Perverse Subsidies: How Misused Tax Dollars Harm the Environment and the Economy

The authors give insightful explanations of many government subsidies that ultimately act to create waste and, often, lobbying for more subsidies to remediate the effects of the first. Nothing in the book is particularly new. But it brings together many details often omitted in shorter explanations. Apart from the many tables of numerical data, the book also has telling anecdotes. One is how in the California Central Valley, overhead irrigation is often done at midday, when the temperature might be over 30, or even over 40. Likewise, in Cairo during an international conference, the lawns were watered at such times, in similar temperatures. A dreadful waste. Often, half the water is lost to evaporation. Yet in both countries, government subsidised water is so cheap that profligate use is encouraged.

In their book, Perverse Subsidies, Kent and Myers adequately demonstrate how global tax revenues can at times adversely affect the economy and the environment. The book is an expanded version of a 1998 report on the topic of perverse subsidies, focusing in particular on the OECD nations. Given the magnitude of these pervasive, deleterious subsidies, the authors were genuinely perplexed to find that the subject received scant attention from specialists in economics, public policy and the environment. As such, the book's subject matter would serve as an excellent springboard for hundreds if not thousands of graduate level research projects in the fields of economics, public policy, urban planning and development. On the organizational front, the authors divided the book into three uneven parts, with the second of the book comprising the majority of the text. Part one of the book consists of two chapters that for the most part are readable and understandable. The first chapter covers basic concepts associated with subsidies in general such as: what subsidies are, the various types of subsidies given, the advantages and disadvantages of subsidies, social equity concerns, scale and externality issues associated with subsidies, and finally an extended discussion of how the authors derived their rough estimate for the size and extent of subsidies globally. The authors astutely note the difficulty of tracking down information regarding subsidies in general, and openly admit that their estimate for global subsidies may not accurately reflect the true value, given the hidden nature of subsidies and the active roles of governments to contain detailed information about payments and transfers. The second chapter tells the reader what constitutes a perverse subsidy (which the authors define as having deleterious and distorting effects on both the economy and the environment), delves heavily into economic and environmental values and costs associated with perverse subsidies, and tersely explains the role of (negative) externalities, focusing almost exclusive on the role perverse subsidies play in exacerbating global warming. Part two contains individual chapters devoted to the agricultural, energy, transportation, water, fisheries and forestry sectors of the global economy and each chapter outlines the type and magnitude of the subsidies given to each sector, and offers specific policy recommendations for policy intervention, change, and/or overhaul. In each chapter, some countries are emphasized more than others, and this I believe reflects the availability of reliable data more than the political and economic importance, however great or small, of the countries emphasized. Part two also contains a final chapter that discusses the combined effects of perverse subsidies across all sectors presented, as well as their political, economic, and social implications. The last part of the book consists of one chapter, and For the curious layperson, chapter

Norman Myers and Jennifer Kent have written a comprehensive and engaging book about what turns out to be one of the biggest impediments to environmental quality and sustainablity - perverse subsidies. The book does a splendid job of documenting and quantifying perverse subsidies in six main sectors globally. One thing it lacks, however, is a really concise definition of what perverse subsidies are. Here is what is meant: A subsidy is a payment by a government to an individual or firm. In theory, the intent of this payment should be to decrease the divergence between private and social costs/benefits - to internalize externalities. A perverse subsidy is therefore a payment by a government to an individual or firm which, instead, increases the divergence between private and social costs/benefits. This can include both direct and indirect perverse subsidies. Direct subsidies are direct government payments to agriculture, fossil fuel and nuclear energy, road construction, water, fisheries, and forestry (the six major sectors documented in Myers' book). Some part of these subsidies are, of course, not perverse. They serve the intended purpose of reducing the divergence between private and social costs/benefits. But a large proportion of current direct subsidies are perverse. Myers and Kent estimate that globally 60% of conventional subsidies are perverse. This amounts to $860 Billion annually. Indirect subsidies are the failure of government to internalize externalities (especially environmental externalities) - leaving an unaddressed divergence between private and social costs/benefits. All of these indirect subsidies are (by definition) perverse and Myers and Kent estimate their total at $1,090 Billion annually. The total direct and indirect perverse subsidies worldwide are therefore estimated to be almost $2 trillion annually. As Myers and Kent point out, this is almost three times global military spending, larger than the annual sales of the twenty largest corporations, and four times the annual incomes of the 1.3 billion poorest people on earth. In other words, perverse subsidies are a huge problem, but an inherently "solvable" one whose solution would yield a "double dividend." Eliminating perverse subsidies would first help to reduce the divergence between private and social costs/benefits, thus making the economy function more efficiently. Second, it would free up funds to help solve other pressing problems. Critics will, of course, ague that these estimates are far too uncertain and "mushy" to have any meaning. Myers and Kent acknowledge the huge difficulties, but point out that "As long as the issue of perverse subsidies remains untackled, there tends to be an implicit presumption that their total must effectively be zero: there is the asymmetry of evaluation at distortional work. Of course, this is not what is intended. But as long as a problem is not accorded adequate attention, it is implicitly viewed as if it i