Sunday, January 31, 2010

The Tragedies of Haiti

The greatest tragedy of the earthquake of 12 January 2010 in Haiti was that the devastation was caused more by human failure than the natural disaster. The earthquake that hit the San Francisco Bay Area in 1989 was about as strong, causing the Bay Bridge to break, but killed only 63 people.
Before the Spanish came, the island of Hispaniola had been divided into chiefdoms, and the two western ones, Jaragua and Marien, became Haiti. Haiti’s first tragedy began with the arrival of the Spanish, who sickened, enslaved and killed off the native Taino Indians.
The second tragedy of Haiti was the importation of African slaves by the Spanish. French pirates and colonists cam to Haiti, The Treaty of Ryswick of 1697 split Hispaniola between Spain and France. Many more French settlers arrived and established plantations producing sugar, coffee, and indigo with slave labor.
A slave rebellion, inspired by the ideals of the French Revolution, fought the French government from 1791 to 1803. The liberated armies were commanded by General Toussaint L’Ouverture. The French National Assembly abolished slavery in the French colonies in 1794, but later Napoleon sent troops to regain French control.
French General Charles Leclerc invited L'Ouverture to meeting, but then kidnaped him and sent him to France, where he was imprisoned and died in 1803. Some 50,000 French soldiers died in the attempt to capture Haiti; the death toll for the rebels was 100,000, and some 24,000 European settlers also perished..
Jean-Jacques Dessalines led the Haitian toops to victory against the French. Haitians proclaimed independence on 1 January 1804, naming the country Haïti, on of the Taíno names for the island. Several thousand French settlers fled, taking their slaves with them, and settled in New Orleans, which had the lasting effect of strengthening the French culture there.
Instead of welcoming Haiti as the Western Hemisphere’s second independent country, the U.S. government shunned it. President Thomas Jefferson, fearing that the Haitian slave revolt would spark an American slave rebellion, imposed a trade embargo on Haiti that lasted until 1862. Ironically, the independence of Haiti created the United States of America as a continental power. Without Haiti, the Louisiana Territory was difficult to defend, and rather than being profitable as was Haiti, Louisiana was costly to administer. Needing funds to wage war on Great Britain, Napoleon sold Louisiana to the United States in 1803. Yet the U.S. compounded an ungrateful lack of political recognition with barriers to trade.
The third Haitian tragedy began when instead of establishing democracy, Dessalines drove out and killed the remaining Europeans, and became a dictator. Haiti was instrumental in the struggle of the Spanish colonies for independence, assisting the leader Simon Bolivar. In 1822, Haitian president Jean Pierre Boyer conquered the Spanish side of the island and freed its slaves. He also turned the Haitian workers into peasants forbidden to leave the farm lands.
The fourth tragedy began in 1825 when King Charles X of France sent troops to reconquer Haiti. President Boyer signed a treaty by which France recognized the Haitian independence in exchange for a payment of 150 million gold francs, reduced in 1838 to 90 million. It was allegedly a compensation for profits lost from slavery, but there was no compensation to the slaves. The lost profit was really wages stolen from the slaves and land rent stolen from the Indians. With the economy still ruined by destruction during the rebellion, resources that could have been invested in developing the economy were instead sent off abroad.
