Is Nuclear Power Worth It?

[music]

0:00:07.6 Aaron Powell: Welcome to Free Thoughts. I’m Aaron Powell.

0:00:09.6 Trevor Burrus: And I’m Trevor Burrus.

0:00:11.3 Aaron Powell: A bit of personal news before we start this episode today. This is my second to last Free Thoughts, I’m leaving the show after next week’s one, which will be a conversation just between Trevor and me. I’m off to other things after nearly 13 years at Cato, and it’s been a tremendous privilege and honor to get to do this show for nearly 450 episodes, I believe, but for this last episode with me on it of Free Thoughts, we have brought back our greatest guest, Trevor?

0:00:49.3 Trevor Burrus: Joining us today is Peter Van Doren, senior fellow at the Cato Institute and editor of Regulation Magazine. Welcome back to the show for… I don’t even know how many times. It’s in the 20s, at least.

0:01:04.9 Aaron Powell: It’s a lot.

0:01:04.8 Trevor Burrus: Welcome, Peter.

0:01:04.9 Peter Van Doren: Well, thanks for having me. I’m not sure I’m worthy of that introduction, but I like the conversations we have, and I think it’s… Well, I like Free Thoughts. I’m an educator at heart, and I’ve got some notions, but I don’t know the answers, and that… Some of the topics we’ll talk about today, I’ll ask you questions ’cause I want to know if you know the answers.

0:01:32.7 Trevor Burrus: Well, these episodes have always been the answer to the question of what happens when two philosophers and pseudo lawyers meet up with an economist/​political scientist to talk about things that they’re not quite sure about. As you said, it’s one of your biggest, most valuable traits is you’re anything if not dogmatic, you’re anything but dogmatic, to say the least, which is why everyone comes to you at Cato, no matter in what department they are in, to try and get a reality check on whether we’re being overly dogmatic.

0:02:06.5 Aaron Powell: Well, also just that Peter… You can wander into Peter’s office and say, what do you know about this? And he’ll say, oh, I don’t think I know a lot, but hold on, and then he’ll just sort through a handful of 3x5 cards and then launch into a 45-​minute lecture of jaw-​dropping expertise on whatever topic. I don’t know that I’ve stumped him yet, except for Kant, you didn’t know about Immanuel Kant.

0:02:32.1 Trevor Burrus: Listeners who are fans of Peter Van Doren should know about the note cards. I’m not leaving Free Thoughts, I’m going to continue it as a solo endeavor, so there’ll be more conversations with Peter, and Aaron has maybe some plans in the future to do his own podcast, so it’s not the end of everything, by any means.

0:02:51.6 Trevor Burrus: Yeah, so Peter, I just want to say, what have you been thinking about recently, but I know one thing you’ve been thinking about, ’cause we talked about it in my office, nuclear power, ’cause everyone says, I think there’s coming around, there’s a… I see more of the environmentalist side arguing than they did, say, five years ago that if you’re anti-​greenhouse gas admissions and not pro-​nuclear, then they can’t really take you seriously, but you seem to think it’s not that simple in the cost benefit analysis.

0:03:24.2 Peter Van Doren: Well, I used to think so, and now I’m maybe… Well, nuclear power… Go way back when, in the ’50s, when it started in early ’60s, being pro-​nuclear was to be progressive, okay? Coal was… Well, the famous line about nuclear, which is why progressives were for it at the time, was that it would be too cheap to meter, it was thought that it was just a hunk of capital, the marginal costs were so close to zero that once we paid for the capital, that nuclear power would be, quote, too cheap to meter, unquote.

0:04:05.6 Peter Van Doren: So unions were for it because of construction jobs, which is also why they’re still for it, and coal was sort of Republican, believe it or not, and I guess it’s come back to that, except for the United Mine Workers. The United Mine… So you had a [0:04:25.9] ____ right coalition that was [0:04:28.0] ____, but the business side of coal was Republican and still is. So anyway, nuclear started out as progressive. We then get the cost increases during the ’70s and then Three Mile Island happens. So then the environmental left and the business side see nuke as just too expensive, and you end up with long times, right, the time to build the plant takes 15 years, something like that.

0:04:56.5 Peter Van Doren: You end up with a plant on Long Island named Shoreham that doesn’t open at all, they build it and then don’t open it, because people don’t think the nuclear evacuation plans are possible, think of the density of the Long Island Expressway, which even on good days doesn’t work, and so imagine blah million people trying to escape Long Island because of something. So Shoreham was built and never opened, then Seabrook in New Hampshire ends up being the albatross cost-​wise over all the New England utilities that were co-​investors in it. One reason utility rates in New England are so high is they’re still paying off Seabrook, which at the time, my memory is that it was something on the order of 23 cents a kilowatt hour was the sort of level [0:05:47.8] ____ estimate, the sort of amortized cost of the nuclear plant divided by its output over 40 years worked out at something like 23 cents a kilo hour. And that was in the early ’90s.

