Brian Gongol filling in for Steve Deace on WHO Radio
Brian Gongol

Podcast: Updated weekly in the wee hours of Sunday night/Monday morning. Subscribe on Stitcher, Spreaker, Apple Podcasts, Google Podcasts, or iHeartRadio

There's a lot of great stuff happening this weekend in Des Moines, not the least of which are the Hy-Vee Triathlon and the Des Moines Arts Festival. Don't miss out.

The House of Representatives has passed legislation that would impose "cap and trade" rules on our emissions of greenhouse gases. The Democratic Party leadership is backing the bill, saying that it's going to "create jobs" while preventing global warming. Rep. Tom Latham of Iowa's 4th District says, quite to the contrary, that the proposal will destroy lots of American jobs.

Putting aside my standard objection to anything politicians say about "creating jobs" -- wealth being far more important, since most reasonable people would rather be rich with no job than employed and poor -- it really doesn't look like this bill is going to help. The Federal government has already racked up an $11,300,000,000,000 debt in our name. This bill won't help solve the problem. It uses regulation and limitations rather than leveraging the considerable brilliance locked up in the brains of the people of this country.

Assuming that the White House and the majority in Congress have already decided that we must do something about global warming (and that appears to be a pretty safe assumption), then it's not going to do much good to try to fight a battle over whether to do something. At least until the next Congress takes office in January 2011, the majority already appears to have its mind made up. So, if that's the case, then we should compare the different options available to us for taking action on things like greenhouse gases:
  1. Cap and trade. The cap-and-trade method creates a predetermined limit on the amount of greenhouse gas that can be produced, then allows the parties involved (factories, power plants, and so on) to trade their rights to create those greenhouse gases. This creates a secondary market in greenhouse gases -- like people scalping their tickets to a baseball game. It's a market of sorts, but it's a strange one. The limits on greenhouse gas emissions are determined by government fiat rather than reality. And reality is, in a word, lumpy. Sometimes we make a lot of progress all at once -- just look at the difference between the cell phone you're carrying right now and the best one you could've afforded ten years ago. Other times, we make very little progress at all -- still wearing a poly-cotton blend? Polyester is almost 70 years old. But a government cap on greenhouse gases imposes a legal limit without regard to the technology available. And that's what could be especially damaging to the economy.

  2. Carbon taxes. A more market-friendly way of approaching greenhouse gases would be Greg Mankiw's proposal to impose carbon taxes. Mankiw rightly believes that a carbon tax would be much more sensible for the economy, since it would reflect an effort to make the costs of greenhouse-gas emissions in the marketplace reflect the costs that society is believed to bear. Moreover, a carbon tax would create tax revenues for the government to devote to things like research. There's an element of honesty to a carbon tax that's appealing by comparison with cap-and-trade, too: By applying a "sticker price" to greenhouse-gas emissions, the government would be giving people greater choice to decide whether to produce those gases than by simply trying to regulate them out of existence (which, itself, creates a back-door tax on anyone who uses the things that lead to greenhouse-gas emissions, like electricity). But a carbon tax comes with its own set of problems, like compliance on the consumer side and tax irresponsibility on the government side. Carbon taxes might just end up handing the government more money to waste irresponsibly, while promoting black-market behavior on the side.

  3. Innovation prizes. Innovation prizes (or inducement prizes, to be more accurate) are vastly under-used in this market of ours, and they could be the real answer to reducing greenhouse-gas emissions. An innovation prize is simply a large reward offered for the solution to an unanswered problem. Charles Lindbergh flew non-stop across the Atlantic Ocean to win an inducement prize (called the Orteig Prize) and IBM developed the chess-playing supercomputer called Deep Blue in pursuit of another (called the Fredkin Prize). We have precise measurements of longitude around the globe thanks to inducement prizes, as well as canned food. Innovation prizes work because they create a super-concentrated reward for finding that "lumpy" solution that eludes us under regimes like cap-and-trade.
One way or another, we'll all end up paying for the innovations that lead to lower greenhouse-gas emissions: Either the things we buy will cost more (and people will lose their jobs) because the cap-and-trade system will make greenhouse gas emissions painfully expensive...or we'll pay higher taxes on our greenhouse-gas emissions under a carbon-tax system until someone comes up with the answer...or we can choose to offer huge prizes -- say, a billion dollars apiece -- for someone to simply come up with the answers we need anyway. Inducement prizes sometimes take a long time to be rewarded. But sometimes, they're surprisingly quick.

But the one thing that's clear about them is that they stack the deck in favor of speeding up innovation. Instead of asking inventors to take all of the risk upon themselves to develop new ideas, then get the financial backing to market those ideas and get them adopted, an ideal innovation prize for reducing greenhouse-gas emissions would work something like this: The Department of Energy would offer, say, a billion dollars for the first additive that would increase fuel efficiency in an average 4-door sedan by 10%, for less than 20 cents per gallon of gasoline. The inventor gets $1 billion, no matter whether it's ExxonMobil or your dear Aunt Edna working in her basement. (This should make it obvious that innovation prizes are a pretty great deal for small firms and individuals -- a billion dollars makes a much bigger difference to a small group or an individual than it makes to a multi-national firm.) In return for the government prize money, the inventor turns over the intellectual property rights to the technology to the public domain (for a billion dollars, who wouldn't?). Thus, we all win: The inventor gets rich instantly, and the knowledge hits the streets overnight. Putting the knowledge in the public domain ensures that it's adopted quickly by whatever firms are best equipped to use it, and guarantees that it's used competitively. Companies frequently sit on patents and proprietary knowledge just to keep them out of the hands of their competitors; placing the innovation in the public domain gets it out there in a hurry.

The death and resulting non-stop coverage of Michael Jackson makes one wonder: Is it really healthy to live in a society where we obsess over our celebrities so much that we feel like we have to follow them all the time? The emergence of the celebrity Twitter account really brings this home. There's really no point in knowing what Kirstie Alley is having for dinner. Yet now we're all well-aware of the philandering of the governor of South Carolina, and it really only seems like a national (or international) story because of the Internet and 24-hour news channels. Maybe we all just need a little cooling-off from all this so-called "news" all the time.

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