The United States recognized the independence of Haiti in 1862 and sent Frederick Douglass to be the consular minister. There were later several interventions by American and European forces, and from 1915 to 1934, the U.S. military occupied the island. They built up the infrastructure using forced labor, but did little to establish genuine democracy.
The fifth tragedy of Haiti occurred in 1957 with the election of Dr. François Duvalier as President. “Papa Doc” became a dictator and ruled until his death 1971. His son Jean-Claude “Baby Doc” then ruled untl 1986. Violence, corruption, and political turbulence continued with the election of Jean-Bertrand Aristide in 1990, who was later overthrown and returned.
The sixth tragedy of Haiti has been environmental. The French began clearing forests for their plantations. Later, almost all the forests were chopped down to use for fuel, which has caused erosion, floods, and the loss of the land’s fertility. A major reason for Haiti’s being the poorest country in the Western Hemisphere is the depletion of its soil. Much of its food is now imported.
Haiti’s economic tragedy is tied to its political tragedy, as corrupt chiefs have siphoned off much of the produced wealth. Massive foreign aid, making up a third of the government’s budget, has not created prosperity, because it has not confronted the political, environmental, and economic causes of Haiti’s poverty. Haiti’s government has also borrowed from the IMF and World Bank, and the debt service offsets much of the aid. Much of the debt was incurred during the Doc years.
Haiti was wealthy when it was a French colony. The country’s poverty originated in 1825, when it had to borrow from French banks to pay the coerced indemnity debt. Much of the political turmoil in Haiti stems from having its generated wealth go to foreigners to pay the debt.
The National Bank of the Republic of Haiti became entangled with U.S. banks in financing railroads in Haiti. U.S. companies pressured president Wilson to take control of Haiti’s custom houses that collected revenues from tariffs. Thus was created Haiti’s seventh tragedy, imperialist intervention by the United States, especially the invasion of U.S. marines in 1915 to secure U.S. financial interests.
When World War I began in 1914, U.S. Marines entered the capital Port-au-Prince and took $500,000 of currency to New York, making Haiti dependent on the U.S. for the use of its own money. The U.S. strengthened its hold in 1915 with the occupation by the U.S. Marine Corps, in order to pay off U.S. creditors. Loans originally made to Haiti to pay off the former French landowners were later bought by U.S. lenders. The U.S. military was engaged to force Haitians to keep paying ransom for their liberation! Except that now they had U.S. masters. These loans were finally retired in 1947.
The eighth tragedy of Haiti is this most devastating earthquake. After the immediate provision of food, medical aid, and security, the U.S., France, and other countries need to take responsibility for their role in creating poverty in Haiti.
First, the U.S. and other countries should drop all barriers to imports from Haiti. Second, they should promote political stability, the rule of law, and genuine democracy by advocating local democracy and bottom-up voting and governance. Third, the Haitians should reduce corruption by creating a new police force that is paid well and devoted to safety rather than bribery. Fifth, Haitians should establish a truly free market in which there are no arbitrary restrictions on establishing enterprise, and no tax on labor, trade, and enterprise, with public revenue instead from land value, along with user fees and pollution charges.
With economic freedom, investment would pour into Haiti to make the economy flourish as it did during the French days, but now, the wealth would be retained by the people, who would be finally liberated from slavery, foreign domination, and tyrants.

