philanthropist.” Robertson indeed closed down his most famous fund, Tiger Management, earlier this decade, but is still a big investor. Getting richer — not merely philanthropy — motivates these investments.

Relevant to his cap-and-trade position are his investments in China’s leading biofuels maker Gushan and in a company that deals with nuclear waste disposal. Given the right global warming legislation, both of these investments will benefit.

A bigger Robertson bet, presenting a more insidious angle, is his short position on 10-year Treasury bonds paired with a long position on two-year Treasuries. Basically, if the U.S. economy is fundamentally unsound, Robertson gets rich. “I’ve made a big bet on it,” Robertson told Fortune. “I really think I’m going to make 20 or 30 times on my money.”

The fact that many millions of people are earnestly morally motivated to push carbon regulation creates the political conditions for huge potential profits for the savvily well-positioned. Maybe Robertson is a global warming true believer and just wants to help capitalize the firms that are going to save the world and maybe he just wants to get even richer. I’m not so uncertain about GE and Goldman. Either way, the man is making an enormous bet, and aligning his pecuniary self-interest strongly with a particular political result. Suppose we get cap and trade and then the global warming scare starts to peters out. Is Julian Robertson going to happily give up on the policies upon which he has bet the farm?

[Added: Oh, and why have all these big players lined up behind cap and trade and not a tax? Wouldn't the equivalence thesis predict indifference? I suspect that the answer is that their expected competitive advantage given a tax is lower than their expected advantage given cap and trade. In which case, that's a pretty significant real-world failure of equivalence, no?]

Viewing 3 Comments

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    I wonder if there is an "invisible hand" equivalent for rent-seeking corporations. We like to point out that businessmen seeking their own advantage make others better off through markets. Is it possible that some businesses, seeking only their own gain at the federal trough, could (unintentionally) trigger the creation of regulations that might have beneficial effects (e.g., solving social issues saddled with public goods and free rider problems like global warming)? Is there some kind of spontaneous order that emerges from the competition of rent-seeking businessmen?

    I think there might be something there. But then again it could just be the NyQuil and Sudafed talking.
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    Oh, and why have all these big players lined up behind cap and trade and not a tax? Wouldn't the equivalence thesis predict indifference? I suspect that the answer is that their expected competitive advantage given a tax is lower than their expected advantage given cap and trade. In which case, that's a pretty significant real-world failure of equivalence, no?


    That's exactly why they're doing it. And the specifics of the kinds of cap-and-trade policies that they're advocating for - auctioned credits vs. free ones, and so on - are entirely in alignment with their economic interests, too. Obviously corporate interests should get to speak their piece about how they want things to go, but you'd think that the results of their lobbying would be met with a bit more skepticism.
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    This reminds me of some arguments I have had with economic determinists over the Iraq war. Yes, for any public policy, the genius of capitalism means someone is going to try to profit from it and, yes, those people will fund a push for the public policy. It does not follow that the original impetus for the policy is profit-seeking. And since this is just a universal fact about all policies whatsoever, it doesn't tell you much about whether the policy is wise or stupid, just or unjust.

    Somebody is going to make money from lowered trade barriers, and that somebody will pay something for lobbyists. Someone would make money out of the end of the drug war, or school vouchers, or whatever. If they became serious subjects of possible political action, there would be rent-seeking. So what?

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