Understanding Markets

Hot Topic reports how Rod Oram has poured scorn on the Greenhouse Policy Coalition:

These contortions can be comic, such as watching Roger Kerr of the Roundtable denying some of his most cherished principles. Having argued for years for markets and against taxes, he now concedes that in some cases markets can fail. He fears carbon trading will be one, so he is advocating a tax. Perhaps he might wish to revisit markets he’s championed to see if some of them have failed too.

But both Oram and Hot Topics overlook one of the most basic elements of economics. I can only conclude Oram has put his dislike for some people ahead of his considerable analytical ability.

Even at Stage One economic you learn that a perfect market needs perfect information. The less information one has the less effective a market is. This is why Trade Me works so well – it is very close to a perfect market with information on price, goods, seller reputation etc etc.

Now carbon trading is an excellent concept. It is one many support. But make no mistake, the information on carbon emissions is seriously flawed. There is a huge amount of unknown information on what does emit and absorb carbon and other greenhouse gases, and at what rate etc.

So to scoff at Roger Kerr for saying at this stage a tax (which has certainty) might be better than an emissions market, is to expose one’s own understanding of what one needs for a market to be successful.

As information becomes better over time, I am sure an emissions market is the superior choice. But one can have a rational debate on whether a market vs a tax is best *at this stage*.

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