Thursday, January 21, 2010

Government Loves Landowners but Hates Landlords

They call them “landlords,” but they also lease the dwelling places, pieces of buildings, which are capital goods, not land. The “land” lord also provides labor services. They could be called “dwelling lords.” But often they are not really lords, since the real boss is the state, which lets financial wolves prey on helpless dwelling providers.
A case study is what happened to Daniel Bader in 2006. He was accused of familial-status discrimination by the California Department of Fair Employment and Housing (CDFEH). His big crime? On the Craigslist web site he posted a “for rent” ad which included the phrase, “perfect for 1 or 2 professional adults.”
In a truly free society, people have freedom of speech, and that includes entrepreneurs who advertise, so long as they are peaceful and honest. Moreover, the ad did not say that the rental was for adults only. His intention was not to discriminate against families with children. This dwelling provider just sought to describe what the unit in the back of his house was well suited for. He had rented to families with children in the past. Nevertheless, the Fair Housing Council of Orange County (FHCOC) filed a formal complaint when they saw the ad and demanded $4,000 plus five years of “continuing education” at $250 per class at their training facilities.
Most landlords cave in and pay the extortion loot. Why does the state impose this oppressive cost on dwelling providers? It is at first glance puzzling, because all levels of government provide massive subsidies to landowners, with big tax exemptions that make their rent and land more valuable as governments provide public goods that generate rent, paid for mostly by taxes on labor and enterprise.
The state loves landowners, so why does it hate landlords? It seems to me that this all makes sense if one realizes that it is the big landowners that are the prime beneficiaries. A democracy requires the support of the majority, so the state also subsidizes the petty landowners. They become allies of the big landowners. Since tenants also vote, the state also cleverly turns tenants into allies of the big landowners by shifting rent to them via rent control and anti-discrimination laws. The result of such laws, even when enacted with good intentions, is the creation of predators such as “fair housing councils.”
Daniel Bader refused to pay the extortion, so the CDFEH filed an 'unlimited damages' lawsuit against him in Orange County Superior Court. He countersued the CDFEH, FHCOC, and the CEO/Chief Counsel for the FHCOC. His lawsuits were thrown out by the judge, and he was ordered to pay their attorney's fees, over $20,000. The judge ruled that these agencies had free speech rights and were entitled to file the lawsuit and demand monetary damages against Bader. But evidently Bader has no free speech rights for his ads. Moreover, a lawsuit is not really free speech. Evidently, governments see landlords as easy prey.
What saves us from complete tyranny is trial by jury. On the eve of the scheduled jury trial in January 2009, the CDFEH dismissed the lawsuit against Bader. When his lawyer made a motion for the reimbursement of over $44,000 in attorney's fees and costs, it was denied. The predators can win their war on landlords even when they can’t win in court, just by imposing legal costs.
The case is currently on appeal, scheduled for Feb. 19, 2010. The website relates the story, and it has also reported in the Los Angeles Times and Orange County Register, as shown in the web site. Bader was also interviewed on radio and on the Bill O'Reilly show.
Dwelling providers should realize that their ads, especially in the Internet, make them targets for extortion by “fair housing” predators. Many landlords are naive; they don’t realize that they are being hunted. As told by Bader, if the dwelling provider settles with these agencies and pay their demand, they make the “landlord” sign a confidentiality agreement, and then they call the payoff a “donation.” These leeches can do this because they are backed by the power of the state.
These “fair housing” organization are funded by government. Their mission is allegedly to educate the public, but the real goal is to instil fear on dwelling providers, shifting power to tenants. Court judges are parties to this extortion, as shown by the Bader case.
Ultimately this predation under the name of “fair housing” hurts tenants, especially groups who really have suffered arbitrary discrimination, as these costs increase the risk of providing dwellings. These costs are ultimately passed on to tenants or else reduce the supply of rental units, making housing that much more expensive or unavailable. It’s just one more example of the maxim that the state is a cruel master.