0:06:00.9 Peter Van Doren: So, nuke’s expensive. So along comes global warming and then, ooh, you get environmentalists, some environmentalists say nukes are the answer, and then you get business interests that are thinking in nukes, etcetera, etcetera. So what should libertarians think about nuclear power? Well, the short answer is, and then I guess it… Well, you can tell me whether you think it was a lazy answer or not, but my answer, along with our old colleague, Jerry Taylor, was we didn’t give it much thought from a libertarian point of view, ’cause we said, everywhere in the world nuclear power seems to need state power, and everywhere in the world, except the United States, the nuclear plants are owned and operated by the state or instruments of the state, and then there’s the 10,000 year nuclear waste problem. There’s no private contract in the world that’s lasted 10,000 years.

0:07:03.2 Peter Van Doren: So you have your Yucca Mountain waste disposal era, right, and then the senator from Nevada made sure the Yucca Mountain never opened. Now, there’s no senator from Nevada that’s majority leader. So anyway, we thought the easy answer was nuclear power seemed to be everywhere a creature of the state, there was no merchant interest in building nukes, therefore, libertarians should just stop at that, we don’t need to do cost benefit analysis, because it just doesn’t seem like there’s any entrepreneurial possibility, given the legal liability issues and the 10,000 year radioactive waste disposal problem.

0:07:49.6 Peter Van Doren: So put that aside. What Jeff Miron and I are doing now is trying to think through a narrow question, which is that we [0:07:58.8] ____ as carbon tax level would be sufficient just from an economic point of view to make the 40-​year cost estimate of a nuclear plant equal to or less than natural gas, sort of ignore the waste problem, ignore the… You can pile all that on at the end, but is nuclear power viable from a strictly economic point of view if the carbon tax were high enough. And the answer is yes. So the question is, does the break-​even world look like a $40 a ton carbon tax or a $400?

0:08:43.1 Peter Van Doren: If it’s $400, and no country is thinking about that as anywhere near politically possible, then once you add in the liability and the long-​term waste problem, then you could say, libertarians, yeah, the state could do it, but notice, it still doesn’t make sense, ’cause no one’s thinking that the carbon tax ought to be $400. So we’re just trying to do an order of magnitude. Is it $40 or $400 or somewhere in between? That’s sort of what we’re up to. So I’ll let you ask some questions or your thoughts on how you guys have thought about nuclear.

0:09:23.5 Aaron Powell: On the liability question, is this an issue where… So if the liability is basically like this power generation mechanism can harm people, like meltdowns and whatnot are dangerous, they can kill people, and there’s a long-​term environmental cost, both in terms of environmental damage and/​or storage costs in the long-​term, it seems like coal has that stuff too, like coal is putting particulates into the air, polluting, causing problems, and it does long-​term environmental damage, it clearly can harm people’s health in the form of air pollutants and so on, or even the people in the mines inhaling like the direct particulates, but the issue is it’s less, I guess, spectacular. Like when a nuclear power plant melts down, you see it happen right then and there, and you see the people who are harmed. You could know it.

0:10:26.0 Aaron Powell: And the environmental and storage costs are, we’ve got this stuff and it’s in these small amounts, but it’s dangerous, we’ve got to put it somewhere, whereas the cost of coal and the environmental harms are much more dispersed, much harder to measure, they’re kind of everywhere affecting a extremely large number of people, it’s hard to know which people were actually hurt and how much. And so is this an issue where there are higher liability issues with nuclear simply because it’s really hard to measure the liability and costs of coal?

0:11:00.3 Peter Van Doren: One… Very good question. One is, what’s the true sort of scientific estimate of this stuff versus the political economy, seen and unseen kind of thing, which I think you’re hinting at. The seen and unseen on the political side is real, that people are scared of nukes, there’s a certain kind of nerdy analysis which says that that fear is overwrought, etcetera, etcetera, but then Fukushima happened, but even there, I’ve run an article or I’ve described an article in one of my columns in Regulation, where some very good risk analysts estimated how to think about Fukushima and the Japanese decision to not only deal with it, but to shut down all nukes in Japan, still.

