All economists are well-versed in neoclassical economic theory, the theory where decisions are made at the margin and marginal values and costs slope downward and upward, respectively. The recent cow tax (discussed previously here) provides a perfect opportunity to demonstrate the usefulness of this theory.
The American Farm Bureau has announced that they oppose this tax because it would force some producers out of business (read more here). If the cow tax is based on any economic logic, it is supposed to force some producers out of business.
The basic idea is that the value of one more pound of beef to consumers declines the more beef you already have. It is like saying the first bite of a hamburger tastes better than the 100th bite. Conversely, the cost of greenhouse gases emitted from cows rises the more beef that is produced. At some point, the value of one more pound of beef becomes so low that it is less than the cost imposed by the greenhouse gases.
The solution is to produce less beef, to keep decreasing beef production until the value of each pound of beef produced is now higher than the environmental cost (and, of course, the production cost). To produce less beef, someone has to go out of business. The beauty of the cow tax is that it forces the least efficient producer to cease production. So if the cow tax is to produce benefits for society, if it is to correct the problem that some pounds of beef are valued less than the cost they impose, it must be high enough to force some producers out.
A final note: neoclassical economics asserts that this does not mean we should cease all beef production. As beef production falls, the value of each pound rises, and it will likely fall to some point where the value of beef is greater than the cost, even if beef still produces some pollution.
This post is written under the assumption that climate change is real and that small changes at the U.S. level have real benefits. I am not smart enough to know the correct answer to these two questions; I can only say I am open-minded and skeptical.
Sunday, November 23, 2008
Blog Archive
-
▼
2008
(155)
-
▼
November
(67)
- 2008 AGEC 4213 Nerd of the Year!
- Trust Me: I'm Good For It
- Encyclopedia of Economic and Business History
- Green Energy
- Interesting Ag Facts
- Interesting Ag Facts
- Explaining Price Indices
- Beef, Pork, Chicken, and Egg Consumption: 1910-2006
- Corn and Gasoline Prices
- The Great Depression - Maybe We Learned Something
- Keynesian Perspective
- With Real Poets, It is Hard To Tell
- Ag Career Info
- Why Neoclassical Theory is Important
- It is more than that...
- Don't Forget...
- King Camp Gillette: Hero of Capitalism
- Gains From Trade...And Love
- The Importance of Insurance
- Oklahoma where the wind comes sweeping down the pl...
- Hereos of Capitalism
- Bird Spectacles
- Farm Animal Welfare: A Rare Statement of Truth
- Turkey Torture
- Explaining "Stimulus Package" to Students
- The Cow Tax
- The Market for Organic Eggs
- For Misplaced Southerners
- The Utility of Positive Emotion
- The Great Depression - We Learned Nothing
- Politically [un]Popular Ethanol
- Food Tales
- An Omnivore's Solution
- Cage Versus Cage Free
- The Cost of Happy Hogs
- The Importance of Economics
- Interesting Ag Facts
- American Socialism
- QLD livestock producers support fine increase
- Why Not Just Say "Farmer"
- The Pitfalls of Organic Food
- The Indifference Principle - In Practice
- Beef Prices in the 80's
- Broom Corn
- I, Broom
- Hello From Detroit
- God is Dead
- Laissez-Faire Higher Ed
- Secretary of Ag Michael Pollan
- The Fatal Conceit
- Steven Horwitz's An Open Letter to my Friends on t...
- We may begin hearing increased support for a bailo...
- Cattle, Hog, and Egg Prices: 1920-2002
- Steinbeck Talks About Food
- Sophistry
- Horrible Ideas
- Thinking About Graduate School?
- Economists Are Brilliant!!!!
- Thinking Like An Economist
- Picking Winners
- An Overview of the Agribusiness Degree
- Financial Crisis and Lending to the Poor
- Becoming a Great Teacher: Part 8
- We are all Socialists (1/3, at least)
- Trading Class Notes
- Humbling the Professor
- A New Approach to M.S. Theses
-
▼
November
(67)