Sunday, January 17, 2010

Baby’s a Tuna, and It’s Feeling Blue

Bluefin tuna are being hunted to extinction. They have already been reduced to a small fraction of the global numbers of a hundred ago. They may disappear from the Atlantic Ocean by 2012. The average weight of those caught has already been dropping. Other kinds of tuna and related fish are also being slaughtered, but the bluefish will be the first to go under.
Bluefin tuna are the genus Thunnus in the family Scombridae, with several species, among them Thunnus atlanticus (blackfin tuna), Thunnus orientalis (Pacific bluefin), and Thunnus thynnus (Northern bluefin).
The bluefin have a big problem: they taste very good. Tuna have been eaten for centuries. Indeed, the word “tuna” comes from ancient Greek. Canned tuna greatly increased the consumption, but what is finally terminating the bluefin is sushi. Four fifths of the bluefin tuna consumption is for sushi and sashimi. Sushi is seaweed-coated vinegar rice wrapped around a morsel of food such as raw fish, and sashimi is the raw fish by itself.
Bluefin tunas taste good because unlike most fish, they are homeothermic (warm blooded); they metabolize their temperature, like mammals and birds. With a higher body temperature than the surrounding cold water, tuna have a large ocean range. The warmth also enables tuna to swim fast (“tuna” in Greek means “to rush”), which enables them to catch more prey. So bluefin tuna grow up to a size of up to four meters.
Their warm bodies produce a red fatty underbelly called “toro” in Japanese. While the Spanish cry “toro!” when a bull charges, Japanese consumers call “toro!” for the delicious uncooked fatty parts of bluefin sushi and sashimi.
Traditional sushi was made of fermented fish and rice. The word “sushi” meant “it is sour.” Today’s sushi is not fermented, and can be made quickly. It is Japanese fast food. While there is a tiny health risk from eating raw fish, the bigger danger is the mercury in large fish such as tuna, which are at the top of the food chain, just below man. But the mercury has not stopped people from gobbling tuna world-wide. The problem of parasites in raw fish is solved by freezing the fish and then thawing it so that it seems raw again.
In Europe and elsewhere there are now so-called tuna “ranches.” They don’t really raise the tuna as in real ranches; they hunt wild tuna and then keep them in circular nets. These menageries feed the tuna sardines and other fish to get them big and fat. When the wild tuna are caught, they include young ones that don’t grow up to make other tuna, so this “ranching” is quickly depleting the stock of tuna, especially the bluefin. Baby’s a tuna, and it’s feeling blue!
It is possible to completely farm-raise tuna; this has been successfully tested in Kinki University in Japan. Evidently they managed to remove the kinks from raising tuna, and an Australian university has now also bred tuna in captivity.
Because of the high demand, a bluefish tuna can sell for $100,000 in Japan. The depletion of Bluefin tuna is a prime example of what is called the “tragedy of the commons.” The oceans are a common natural resource, with nothing to stop fishers from catching unlimited amounts of seafood. There are international rules and organizations that have jurisdiction in the oceans, such as the International Commission for the Conservation of Atlantic Tunas and the Commission for the Conservation of Southern Bluefin Tuna.
Unfortunately for the Atlantic tuna, the limits set by ICCAT are too high for sustainability, and the restrictions are not being enforced. About half the bluefin catch is not reported. The members of ICCAT have not authorized the organization to catch and punish the poachers.
Wild tuna are economic land, a natural resource. They are a common heritage that should be preserved, hunting only taking the annual increase, like consuming only the interest from savings. When fishers take the tuna with no compensation to humanity for depletion, they are in effect stealing land that belongs to humanity, including future generations.
Bluefin tuna should be classified as endangered, with sustainable limits to the catch, and the payment of fees that would finance the enforcement. Ecologically sound tuna farming should be promoted to replace wild tuna, and biologists could experiment with producing tuna flesh synthetically, avoiding having to raise the fish.
The depletion of bluefin tuna is a prime example of massive government failure, the refusal of governments to establish and enforce humanity’s property rights in renewable natural resources. Tuna fishers are in effect getting short-term subsidies, as they are granted an exemption from paying the social cost of their activity.
What can we do? We can contribute to organizations such as the WWF (World Wildlife Fund or World Wide Fund For Nature) or the Tuna Research and Conservation Center in California. We can contact government representatives to create pressure to preserve the ocean wildlife. We can also ask food stores and restaurants to either not sell bluefin tuna or to inform customers that the bluefin are endangered.