0:11:50.7 Peter Van Doren: Well, then, because Japan doesn’t have coal, Japan has to import oil, and so the cost of electricity rose quite a bit because of the shutdown, and these analysts calculated that there were lots of elderly and not so elderly deaths in Japan because people couldn’t afford the electricity and therefore didn’t heat their homes, and therefore got cold and froze to death. And the death toll of that seems to, in all, given their estimate of radiation exposure and radiation death likelihood and things like that, the long-​term Fukushima death toll is actually much greater because of the shutdown of the nukes than any kind of rational risk analysis about radiation exposure, etcetera, etcetera.

0:12:43.0 Peter Van Doren: So there are those kinds of articles in the literature and the… So, yes, so both on a rational nerdy side, the costs of coal are dispersed and not that seen. And as we’ve talked, I don’t know if we’ve talked about it, but the literature is very conflicted about the effects of PM 2.5, the so-​called very small particles that come from fossil fuel combustion, including coal, and the effect of all that soot that we actually can’t see on morbidity and mortality is contentious. Everyone agrees, though, that depending on your views on that, that makes coal deadly or not deadly, depending on your conclusions about that.

0:13:38.4 Peter Van Doren: But yes, but from the public’s point of view, the nuke stuff shows up on TV when it happens, whereas the coal stuff is just sort of ongoing, with the exception of… You earlier talked about those waste ponds where they store the coal ash, oh, my God, those things aren’t… They have to be… Well, they’re unregulated, I’m not sure in a Cato world they ought to be unregulated, I mean, they are long-​term water supply issues, and every now and then there are new rivers and then the river overflows and then the ash dump goes crazy, and then you got lots of stuff in the water.

0:14:17.0 Peter Van Doren: So the fact that those aspects of coal production are not probably regulated enough, yes, I agree with you. But again, we’re not actually doing our analysis vis-​a-​vis coal, we’re saying coal is basically dying, and so it’s natural gas that’s the issue. What carbon tax… What level would make a base-​load nuclear plant competitive with something called a base-​load natural gas plant, a so-​called combined cycle plant.

0:14:56.5 Trevor Burrus: Let’s talk about liability caps for a second, ’cause I think these are something that are often missed by libertarians as a significant subsidy. One, I guess we could talk about, do we agree with them at all? ‘Cause there’s one vein of libertarianism that would say liability caps are contrary to a well-​functioning tort system. And it’s interesting, ’cause if you were… The question here, one of the questions that I see it is in a totally free market with good tort system and good controlling of externalities, would anyone ever build a nuclear plant because of the risk of a tail event that would create… It would really be… It’d be an interesting…

0:15:46.4 Peter Van Doren: Or to put it differently, let’s say for weird possible stuff in the future, the libertarian position was, oh, well, you could go bankrupt and you don’t have enough net worth, so therefore, we’re libertarian approved, we’re going to require a bond, you have to put blah amount of money, and see, we need to talk about how much blah is, you need to put blah amount of money in a Federal Reserve Bank of New York account, right, and hope you’re not the government of Afghanistan that had their money blocked or something, and so you’ve got to put a pile of money somewhere and then if you know what hits the fan, then the monies are released under contractual agreements for the damages. It seems to me to be a reasonable libertarian position.

0:16:38.9 Aaron Powell: Maybe this though is a silly question…

0:16:41.9 Trevor Burrus: It is, but the blah question is important, how much.

0:16:46.8 Aaron Powell: Well, but this seems like… I mean, maybe I’m asking a silly question here, but isn’t that what insurance is for, like there are tail events that we… We all have… We have auto insurance because we might end up needing to pay a bundle of money or homeowners insurance ’cause our house might burn down and we don’t expect it to happen, and so we contract with an insurance company to pay premiums. Why wouldn’t that same apply here?

0:17:07.6 Peter Van Doren: Good, so then the question is, is a Lloyd’s of London contract credible? And again, it then depends on what’s the biggest Lloyd’s payout ever, right, and then would a nuke contract, liability contract, what order of magnitude would it be relative to any previous private Lloyd’s payout. And again, we then would ask is it the same order of magnitude or many, many zeros of that? In which case, you then get into the issue of, well, if this is a lot bigger than any other Lloyd’s contract ever, is that a credible commitment?

0:17:52.0 Trevor Burrus: I feel like the best analogy would be the kind of hurricane payouts, which I know are, can be the big hurricanes like Katrina, but those also deal with certain subsidies. I mean, you’ve written about flood plains, building a house on flood plains and things…

0:18:11.7 Peter Van Doren: I mean, the good news is…

0:18:12.9 Trevor Burrus: I mean, that… I mean, Hurricane Hugo and Andrew, Katrina, those have got to be about as big as Chernobyl.

