An interesting question emerged from some discussion surrounding my last carbon tax post. How big will the tax be? The letter says $40 a ton, but then rising. But how far? And in response to what question?
It occurs to me that the two obvious targets lead to radically different answers.
1) The social cost of carbon. This is what economists usually think of as the appropriate Pigouvian tax. In order to pollute, you pay the cost you impose on others by your pollution.
Even the worst-case scenarios now put the cost of carbon emissions at 10% of GDP in the year 2100. Discount that back, divide by all the carbon emitted between now and then, and, you're going to get a pretty small tax.
2) Temperature or quantitative guidelines. Or, "whatever it takes to stop the global temperature from rising more than 1.5 degrees C." Such a tax has to be high enough to basically stop us from using fossil fuels. It would be radically higher, and impose economic costs far higher than 10% of GDP.
When you set a goal of a quantity with no attached price, the price can get pretty high.
I see now some of the back and forth chatter. Anti-carbon types warn that any tax "won't be enough." Now I know what they mean.
So who sets the tax, and on what basis, are important issues we're all fudging over.
Of course, a cynic would take the view that the tax will be set to
3) Maximize government revenue.
Given the behavioral elasticities, that is likely to be a good deal less than #2, as to high a tax will quickly erode the tax base.
PS: to my may CO2-is-not-a-problem commenters. If (or perhaps when) it's all proved to be a hoax, a carbon tax is a lot easier to undo than the alternative regulatory approach!
Monday, January 21, 2019
34 comments:
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A friend sent me an interesting paper comparing the time path and welfare consequences of the optimal carbon tax vs the revenue maximizing carbon tax in the DICE model.
ReplyDeletehttp://iopscience.iop.org/article/10.1088/1748-9326/aa6e8a/pdf
At current prices, the demand for thermal coal will probably be quite elastic to the carbon tax while the demand for demand for gasoline and diesel for transport and natural gas for home heating will be relatively inelastic.
ReplyDeletePeople who propose and support carbon tax hate poor and middle class, they are going to be hit hardest with taxes.
ReplyDelete"(...) let me try one last attempt to get the reader to see the sleight-of-hand that these economists are pulling here. Suppose that President Trump had his protectionist economic adviser, Peter Navarro (who has a PhD in economics from Harvard, by the way), announce a new tariff of 100% on all Chinese imports, but that the proceeds from this new tax would be sent lump-sum to every American citizen. Would the economists who signed the WSJ letter then agree that “most American families” would benefit financially from the tariff? I mean after all, rich people tend to spend more dollars (in absolute terms) on imported goods than poor people do, so the statement would be correct. And yet, of course none of the WSJ letter signers would endorse such a plan. They would (rightly) warn Americans that such a large tariff would disrupt production decisions and lower just about everybody’s standard of living. The fact that these economists are adopting a completely novel talking point to sell a carbon tax should make Americans quite suspicious."
ReplyDeletef/ https://www.instituteforenergyresearch.org/climate-change/economists-mislead-on-carbon-tax/
To give an answer to the author Robert Murphy (who predicted hyperinflation in response to QE, by the way):
Deletea) carbon tax trades a reduction in negative (future) externalities for contemporaneous investment
b) economists do not expect international trade to have aggregate negative externalities on growth. This makes it hard to justify a tax on trade but easy to support a carbon tax.
I am going to buy a yellow safety vest.
ReplyDeleteI find it stunning that prof. Cochrane would sign up to any new tax plan correlated with climate change modeling. (I am a modeler, and urge anyone unfamiliar to consult the old question, do pirates cause global warming? Yes!
ReplyDeletehttps://www4.ntu.ac.uk/adq/document_uploads/events/164779.pdf )
So by 2100 GDP will be X, and it will be lower by 10% due to climate change? Whoever estimated 2100 GDP should repeat the calculation for GDP/capita. We have NO CLUE is the truth, and taking 10% of an incalculable quantity, pretending to discount it to the present, then equating this nonsensical tax to that fantasy number cannot be thinking straight. Perhaps this is another manifestation of the hysterical search for safe spaces.