Sunday, January 10, 2010

Unlimited Subsidy to Land Values

The U.S. President’s administration announced on 24 December 2009 a holiday gift to American landowners. The government removed the cap it set on subsidies to Fannie Mae and Freddie Mac, the government-backed enterprises that buy mortgages from banks and other originators. The removal of the cap before 2010 avoided the embarrassment of needing Congressional approval.
This policy move can be understood if one recognizes the main aim of government policy since the beginning of American history. The main purpose of the U.S. government is to subsidize land values for the big players. The biggest subsidy is implicit: the public goods provided by government generate greater land rent and higher land values. This happens because only a tiny fraction of government revenues are paid for by direct taxes on land. Workers and enterprise owners are taxed to provide the public goods, and then they pay the higher rent generated by the public goods. Government thus redistributes wealth from workers to landowners.
The government generates a boom-bust cycle as land rent absorbs the gains from an economic expansion, and then speculators jump in to ride the surge in land values. This speculation lifts land prices even higher, until it is priced too high for those who seek to actually use real estate, and then land values collapse.
Almost all real estate is purchased with borrowed funds, so the subsidy to land values extends to the financial industry. Mortgage interest is tax-deductible in the U.S. to reduce the net mortgage interest cost. When the economy is depressed, the Federal Reserve expands the money supply to push interest rates low and thus subsidize the purchase of real estate.
But even those basic subsidies were not sufficient to prop up land values during the Great Depression. So the U.S. government promoted a secondary market in mortgages by creating Fannie Mae and later Freddie Mac. They buy mortgages from banks and then hold some and also package some into securities for sale to financial firms such as hedge funds. F&F now hold or guarantee about half the mortgages in the U.S.A., with a total value of $5.5 trillion.
Because Fannie and Freddie are backed by the U.S. Treasury, they can sell their bonds at a lower interest rate. The banks can thus keep lending mortgages to real estate buyers, sell them to F&F, and then make more mortgages. The government has thus created a perpetual mortgage machine.
During the real estate bubble preceding the Crash of 2008, financial innovation created trillions of dollars of clever derivatives based on mortgages, such as fake insurance on mortgage securities. A big problem with the government subsidy of land values is that it is not sustainable, as it has always created a boom followed by a bust. So government steps up the subsidy by propping up land values after the crash. That is what is happening now.
Fannie and Freddie suffered colossal losses during the Great Recession of 2007-2009, and they were bailed out by Congress, which provided over $110 billion to F&F. But the losses continue, with a projected total of $170 billion, since defaults in commercial real estate have followed those in residential real estate, and there could be more big losses in the last quarter of 2009. The chiefs of the federal government now realize that any cap on the bailouts would stop the bailouts or make F&F bonds more risky, and thus cause F&F to buy fewer mortgages. To keep the perpetual mortgage machine rolling, the government has eliminated the cap on bailouts to F&F. There is now in effect an unlimited government subsidy to land values. F&F losses of mortgages due to falling land values will continue to be subsidized by U.S. taxpayers.
Government chiefs say that F&F provide play a “vital role” in real estate markets. They do play a vital role in the scheme to subsidize land values, but real estate was bought and sold long before these government-sponsored enterprises were created. The government backing is no more necessary than is the government subsidies to farmers that push up the price of agricultural land.
Not all of the government subsidy to Fannie and Freddie goes to land rent and land prices. Some of the subsidy goes to the CEOs and other chiefs of F&F. These chief executive officers could each get “paid” about $6 million. The previous chiefs of F&F got even more remuneration before they got kicked out in 2008, and they would have gotten still more if the government had not blocked their “exit packages.”
Why do the F&F CEOs and financial officers get so much for running enterprises that make huge losses? Because other CEOs get similarly high payments. CEOs are now being paid multi millions of dollars just because that is what other CEOs are getting. The government has set some performance goals for the CEOs of F&F, but these are currently a secret. Perhaps the goal is to manage the losses efficiently. If you are an efficient loser, you will be given millions of dollars. This makes sense once you realize that the real losers are American taxpayers.
The losers include the typical American home owner. His property tax is low, but he pays high taxes on his wages and his interest income, and if not for the subsidy to land value, he would have bought his land for very little, and greatly reduced his mortgage payment. But not one in a thousand persons understands this, so the great American land subsidy goes on and on. Happy new year.

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Tuesday, January 05, 2010

Somewhere Hidden Something Goes

As you read this, fifty trillion neutrinos are passing through your body each second. Neutrinos are tiny neutral particles. The sun emits illions of them, and they pass through the earth without affecting it. We cannot see or feel them; it requires a particle detection laboratory to measure them. Neutrinos are hidden from sight, sound, and touch, but they are real.

