Copenhagen Conference on Climate Change (1)

Today's thought is the concept of 'Cap and Trade' - a mechanism which attempts to limit the production of greenhouse gases.

That is, the total amount of greenhouse gases emitted will be limited by law and companies will be issued entitlements to emit a certain amount. That is the 'Cap'. The 'Trade' allows companies to sell unused, or buy additional, permits.

Think of it as a command and control (i.e. socialism) combined with a legalized black market.

In the long run, neither command and control nor the black market is good for either prosperity or freedom.

The best approach to greenhouse gas reduction is to use the tax code to provide the price signals which the market, an inherently short term process, fails to send when there is a long term problem. Then rebate 100% of the proceeds via the payroll tax. Since the market will then be sending a signal that hiring new employees has become cheaper, it is likely that more people will be hired.

Perhaps this is all too obvious. Certainly it will be opposed by the rent seekers who will benefit from the bureaucracy, the loopholes in the laws, and the unintended consequences caused by the inherent economic flaws of the likely cap and trade process.