Ecoute Sauvage -- "We have NO CLUE is the truth, and taking 10% of an incalculable quantity, pretending to discount it to the present, then equating this nonsensical tax to that fantasy number cannot be thinking straight."
DeleteThank you for bringing more bold exasperation to this issue. I cannot agree with you more about the nonsense of all this; "pixies and unicorns" that dance in the heads of Green prophets; but it galls me to hear them proclaim (based on computer models!) "science" can look into the future so well.
And since their great god of the machine has spoken, nationalize healthcare and prohibit motor transportation unless (somehow) electric.
I had never before panicked about climate models until one evening when I happened to sit down for dinner next to a very distinguished atmospheric scientist - and I will tell the story here in hopes prof. Cochrane (read by many outside the economics profession) and others here will understand the magnitude of the uncertainties involved.
DeleteI asked him how his research was going and he said he's been grappling with a mystery, how, so many years after lead had been banned from gasoline, lead was regularly found in atmospheric samples at various altitudes. I told him, probably from Avgas. Aviation gas (used by ALL propeller planes) contains lead; jet fuel doesn't. There are hundreds, possibly thousands, of models of propeller planes, and obviously not all those engines can be modified for lead-free fuel. Nor can airports be expected to stock more than those 2 fuel types. The man looked at me in horror, got up from dinner, and ran to his lab to investigate. He called me the next day to thank me, and ask if I wanted credit for his forthcoming paper (I didn't). But asking ANY pilot, ANY airport manager, ANY petroleum engineer, ANY refinery director would have solved this "great atmospheric mystery" long ago. The fact it had to happen by accident is damning. And nobody knows how many such "mysteries" lurk in these "scientific" models. Anyone who would base policy on them is ignorant - at best.
If people think that there is doubt about the accuracy of the models then they should be advocating more money for research to improve the data and the models. The chemistry and physics of atmospheric CO2 should be well understood and are certainly capable of being understood. The warming effects (if any) of that CO2 should be within the capacity of feasible numerical models of the atmosphere.
DeleteTo argue that the models may be wrong and therefor we should look away and do nothing is the height of folly. If you think the models are wrong - you should look more closely.
Given the stakes, billions of dollars would not be inappropriate (after all, the United States' government is currently shut down over a dispute over $5.7 Billion for what appears to be little more than a vanity project for the President.)
Absalon - you forget, climate models have a long history of predictions like this 2004 Pentagon report:
Delete"Now the Pentagon tells Bush: climate change will destroy us
· Secret report warns of rioting and nuclear war
· Britain will be 'Siberian' in less than 20 years
· Threat to the world is greater than terrorism"
https://www.theguardian.com/environment/2004/feb/22/usnews.theobserver
Prophets abusing "the end of the world is nigh" messages - not to mention coming up with catastrophic policies like "switch to diesel, less CO2 than gasoline!" - will, eventually get tuned out.
Ecoute - I will repeat my point for the folks in the back row:
Delete1) the physics and chemistry are knowable
2) the mathematical modelling is getting better as computers become more powerful and algorithms improve
3) anyone who thinks the current models are wrong should be advocating for more research to settle the question one way or the other.
To say: some past models were wrong and there for we do not need to do any more research is not prudent.
You will excuse me for observing that most readers here need no repetition, with you being the only notable exception - to wit, I already stated I am a modeler.
DeleteI KNOW the uncertainties involved. It is my considered opinion that throwing more money at climate models in our current state of ignorance will NOT improve their predictive accuracy - unless, perchance, you have a solution for the Navier-Stokes equations? With due respect, I'll bet you don't even know what those are.
"our current state of ignorance will NOT improve their predictive accuracy"
DeleteIf you think there is some area of ignorance then that is where the research money should go. "Better to light a candle than curse the darkness."
(I know what the Navier Stokes equations are.)