Science has provided us with much knowledge about the human body, but much of what goes on inside is hidden. There can be disease building up in our bodies that is not easily detected. Somewhere hidden in our bodies, something can be going on, and we will not know it until it becomes too big and bad to stay hidden.

There could malicious programs that snuck into your computer undetected by protective software. Webs site are collecting data on you, hidden from your view. Programs are running in a PC that you can see if you type control-alt-delete, but they do not tell you what goes on, and there could be programs that do not show up there. Someone somewhere could be collecting data and recording what you do. Even the originator of a program will not know who gets infected, as the program itself generates offspring robots. Somewhere hidden, something goes, and perhaps nobody knows.

Don’t ask from whom the economy hides; it hides from you! Economic data can be different from what they appear to be. The main benefit from learning economics is to be able to understand the reality that lies hidden beneath superficial appearances.

For example, you might think that when a bank says it is paying you four percent interest, you are getting $4 annually for each $100 in your account. That is the superficial appearance. But some of that gain is not real, since it just makes up for inflation. To get the real interest rate, subtract inflation from the quoted or nominal rate. So if inflation is three percent, the real interest would be four minus three, thus one percent real interest, or $1.

But the U.S. Treasury does not keep it real. It taxes the nominal, not the real, interest. So if the tax rate is 50 percent, the state takes $2 from the interest. You real after-tax interest then becomes a minus one percent. Hidden from sight, inflation and taxes take away much of what you earn.

The real profit from enterprise is also hidden. A business man may think that if his revenue for the year is $1,000,000 and he pays $800,000 for labor, rent, and equipment, his profit is $200,000. But economic reality says otherwise. Somewhere hidden are costs not recorded by the accountant. If the entrepreneur had worked as an employee for somebody else, and he would earn $150,000, that is a cost of being in business as wages foregone. If he owns assets in his business and they could fetch $50,000 in annual interest, that too is an implicit cost. Subtract these from the accounting profit, and we get an economic profit of zero. In reality, he is not making any profit, as there are costs going on that are hidden but real.

Phenomena such as land rent are to a great extent hidden. The economic rent of land is what the highest (or second-highest, technically) bidder would pay to use that land. An owner who also uses and occupies the land is also paying and receiving rent; implicitly paying as tenant and receiving as owner. So land generates rent just as magnets generate a field, even without our seeing it.

What is hidden can be more real than what we think we observe. What we think we see is in large part an interpretation of what we observe. We can experience an emotional reaction to a picture or scene that is based on our beliefs and values rather than the physicality of the object.

One reason why government planing and control so often fail is that much of the economy is hidden from view. As the economist Friedrich Hayek pointed out, the knowledge relevant to production, exchange, and consumption is decentralized, changing, and tacit. Much of the knowledge is not written down, but in our minds, and we might not even be able to fully explain it.

Comes the government, and it thinks it can plan and provide for our welfare, including our old-age income, our medical services, our education, and our safety. It can do these things, but government agents cannot peer into our minds to discover what we really want, and they cannot see into the uncertain future to realize what is best of any person or society, When government uses force, it is altering reality into outcomes with unintended and unknowable consequences.

Faced with uncertainty and lack of knowledge, with hidden forces going on, it is best for each adult to set his own course. If we can keep our full wage and share the rent, we would all be able to choose our own bliss. Nobody can know what makes me happy but me, and even I don’t always know, so it’s best not to meddle.

Sunday, January 03, 2010

Danish Pays Trees

A “Danish” is a sweet, flaky, layered pastry with fruit, nuts, jam, cheese, or custard in the middle. It is not of Danish origin, but was brought to Denmark by cooks from Austria during a bakers’ strike in 1850. In Denmark it is called “wienerbrod,” or “Viennese bread.” In Vienna they call it “Golatschen.” The ultimate origin may be the Turkish baklava, which is also sweet and flaky.