0:18:18.4 Peter Van Doren: There is private hurricane reinsurance, believe it or not, and guess FEMA actually writes contracts with Lloyd’s type entities for, and Swiss Re, for these kinds of reinsurance contracts, but those contracts have limits. So again, we’re back to how big a deal is, so that maybe our next paper or what Jeff and I try to do is try to work through… Again, because Lloyd’s is private, I don’t know, I literally don’t know whether the data on their payouts are publicly available or not, but we’d need to know that, and again, just do an order of magnitude analysis, which is the private market where equity is totally at risk, which is what the Lloyd’s, the owners of Lloyd’s put their personal wealth at stake in an unlimited sense towards these kinds of contracts. It’s a big deal.

0:19:23.1 Peter Van Doren: So, alright, that’s worked out for 400 years. But I don’t know whether nuke falls into the possible range of things that they could deal with or not, and I haven’t seen any papers on… It doesn’t mean they don’t exist, but I’ve read a lot and I haven’t seen anyone ask that question, which is what I think we agreed the question that should be is.

0:19:48.9 Trevor Burrus: Well, how do we take the swirling mass of costs, right? I know this is… More than half of writing one of these papers, but Aaron alluded to various things that could be seen as subsidies to alternatives to nuclear, either coal, natural gas, or I guess not so much oil, but there’s a lot of subsidies there, there are subsidies for offshore drilling of oil, oil wells, because there’s a liability cap, so people probably don’t want to drill off shore, I think… Are there liability caps for various harms that could environmentally happen to… That comes from a coal plant, like you mentioned, the coal pollutant runoff.

0:20:30.3 Peter Van Doren: Not that I know of. See, the nukes are covered by the Price-​Anderson Act, which caps the private owners, right. Most, except for TVA and some others, most nuclear plants in the United States, are owned by utilities, not merchants, but by vertically integrated utilities that are in rate regulated states. And the Price-​Anderson Act limits the liability of those owners who… I’d have to check it, I should have. I think, I won’t… Anyway, $100 million, I forget. It caps it. And then above that, the feds are totally liable for everything above that, above that level.

0:21:16.1 Peter Van Doren: Then there’s a tiny literature on trying to estimate how big a subsidy that is or isn’t, and we’ve had an article in Regulation that talks about that, and then the author says, basically hell if I know, but it might be anywhere from 2 cents a kilowatt hour to 20, which isn’t that helpful, ’cause that’s pretty much the range of all possible sources of power, so… Anyway.

0:21:40.0 Trevor Burrus: So what would you… You would want to know. There’s a lot of unknowables here.

0:21:50.4 Peter Van Doren: We have your known unknowns and your unknown unknowns.

0:21:50.8 Trevor Burrus: Exactly. But even trying to estimate… What is the range that tends to be given… I imagine it’s huge, ’cause the literature is big, but on a carbon tax, if what level the carbon tax should be put at. You said that there’s a lot of contention about particulate matter, but then…

0:22:11.0 Peter Van Doren: Well, the so-​called social cost of carbon coming out of Brookings RFF kind of mainstream think tanks is in the 120-​ish range, whereas politically, no one’s thought of anything kind of other than in the 20-40 range. And so if the results of our work come up with something in the 40 range, then nukes, quote, make sense, that the smallest carbon tax anyone considers would be sufficient to make nukes viable. If it’s in the 120, then we’ll sort of not know, and then if it’s in the 400, it leaves open the question, at least in my mind, of whether libertarians/​rational cost-​benefit folks ought to be as pro-​nuke as they are now.

0:23:14.2 Peter Van Doren: One thing we haven’t talked about is the capital cost overrun problem. If you read… I mean, I’ve been reading Scientific American forever, and ever since the ’70s, they’ve said cheap nukes were around the corner. Well, the corner seems to be… It’s like the light in the… Yeah, it’s just further and further away. So there’s now a new, what I call a new nuclear boosterism which says so-​called modular nukes and other innovations are there and… I don’t know what to make of that. We have to figure out. Most of me is suspicious. It seems like boosterism to me.

0:23:54.1 Peter Van Doren: And whereas the evidence of the plants in Georgia, right, that we’re building under government subsidy, we’re adding some plants in Georgia, there’s also a plant in Finland being built by EDF, the French company. And France, actually, just this week announced they’re going more nuke, right. Well, the numbers are kind of $8000-10000 a kilowatt of capacity. Those are extraordinary numbers.

0:24:25.5 Aaron Powell: How does that compare to other… Like how does that compare to natural gas or coal?

0:24:28.3 Peter Van Doren: Oh, natural gas is stunningly below that by order of magnitude. And so, again, the only thing that makes natural gas dicey is the cost of natural gas. Natural gas is a low capital cost, high marginal cost fuel source; nuke is the opposite. So everything on nukes hinges on cost of capital, a realistic estimate, and then the discount rate, what real interest rate do you use in a fair cost-​benefit comparison is the right… Real interest rates have gone down over the last 40 years, do we think that’s real? Is it going to keep that way, is the cost of capital going to explode? And do you understand all those assumptions, because nuke is so capital intensive drive your answer.