Hard to find researchers who will say 'I really think we should spend less money on research'
DeleteMy neighbor thinks the moon is made of green cheese. I don't. But anyone who thinks the current green cheese models are wrong should be advocating for more research to settle the question one way or the other.
Or start worrying about things actually matter, rather than green cheese and climate change.
"Such a tax has to be high enough to basically stop us from using fossil fuels."
ReplyDeleteThat much is plain, but what alternative energy sources are we to use? We're looking at having to electrify everything and then sourcing that electricity from renewable sources. Do we use the carbon taxes to offset this huge change? If so, how is that more efficient than government saying no more fossil fuels in 10 years?
Related to oil, energy, recessions and the *potential* downside to levying taxes...
ReplyDeleteRead 2.2 in particular.
The graphs are pretty interesting, too.
I assure you, this isn't a non sequitur. Energy prices matter.
http://ourfiniteworld.com/oil-supply-limits-and-the-continuing-financial-crisis/
Question becomes if the revenue from taxation can end scarcity as it relates to energy extraction/production. Maybe.
There's also this from the paper:
"Scenario 2. There is an increase in world oil supply, but OECD countries are unable to compete for it, or refuse the oil that is available, or **tax the oil to the point where consumption continues to fall, in the interest of limiting CO2.** The likely outcome for OECD would seem to be economic decline and debt defaults because of the reduced oil supply."
Interesting stuff.
I cannot help but be a cynic and say (3) will be the Public Choice result of this scheme "to save the planet." It even ignores the relative contribution to that one or two degree marginal increase in 2100. The Green prophets rule out anything "natural" (e.g. solar variation, clouds, and volcanic blows - all of which are strong variables that cannot even be estimated with any confidence).
ReplyDeleteBy asserting the obvious (Malthus would have told us, humans cause transformations of nature, overcrowd, dump crap, and warm themselves with available technology), the Green prophets tell us human are "causing Climate Change." Yes, with all other causes held at levels found today, as constants.
[Can we laugh them out of their dissertation presentation, professors?]
AND, not only would the rate of tax assessed, and by Whom! -- and who is going to enjoy the visit of the energy-tax auditor who levies penalties and underpayment fines? Social costs of a carbon tax, indeed.
I've been complaining for a while on various comment threads about the equivocation in what is "mainstream" climate policy. The economists in the Pigou club are always going on about how a carbon tax is obviously correct, it will benefit the economy if the money is diverted to their favorite option (reducing other taxes, funding R&D on new energy technology, etc.), and we will all make optimal adjustments along all margins of supply and demand such that everyone will live happily ever after. But almost all of them (with exceptions such as Pindyck) are imagining fairly modest carbon taxes in the range of OECD experience with fuel taxes and the like, projecting what would be optimal with models such as DICE (which concluded that the Paris accords were excessively restrictive).
ReplyDeleteMeanwhile the other, more potent part of the "mainstream" consists of activists and natural scientists who are demanding a King Canute hard cap of 1.5 degrees C temperature increase, no matter what. Such a target implies getting into "deep decarbonization" of the economy, with corresponding massive dislocation. Some of the economic and power-system modelers who take this idea seriously have concluded that the cost of doing this will be astronomical if the burden is to be borne solely by hydro, solar, and wind power (e.g. Thernstrom et al over at EIRP). (Personally I wonder if an all-hydro, solar, and wind model for the U.S. would even satisfy the Hawkins-Simon conditions for input-output matrices in the neighborhood of modern industrial society.)
So there's a lot of bait and switch, along with various equivocations (e.g. the IMF study on fossil-fuel "subsidies" that trumpeted large absolute numbers for the U.S. but worked out to about a nickel a gallon energy equivalent across all U.S. fossil fuel consumption) and fudges (e.g. non-existent carbon-capture schemes). IMO, the answer to the climate policy morass for free-market people is pretty much the one from WarGames: The only way to win is not to play.
A carbon tax is a solution in search of a problem.