The outcome of the Copenhagen Climate Conference of December 2009 is much like a Danish Pastry. It may taste good, but it is not a healthy way to start your day, since it is made with sugar and white flour and fat from milk, eggs, and butter.

Just as a Danish pastry is not really Danish, the Climate Conference will not really reduce climate change. The outcome of the conference can be boiled down to this: the developing countries are extorting $100 billion from the wealthier developed countries to prevent them from chopping down what remains of their rain forests.

Billions of dollars will go to the chiefs of the less developed economies, with little benefit to the people of these economies, while much deforestation will continue anyway. The extreme corruption of these governments will prevent effective measures against climate change. There will just be token forest parks that cannot sustain much wildlife. The conference agreement set a goal of limiting global warming, but has no compliance provisions.

In Brazil, for example, there are many economic interests that are destroying the rain forest. The miners are using chemicals that poison the waters and soil; they accuse the ranchers of using up much more land. The ranchers say that they are feeding people with their cattle, and sometimes they save a few trees, so they aren’t so bad. The native Indians preserve their trees, but they complain that the ranchers are going to be paid to stop chopping down more trees, while Indians, who have not destroyed the forest, will get nothing. To get the payments, the Indians say they too will have to chop down trees. So the scheme may end up destroying more trees than it saves. Moreover, the budget to enforce environmental protection has been minuscule.

Many newspaper editorials have described the outcome of the Copenhagen Climate Conference as a failure, even a disaster. Something was rotten in the conference in Denmark. The rot is the refusal to implement the most effective way to minimize pollution: a “green tax shift.”

A “green tax” is payment made by polluters to compensate society for the damage. The green tax shift is a revenue-neutral implementation of the polluter-pays principle. The tax revenue from the polluters is used to reduce taxes on income, sales, goods, and value added. A complete green tax shift would replace all other taxes with levies on pollution and land value. The land-value tax would complement the pollution tax, as it would promote an efficient use of land. Moreover, a pollution tax is a land tax in levying a fine for dumping pollution into air, water, and soil land.

The burning and chopping down of forests in Brazil, Indonesia, Africa, and other places is contributing more to global air pollution than cars. But the chiefs of developing countries can rightly accuse the chiefs of developed economies of failing to set a good example.

The U.S. government chiefs seek to implement a pollution permit system, in which permits would trade in a global market. A company that is producing goods and holds permits to pollute could make a big profit from shutting down, as it would then be able to sell its permits.

We have just gone through a financial boom and bust, in which derivatives causes colossal losses for financial firms. Now they want to set up a permit trading scheme that will be subject to the same bubbles and crashes. Pollution permits will spark options, futures contracts, and other derivatives which will be a speculator’s delight. Traders will buy up options and futures contracts to drive up the price of permits, making them costly for those who actually want to produce stuff. Permits will be owned by mutual funds as an “investment.” Meanwhile, brokers will get commissions and “investment” bankers will get fat bonuses for their financial creativity.

The green tax shift avoids these gyrations, and simply charges polluters in proportion to the damage. There is no long-term economic cost to a green tax shift, and indeed there is an economic gain, since the reduction in taxes on low-pollution industries reduces the excess burden of taxation. Any country can implement this on its own, but the U.S. administration has rejected environmental taxes, since industry prefers the permits, which become for them a profitable asset that can be manipulated to reduce competition from new firms.

The same failure doomed the earlier Tokyo Protocol, which failed to apply equal environmental rules to developing countries. Environmentalists should also accept responsibility, because they have not sufficiently focused on pollution charges. The green tax shift will resonate with the public. They will see the triple-win benefit from the green tax shift: a more productive economy, more liberty, and less pollution.

The Justice Party of Denmark had some success in shifting the country’s public revenues to land value. Denmark also has a carbon tax, which has reduced per-capita emissions by reducing the use of coal. A more complete green tax shift in Denmark would set a great example and would make “Danish” a term for saving the planet in addition to the flaky pastry.