0:25:19.3 Peter Van Doren: So we won’t come up with an answer, we’ll just say if you use a 7% real rate of return on capital, then, wow, nukes, they’ve got to really perform well, and the carbon tax can’t be too high, ’cause they’ll be priced out of business. If the cost of capital is low enough for a long enough period of time, then you get a different answer. And so again, I think a fair analysis just presents all this to the reader and then say, you choose or we don’t know, some combination of the two, because 40 years ago, if you’d told me real interest, that we would borrow as much as we are now, and real interest rates are 2% for 30 year bonds, that’s like, what? That’s not possible.

0:26:09.3 Peter Van Doren: Well, it is. It’s happening. So again, will it be true over the 40-​year lifetime of this plant, and the answer is probably not, but is it going to go hot? You know…

0:26:23.3 Trevor Burrus: One more on the nuclear thing. I keep hearing that there’s been… There’s been sort of stunning… There’s been a lot of discussion of new ideas, new technological advancements in nuclear power, but a lot of them haven’t come to fruition or they haven’t been as promising as people thought, but then also there’s a lot of arguments that having not built nuclear power plants in a while, at least in America, one, we’ve not innovated, and two, some things have even been forgotten about how to build some of these things. We need innovation generally to keep capital costs down, that’s one thing where people keep innovating to keep the capital costs down, but if there’s no competition and the entry costs are super high and they’re all sort of state-​based, it seems that we shouldn’t expect a huge amount of innovation in terms of lowering the capital costs of nuclear plants.

0:27:22.9 Peter Van Doren: Agreed. The one exception that we’ve found so far in the research is we need to take Korea seriously. They seem to have low-​cost, well, relatively low-​cost plants. Then the discussion mostly on the right is are American safety standards too much. The usual sort of, is regulation, is the NRC run amok. And I’ll give you some… There was a paper that I’ve written about in Regulation that was published last year, and it said the following. They looked at all the nuclear plant construction cost histories in the United States, the first compilation of everything, and they noted the cost increase, and they then said, well, why?

0:28:11.9 Peter Van Doren: Well, it appears that there’s the following safety standard, and you have to tell me whether you think it’s nutty or not, that nuclear containment vessels, the concrete that surrounds the nuclear plant, not the heat exchangers, but the actual reactor, that concrete vessel has to be strong enough to withstand a direct hit from an airplane.

0:28:37.4 Trevor Burrus: Yeah, that’s crazy.

0:28:39.6 Peter Van Doren: Okay, that’s in the regs.

0:28:40.9 Trevor Burrus: That is… You mean, like I see like a bombing attack from Russia, a… Not a nuclear weapon, but like a traditional bombing attack from the Russians or something?

0:28:50.4 Peter Van Doren: No. An airplane flying into it, it has to withstand that. And this paper said about a third of the capital costs of… Or sorry, a third of the increase since the low-​cost ’70s, a third of the increase may be the result of that particular, of safety standards. And then again, you have to have a discussion of, well, is that… So when I read it, I said, no, that’s not nutty, I mean, to be able to withstand an airplane crash into your nuclear containment vessel, that… I mean, it’s rare, but the World Trade Towers. So do you want… The World Trade Towers are bad, but do you ever, ever want that to happen to a nuclear plant, and the answer is probably… Well, if you do, do you want the plant to survive, do you want the containment vessel to survive?

0:29:50.4 Peter Van Doren: And I said, as a reasonable person, I said that doesn’t strike me as outlandish, but I’m quite willing to have a conversation about how nutty it is and then, etcetera, etcetera. But do you see… I mean, we’re trying to talk about what should libertarians think about this. And so from a principled position, we’re back to what’s the right way to talk about risk analysis, and there’s normal economics and risk analysis, but what we’re discussing today is, does libertarianism per se have anything to add to that, something that Trevor and Aaron have thought of that the nerds at the Journal of Risk Analysis have not.

0:30:34.6 Aaron Powell: It seems like there’s also a… There’s an economic growth angle to this and to risks, because what we’re saying is these things have unlikely, but potentially very high costs, but at the same time, we know that economic growth unleashes innovation, which tends to make products better and safer, and having greater wealth allows you to weather disasters and bad things better or come up with ways to… They still happen, but they don’t do as much damage and so on. And one way to get a fair amount of economic growth would be to have radically more available energy and cheaper energy, and longer term, if it’s cleaner energy, that’s good as well.