ReplyDeletePlacing a carbon tax on emissions from all sources in one jurisdiction, e.g., the State of California, would have no material effect on global emissions or the mean global atmospheric temperature, no matter how steep the tax is (say, $500 per metric ton of carbon dioxide equivalent, "tCO2eq").
ReplyDeleteThe requirement of a carbon tax is that the tax is applied uniformly to all sources everywhere on the globe without exception. This is not practicable; nor is it politically feasible. The various exercises in addressing "climate" issues, e.g., Paris, Kyoto, Rio De Janeiro, have been flops irrespective of the political 'spin' put on the communications issued by the participants.
Bottom line, nothing will happen; the climate will continue to change, as it has done for the past 13,000 years, and mankind will continue doing what it is currently doing--improving living standards for those in the 3rd world economies, making modest improvements in alternative energy sources and efficiencies in existing energy use, and adapting (as necessary, if necessary) to changes in local climate conditions.
It is a pointless exercise for economists to engage in ascertainng the level of a Pigouvian tax to compensate for 'climate' externalities when everyone in the world is contributing. Who do you compensate? Aboriginals living in the Amazon rain forest? The amount would be deminimus, if so.
One aspect of a Pigouvian tax that many overlook is that it is fixed and invariant once determined. See Ronald Coase's many papers on the subject. Pigou noted that the his proposal was misunderstood by a broad cross-section of the profession.
William Nordstrom compared the level of proposed 'carbon taxes', using his DICE model against U.S. federal government estimates (Inter-agency working group "IAWG"), and Lord Stern's estimated 'carbon tax' rate. It is an interesting exercise, but largely irrelevant.
Border adjustment taxes are not permitted under international trade agreements, and short of exiting from those agreements, the U.S. will find itself involved in an endless law suit and subject to counter-veiling tariff measures in response. A border adjustment tax is not practicable.
For an individual residing and working in a major urban center, e.g., San Francisco and the Bay Area, doing without petroleum energy is perhaps feasible if enough 'clean' electrical energy can be obtained. For those who reside in rural areas, this is not feasible. Nor is it likely to be feasible.
The subject requires more thought than it apparently has been given.
Hi David,
DeleteI always find your posts well thought out. I enjoy them.
I think one of the challenges in all this is economics itself, the eternal struggle between positive and normative analysis. As a result of this struggle there is a another one that's emerged as a result of the miracle of The Industrial Revoluton: economic development vs. sustainable development.
Here's a wonderful blog post that highlights the underlying problems and presents an interesting solution:
https://moderndiplomacy.eu/2016/08/27/reimagining-modern-economic-life-via-franciscan-ecosophy/
Best,
M
Sophistry as an end in itself makes for charming fiction but seldom if ever lends itself to the solution of real world issues.
DeleteMaybe so; but that's a source of these fights is the minimization of what people are pointing to simply because it doesn't fit into their worldview. It happens quite often. The Rational Enlightenment tried to constrain it all to the realm of logic, which inevitably triggered The Romantic Era afterwards in response to reliance on logical structures alone. It was a repudiation of pure reason (ha ha) which then led to a wild swing in the other direction.
DeleteNormative econ is full of land mines. Just the way it goes. I agree there's real world problems, but it all depends on what lens you're looking through.
It boils down to "Thesis-Antithesis-Synthesis". Rationalism is the antithesis of dogmatism; escapism (romanticism) is the antithesis of rationalism. Dogmatism may be seen to be means of controlling a burgeoning society for the benefit of an entrenched oligarchy, generally in response to change in social mores and norms that threaten established interests (monied and landed classes, e.g., the Church and the baronal classes). Success (Rights of Man, etc.), via revolution (French, or American) and overthrow of the former order, generally leads to excesses; escapism into the past (romanticism) is one reaction by a certain faction of the population that emphasizes the positive aspects of former societies (Hibernian, etc.) and de-emphasizes the negative aspects (famine, disease, pestilence, arbitrary oppression, war, genocide, etc.), generally fostered by authors and artists or those who would be those people if they had but the talent.
