Following up on the post immediately below, "Dear Goldman Sachs: What Happened to "Goldman to offer Metro customers immediate access to aluminum" (AA; GS)".
From naked capitalism:
Nothing like watching a captured regulator like the Fed use a public hue and cry to execute a big bait and switch. Here the ploy is to change rules to further disadvantage the parties making complaints. But it takes finesse to make the finger in the eye look plausible and reasonable, so that when the well-understood bad effects show up later, the perp can pretend to be mystified....She then links to a observation from a few years ago that our readers may recognize and is pertinent here:
...The Fed officials, if they are at all competent, should recognize that a tax is the wrong remedy for this sort of situation. First, we’ve already seen that Goldman was able to act as an oligopolist through its control of warehouses. Taxes don’t undermine the ability of oligopolists to push prices higher than where they would be otherwise. Second, in general, the alternatives for dealing with a situation like this is to consider prohibition versus taxation. Which you favor depends on which party bears the greater costs. In this case, the answer is clearly prohibition. Andrew Haldane of the Bank of England explained:
The taxation versus prohibition question crops up repeatedly in public choice economics. For centuries it has been central to the international trade debate on the use of quotas versus subsidies. During this century, it has become central to the debate on appropriate policies to curtail carbon emissions. In making these choices, economists have often drawn on Martin Weitzman’s classic public goods framework from the early 1970s.
Under this framework, the optimal amount of pollution control is found by equating the marginal social benefits of pollution-control and the marginal private costs of this control. With no uncertainty about either costs or benefits, a policymaker would be indifferent between taxation and restrictions when striking this cost/benefit balance. In the real world, there is considerable uncertainty about both costs and benefits. Weitzman’s framework tells us how to choose between pollution- control instruments in this setting. If the marginal social benefits foregone of the wrong choice are large, relative to the private costs incurred, then quantitative restrictions are optimal. Why? Because fixing quantities to achieve pollution control, while letting prices vary, does not have large private costs. When the marginal social benefit curve is steeper than the marginal private cost curve, restrictions dominate....MORE