0:31:27.9 Aaron Powell: And so, if all of our risk analysis is assuming like a static world, then we’re not really taking into account what abundance does, and it would seem like we’re therefore somewhat over-​estimating the actual long-​term risks or at least damage from those risks, and underestimating the benefits we would get from these technologies or the ones that might emerge 10, 15, 20, 50 years down the road of growth-​unleashing innovation.

0:32:04.3 Peter Van Doren: Fair enough, I mean, that’s the Cato, that’s the human progress Cato argument. And I get it in general. I’d just push back slightly, in that nuclear power cost over… I mean, why have so many smart people had so little success in controlling nuclear plant costs across [0:32:30.2] ____, across time. It’s not just us, it’s the French… The article in The Times this week where Macron announced, we’re going to build nukes. The number, it’s just, again, EDF is building the plant in Finland. EDF has built the most nukes of anybody in the world, right, a single entity, right, that nukes in the US are built by different companies, there are 85 plants in France all built by the same company, and they’ve had a long 50-​year time period to figure out what to do. They’re building this plant in Finland.

0:33:02.5 Peter Van Doren: Oh, my God, the cost over-​runs are just nutty. So the usual Cato argument about expertise in science and let them go, and here we go, and they just keep saying we’re going to do it somewhere in the future, but we haven’t figured it out now. I think the only question I’m trying to figure out is, Korea seems to be different. Have to figure out why. We have to figure out what… Is it construction? Well, the MIT paper that reviewed the US experience said it’s not regulation mostly, except for that containment aircraft thing that I talked about, it’s just a tremendous difficulty in managing construction site workers, and it’s like, what? That’s the problem?

0:33:48.8 Peter Van Doren: And it’s not a union story really, as best I could tell, so anyway, but Korea seems to be different, but opaque, and so we have to… Where now, my research assistant and I are trying to find something about the Korean experience and why it anchors the low-​cost perspective and why so little is written about whatever it is they do, what is it that makes it cheaper.

0:34:19.8 Trevor Burrus: Interesting. Well, I think we can put a pin in that and say, we don’t know… A bunch of interesting questions, and we don’t know, and we would like to learn more about the costs and benefits of nuclear. But moving to a different energy-​related question is something we’ve discussed recently on gas taxes. So gas taxes have long been thought of… I think economists had generally thought of them as a better form of a tax than other types of taxes because they at least supposedly put that money back into things that the cars are using, so there’s more of a use tax going on, but you’ve been having some interesting thoughts recently about gas taxes.

0:35:04.4 Peter Van Doren: Not exactly the way you just said until about four weeks ago, and it’s Jeff Miron that’s causing the mischief here, he’s always… Sometimes he’s just provocative, he’s just pushing things, which is what good intellectuals do. How do you know what you know? Well, you have to start from something and you only incrementally talk about other stuff, you can’t think about your whole world all at once. So in 1977, after I was a senior and I was just graduating, so the summer after I graduated, I worked with Alan Altshuler at MIT and helped him do research on an urban transportation book. And I did the energy chapter, which is why I became an energy person.

0:35:50.3 Peter Van Doren: And in that book and in all standard, it’s not right of center discussions, just standard, not transportation economics, but sort of political economy transportation, was that the gas tax was overwhelmingly approved by US citizens in referenda at this level in the ’20s and ’30s and ’40s, and that’s how we build roads, those revenues were dedicated, and then the interstate system had a federal tax in ’56 of 4 cents a gallon, and that money was, quote, dedicated to build the capital costs of the interstate system.

0:36:30.0 Peter Van Doren: And so again, then in that book, we talked about Nixon and the transit problem, or the rise of transit under Nixon. Nixon had a problem with cities, he didn’t have much support in them, and they were rioting at the time, and he said… Like the politician he was, he said, what can I do? And his answer to avoid discussions of race and spend money in cities was to subsidize transit, that’s where urban mass transit subsidies came from. And they rose tremendously, oh, goodness, 300% under Nixon or something like that. So then Alan Altshuler, when he was Secretary of Transportation in Massachusetts, there was a proposal to build an interstate highway right through Cambridge, an inner Beltway going through Cambridge between MIT and Harvard across the river and the BU Bridge, go through Roxbury and rejoin join 95, 93 south of the center of Boston, sort of inner Beltway.