Delete"Normative" statements, in economics or (esp.) politics, merely assert "what should be" (Cf., Sen. Warren) in order for one interest group or advocate of regulation (or deregulation) to achieve his or her ends and objectives (e.g., political control). "Positive" statements assert a "fact" or some relation between one or more events or phenomenon. The distinction is "interest" in a political sense, versus, "disinterest" or objectivity in the scientific sense. In short, "Normative econ" is political, whilst "Positive econ" is 'scientific' or meritorious (in the eye of the beholder). Both are beset with "land mines". 'Science' becomes religion when it is founded on 'belief', i.e., taken as 'fact' at face value or in reliance on a higher authority (cf., Scientism).
Difficult to do 'economics' without addressing 'real world problems'. Economics, if it deals with anything, deals with the allocation of scarce resources. In the final analysis, it is inherently political by virtue of the nature of scarcity. Absent scarcity, the study of economics would have no purpose (notwithstanding that it often doesn't) as there would be no need to allocate resources, cure want, or regulate behavior--e.g., one could not hope to 'corner' a market in a commodity for which there is no scarcity. "Sustainable development" is simply economics dealing with the issue of future scarcity in the present. It gives rise to normative statements, i.e., "should do", "should not do". Often the future scarcity is 'projected' or 'imagined' ("simulated" by calculation, often by computing machines). Cf., "climate change", or "saving carbon", etc.
Too often, people get wound-up over some notion that seizes the imagination and confounds rational thought. "Saving carbon" is one such. "Inter-generational equity" is another. Dutch tulip bulbs and the South Sea Company are historical examples of the same phenomenon. "Peak oil" is another. "Climate Change" is merely the latest in a long list of similar hysteria. When one passes, another is launched. The "threat of nuclear winter" was uppermost in the minds of many when I was a mere youth. Nuclear-war-ready bomb shelters were all the rage, along with air-attack warning drills, etc. Where would we be without such stimulae?
Cheers!
Hi David,
DeleteWell, yes, you see the major problem.
There's even ideological and normative bomb shelters where people hide and never come out. They're stuck in a particular way of seeing the world. Even the illusion of rational thought ends up working this way, too.
Of course econ deals with the allocation of scarce resources. It wouldn't be econ if it wasn't. But what it's turned into is a weapon to determine who owns what and who deserves what. That's a normative question. Even if the math and models "work," it doesn't mean people will like it. Allocative efficiency is idealism.
Look at Thanos in the latest Avenger flicks. Talk about Malthus on steroids. Preventive checks don't work -- positive checks do. And it's all justified because if half of life is annihilated, resource scarcity isn't a problem anymore. Of course this makes Thanos insane. But...could he be right?
I think we have to start looking at what we really want and care about. Econ helps point to these existential questions. It's why externalities due to economic thinking expressed as policy and activity should (ha ha) be addressed. Normative analysis can be applied to itself. Maybe this is an incompleteness problem that triggers thoughts of Gödel, but that's ok. Decisions about allocation matter a great deal.
Best,
M
"Of course econ deals with the allocation of scarce resources. It wouldn't be econ if it wasn't." An example of circular reasoning.
Delete"But what it's turned into is a weapon to determine who owns what and who deserves what." This has already been tried -- cf., Marxist-Leninist-Stalinist-Maoist political systems. It is definitely not a "normative question". People didn't like it (cf., "collectivisim") in the U.S.S.R; and Stalin's response to the peasants' revolts was quite decidely deadly.
Eliminating half the population of the U.S.S.R. did not make the food shortages disappear, or the crop yields improve. Not at all sure that "Thanos" is a suitable metaphor for economic allocation problems, but it is definitely not likely to be Pareto-efficient.
Economics doesn't deal with such questions as "the meaning of Life", &c. 'Existentialism' is on a plain of its own. 'Economics', I have been assured by others more worthy and learned than myself, is more 'earthy'.
"It's why externalities due to economic thinking expressed as policy and activity should (ha ha) be addressed." Doesn't follow logically. Thinking, per se, seldom gives rise to externalities (excepting, of course, the wife's insistence that the front lawn be mowed with a skill approaching god-like perfection.)