0:37:35.6 Peter Van Doren: Well, there was massive… MIT said, you’re not going to build a… MIT and Harvard did not want to a road going through Central Square, right, and the Governor of Massachusetts was an MIT grad and Alan Altshuler… So, this… What happened in the ’70s, there was this exit near North Station in Boston that used to go off into the air, and it was called the Road to Nowhere, it doesn’t… They’ve now rebuilt the bridge and all that, but for 30 years, there was this exit in the air that was going to be the interstate through Cambridge. Anyway, so diversion became part of the political solution, alright, and then as diversion grew over time, analysts basically said, well, the diversion’s not a good… Right, that… ‘Cause now, transit is subsidized by money that was supposed to go to highways and all of that.

0:38:26.9 Peter Van Doren: And so I too thought all of this until quite recently, and then Jeff said, well, wait a minute, taxing and spending in economics are completely separate, this notion of dedicated taxes and stuff is just, I don’t know what… It’s not economics, he said. And I go, okay, alright. And he said, you ought to tax things that have an elastic demand because that doesn’t rearrange behavior, and thus the gas tax might be good exactly because why people hate it, because they keep driving, and so the gas tax actually raises revenue officially, then, well what should you spend it on? And he said the government should prioritize its spending based on the maximum benefits relative to cost. And you rank order them, and then your tax inelastic things, and then you spend money in that order on maybe defense and then maybe… And then the last thing you spend it on is roads, maybe, he said, right.

0:39:26.3 Peter Van Doren: And so I said, oh, my goodness, now I’m going to have… So we’ve been kicking back and forth sort of amendments and footnotes to that initial discussion, but that’s where we are, which is the whole notion of public finance and the right way to think about taxes and spending is much more driven by political economy, I.e., something called dedication and diversion, but not pure economics. So that’s where we are.

0:39:58.5 Trevor Burrus: Okay, so we want to… So generally speaking, economics of taxes are for re-​raising revenue, they can also be for internalizing externalities, that would be a little different, I think, than one that just was meant to raise revenue, ’cause you might want to do that for…

0:40:19.8 Peter Van Doren: Well, that’s where we… We also are talking about something called the double dividend, which is if you tax something for revenue, and then it also has externalities that you want to deal with, do you then need… And I use that… Does that then mean you need an additional tax or can one tax serve more than one purpose in an economic sense, which is it’s a good way to raise revenue, and it also reduces the externality associated with that thing, by gasoline use, and I still don’t… Again, we’re thinking about it. I won’t say we know the answer to that question.

0:41:03.1 Aaron Powell: What would it mean to spend tax revenues, like let’s just say all our taxes are being paid into this centralized bucket, like a general fund, and then we’re going to spend it. What would it mean to spend it along purely economic lines, as you said, versus political economy lines?

0:41:24.9 Peter Van Doren: Jeff’s… I mean, our preliminary thinking was, more Jeff and me, I’m not sure what I think, but he just said, well, cost… Just compare the present value benefits from the spending versus the present value cost, then you rank order stuff. And so you can imagine health and safety, ’cause the lives are so valuable, the cost per… So maybe health, quote, public sector efforts are first in the budget in this way of thinking about things. And then you eventually get down to things that are barely breakeven where the present value benefits equals the present value costs of raising the revenue.

0:42:06.6 Peter Van Doren: And then there’s stuff that goes below that. I have… I mean, the only analogous thing I can think of is Kip Viscusi’s attempt to rank order health and safety efforts, regulatory efforts, where you try to estimate the cost per life saved of various stuff, and you rank order them. So for him, things like guardrails, we’ve had this discussion, like making roads safer is cheap and saves a lot of lives, and so that ought to come really high up in your rank order of government spending purposes and…

0:42:47.2 Trevor Burrus: Does it matter… We’ve talked about Kip Viscusi’s stuff before, but on this specific question, take motorcyclists. So a guardrail may save a motorcyclist’s life, we have the Peltzman problem that it might also make them drive more dangerously, and other types of safety stuff, but what about… I see some motorcyclists doing things and I’m like, they do not value their life that much, and they may not value it as much as guardrails, right, I’m like, okay, so we shouldn’t be thinking… They are really willing to… It’s like what I say about astronauts all the time, I kinda took it from… This was weirdly in my dream, last night, I was debating the President and I kept telling him this, but the problem with NASA is it cares too much the lives of astronauts.

0:43:34.1 Trevor Burrus: Like there are people out there who will be strapped to a rocket with very little safety harnesses to maybe get to the Moon or maybe die. And we’ve got to find those people if you want to make a cost-​effective NASA, and it isn’t at that point about finding the cost of a life, of a life in the Kip Viscusi way, this is just like subjective value more than an objective measurement.

0:43:56.7 Peter Van Doren: Yes, they’re sorting. Different people have different risk preferences, agreed, Trevor, no question. And so, in all of these discussions, I’m sort of talking about the median person or whatever, and then you could say, in effect, letting motorcyclists die at greater frequency on roads and not having special stuff for them is okay, because they are different than most people, and they know it, and even though they haven’t signed contracts that relieve the owner of the roads of responsibility for making them safe enough for their stupidity, in effect, culture accepts the fact that they die and we don’t care as much. You know, I mean, yes. Sadly, for the motorcyclists.

0:44:50.7 Peter Van Doren: We all live around DC, there’s this famous kind of problem around here, for listeners who are far away, there’s a gang of rogue motorcyclists that go on the Beltway and Route 50 to Annapolis most every weekend when the weather is not crazy, and they go 100 miles an hour and they go… They zoom around cars. I mean, I’ve been in one of those episodes and my wife said, Peter, look in your rear view mirror, we’re about to be attacked by a swarm of motorcycles, and they go in and out of traffic and all that, and it’s taken the local police agencies three, four years, right, they finally indicted some of these folks and some of them were off-​duty prominent policemen. Again, policemen are not a random sample of the universe, right. So, yes, anyway, end of DVD hold there. Got a little [0:45:44.6] ____.

0:45:45.6 Aaron Powell: Well, before I ask my final question, I want to just thank you, Peter, for being my last Free Thoughts guest. It’s always a privilege to have you on, and it’s been phenomenal talking with you all these years, and so I’m wondering, I guess, given how talented you are at talking about so many things in such a thoughtful way and in a way that keeps you open to exploring, not just confirmation bias exploring, but genuine exploring of these ideas, do you have, I guess, from your long career, advice for our listeners, for me going forward on how to approach engaging with the kinds of complicated issues that you engage with?

0:46:46.4 Peter Van Doren: That’s a good question. I just gave my intern lecture last week, and they’re the future, right, and so they always ask interesting questions and then they go, well, the world’s falling apart, why do you… You seem pretty optimistic, should we be? And I go, I don’t… I mean, the good news. So for me, the worst year ever was 1968, I just think… Again, it’s not scientific, but here’s my hunch. We got through ’68. Stuff was burning. Stuff was bombing. I saw cops beat up Dan Rather on the Chicago convention on TV. Yeah, we’re kind of… Things are feisty now, no question, but it’s not ’68, and we got through ’68. So that’s why I’m optimistic.

0:47:34.9 Peter Van Doren: Pessimistic. Even though Cato is not for vaccine mandates and things like that, I’m kind of… I’m an old Northeastern farmer Republican, if that makes any sense, where you thought people were pretty sensible and the government didn’t need to do anything, ’cause most people were sensible, they figured stuff out, and they took reasonable appropriate action. You can’t be a dairy farmer without figuring stuff out like that, ’cause there’s no one to… I was going to say no one to bail you out, but now we know there’s dairy price support, so in fact, dairy… All my hard-​working northern New York friends were actually just welfare cheats or something like… But no, you know what I’m saying.

0:48:14.7 Peter Van Doren: But it’s that sort of rural sensibility that I would think would lead everyone to take vaccines for COVID, right. I don’t know of anything whose benefits exceed their cost by such a ratio as that in terms of healthcare. And so, if I were to be pessimistic, I would say, wow, the fact that 30% of Americans or some, and concentrated among my relatives in rural areas, that the fact that those people are resisting what seems to me to be sensible, that’s… I don’t have an answer, I actually, I don’t. And so how do you get people to just be… To lower the temperature and kind of be interested in inquiry and lead it where it does. And the answer is, I try to do that my entire life and try to inculcate that in my students, but it’s personality-​driven, I just think that’s intellectual inquiry, and it’s best I find it a high calling, and the fact that it rescued me from milking cows every day, that’s actually what to tell…

0:49:31.9 Peter Van Doren: I mean, and our colleagues, I tell them this when I think they’ve gone off the rails, which is what we do is a privilege, it really is. Only in a rich society could you set aside some people to think about stuff. We have a very, very privileged position, so I take it seriously, and thus I don’t like using intellectual inquiry as a weapon, it is not and should not be a weapon. And sometimes people listen to me and other times they don’t, and that’s all I could do. And the two of you, I’ve enjoyed whenever… I’ll miss Aaron popping into my office and just two hours later, we’ve realized it’s two hours, but it didn’t feel like it. And that’s that… That’s the good part. Sometimes with Trevor it feels like two hours. No, I’m just…

[music]

0:50:39.4 Aaron Powell: Thanks for listening. If you enjoy Free Thoughts, make sure to rate and review us in Apple Podcasts or in your favorite podcast app. Free Thoughts is produced by Landry Ayres. If you’d like to learn more about libertarianism, visit us on the web at lib​er​tar​i​an​ism​.org.