"Normative analysis can be applied to itself." Navel-gazing, in short? Seems capable of producing in a computer an infinite loop execution sequence. Until one re-boots out of it.
"Decisions about allocation matter a great deal." Implying that 'Economics' matters a great deal. But does it matter more than say engineering or medicine? Feast vs. famine? Or, "All should pay so that some can play?" The latter is a favorite of the political class and its dependents and facilitators.
Cheers!
*laughs*
DeleteYou don't think Economics matters? If allocation of scarce resources didn't matter, that means there's no decision making process taking place. That would imply we have no choice in what we do -- which, of course, doesn't follow...
If economics does indeed have a normative component, what should be, that means it does inform how we make choices - it reveals what is important, depending on the normative lens. We wouldn't do engineering or medicine if there wasn't some intrinsic value in those endeavors, which means some choices had to be made to actually do those things. You're trying to say those things emerged all on their own? I never said that it mattered more than any other discipline, but it helps reveal what's valued.
It's not navel gazing to contemplate the role and nature of normative economics using the principle what should be. We're not automatons with perfectly formed algorithms that just plug and chug. Economics is a tool.
Economics used (and still is) to be a philosophical endeavor. This blog and its participants are evidence of that.
Thanos was just an example of extreme economics gone sideways. Thanos wasn't a central planner (tyrant, yes). Imagine if he was...
What I'm pointing to is that Economics doesn't exist in a vacuum. It's not a purely rational endeavor divorced from reality. Positive analysis is useful, but it doesn't tell anyone what should be done as you well know. The Greeks were right however -- earth measuring comes first. You can't philosophize about the world unless you know something about it.
We live in a society. We're not all living in some individualistic Autarky equilibrium, unless you're a hermit. The questions of who owns what and who deserves what are important questions because they speak to equity. Efficiency isn't the eudaimonia of econ, even if the math says it could be (x,y). There's tradeoffs and they're not always pleasant.
You can't have it both ways by saying econ's normative path doesn't have any purpose and role and then use normative reasoning to say that it's all effectively silly.
Anyway, I do enjoy the back and forth.
Best,
M
As an engineer, I can assure you that 'engineering' per se has no intrinsic value on its own.
DeleteWho determines "what should be" in your view of things?
In welfare economics, social welfare is maximized when each actor in the economy is operating in perfect competition with every other actor in the economy. Questions "..of who owns what and who deserves what..." are settled each day in the competitive market, not by some omniscient being who weighs and judges each actor on his or her merits or condition as your remark implies.
"Econ" doesn't have a "normative path". It is people who weigh and judge their peers, their superiors and (esp.) their inferiors and offer up dispraise or praise as their inclinations and interests predispose them to one or the other. "Econ" is neutral. E.g., Senator Warren is censorious. She tries to lay down the law--thou shalt not do so-and-so, thou shall do thus and thus. That is in the nature of politics, not economics. Keep the two separate in your mind and you can't go far wrong.
Hopefully more "forth" than "back", eh?
Hi David,
DeletePolitics is very much about allocation and what should be used for what. If it wasn't there would be no shutdowns, budget fights, so on and so forth. We could arrive at a rational and cogent outcome every time. As we have seen, that rarely happens. Politics is very much tied up with economics and vice versa.
Warren isn't the only one to go down that path. The GOP does it, too. It's decisions about how to best use scare resources. There's going to be arguments about that.
Yes, we have a competitive market and the classicists think it works just fine all on its own. But, there's market failures -- and you're aware of negative externalities, as well as the positive ones, too.
Engineering has value to someone, somewhere, yes? Does it not have value to you? :P I'm one, too, and yes, it's easy to fall into the trap of mathematical idealism. Normative econ can seem silly and retarded, a bunch of people fighting about stuff that doesn't actually produce better or worthwhile outcomes. If we were all rational, no problem!
If you've tinkered with preference modeling, the CB utility functions are pretty cool. Set MRS equal to MRT and voila -- optimal bundle! Simple model and it covers a lot of bases/assumptions. But it's a model of reality, not reality itself.
In most psychometric models, you're lucky if you can account for 40% of the variance. That leaves 60% unaccounted for -- if you're lucky. It's really difficult to get a model that useful.
Is normative econ messy? Of course it is. It's not easy to get collaborative outcomes. But it's possible to have improvements. Attachment theory informs a lot of this and the research out of the OSLC ultimately reveals preferences for cooperation and collaboration. Some people enjoy fighting. ;)
Anyway, thabk you again. Always a pleasure.
Best,
M
We can agree that politics is about dividing the pie, not making it larger---"more for you, less for me", etc. My younger brother and I were competitive and grasping, in our youth, but being older I had the privilege of partitioning the rewards. If it was a whole apple pie that I was dishing out, I'd say to him, "Well, Jon, which half of the pie do you want?--the inside half or the outside half?" That would always get his 'goat', and result in a pyrotechnic display of verbal abuse which was ever more inventive as we grew older. Youthful training for a future career in politics, no? In later life he became a highly regarded union shop steward; I became a corporate director and executive vice president. Such is life, eh?
Delete'Engineering' has value only in what it produces or saves. As an applied science (as opposed to a pure science), its value comes from the use to which it is put and not otherwise. Some uses to which engineering is put are "bad", some "indifferent" and some are "good".
"All 'models' are wrong, but some are useful." [Attributed to George Edward Pelham Box FRS (1919 – 2013).] Integrated assessment models are wrong (cf., R. Pindyck on the subject). The engineers' model of beam deflection is 'wrong' if the deflection of the beam exceeds a small percentage of the length/depth of the beam, and incorrect for short deep beams. Nevertheless, both types of models are used extensively regardless of the limitations imposed by theory and the physical laws.
"normative" economics is "clean"--i.e., "idealized". That is what makes that aspect of economics attractive to some practitioners of the art, Krugman for instance. "positive" economics, on the other hand is messy and 'scientific'--conclusions and laws are testable and can be disproven ('Oh, rotten luck' in the English sense) and many a career has been made (or broken, esp., on the rocks of improperly collected or analysed data.) (Engineers too.)
Ditto, : )
“The social cost of carbon. This is what economists usually think of as the appropriate Pigouvian tax. In order to pollute, you pay the cost you impose on others by your pollution.”
ReplyDeleteProblem is, A.C. Pigou, the obvious author of a Pigouvian tax, said it would never work. How so?
Both economists and politicos/associated ilk with a particular axe to grid never bother to read the complete Pigou. They stop at the Pigouvian tax as that is what they want to see and either never read-on or willfully omit the balance of what A.C. Pigou had to say.
Piguo was a good economist and as such considered the “unseen”. He basically said his proposition works well as blackboard economics (works in a theoretical world) but would never work in the real world as politicos, special interests, do-gooders and their associated ilk would waste any such tax and consequential revenue:
"It is not sufficient to contrast the imperfect adjustments of unfettered enterprise with the best adjustment that economists in their studies can imagine. For we cannot expect that any State authority will attain, or even wholeheartedly seek, that ideal. Such authorities are liable alike to ignorance, to sectional pressure, and to personal corruption by private interest. A loud-voiced part of their constituents, if organized for votes, may easily outweigh the whole." - A.C. Pigou
The surplus energy supporting our lifestyle is carbon or carbon-supported. All taxes are carbon taxes just varying degrees of abstraction. Taxing at the base does have an appeal, simple and direct. Perhaps cutting subsidies on the worst offenders might be a better start. Stop government subsidies for children and liquid fuel transportation, trucks,cars and planes. The savings would be dramatic.
ReplyDelete"PS: to my may CO2-is-not-a-problem commenters. If (or perhaps when) it's all proved to be a hoax, a carbon tax is a lot easier to undo than the alternative regulatory approach!"
ReplyDeleteBASED UPON WHAT EVIDENCE???