The Economic Cost Of The Social Cost Of Carbon

Guest Post by Willis Eschenbach

I’ve crossposted this from my blog, “Skating Under The Ice“.

The unscientific enterprise called the Social Cost of Carbon (SCC) is a thinly disguised political attempt to justify some kind of a “carbon tax”. Of course calling it a “carbon tax” or the “social cost of carbon” is doublespeak, or perhaps triplespeak. It is doublespeak because the issue is carbon dioxide, not carbon. What they are talking about taxing is not carbon but CO2. (In passing, the irony of a carbon-based life form studying the “social cost of carbon” is worth noting …)

It is triplespeak because in the real world what this so-called “carbon tax” means is a tax on energy, since the world runs on carbon-based fossil fuel energy and will for the forseeable future.

This energy tax has been imposed in different jurisdictions in a variety of forms—a direct carbon tax, a “cap-and-trade” system, a “renewable mandate”, they come in many disguises but they are all taxes on energy, propped up by the politically driven “Social Cost of Carbon”.

I’ve written before about how taxes on energy are among the most regressive taxes known. Increasing fuel prices hurt the poor more than anyone, because the poor spend a larger fraction of their income on energy. Gasoline prices to drive to work don’t matter to the wealthy, but they can be make-or-break for the poor.

However, in addition to harming the poor, there is a deeper reason that such a tax on energy is a very bad idea.When you tax energy, you are taxing an input to wealth production. Taxing any of the inputs to wealth production is destructive. Instead of inputs, you want to tax the outputs of wealth production. Let me lay out the several reasons why.

I’ve discussed in the past that there are three and only three ways to create real wealth. By real wealth I mean the actual stuff that we use—houses and food and cars and clothing and nails and fish. Real wealth. Here are the three ways to create wealth:

First, you can manufacture wealth—you can build a shirt factory, manufacture a new medicine, or sew clothing in your living room and sell it on the web.

Next, you can grow wealth—you can cultivate an apple tree, keep a home garden, or plant a thousand acres of corn.

Finally, you can extract wealth—you can drill for oil, dig for gold, or fish for trout in a mountain stream.

Everything else is services. Important services to be sure, life-and-death services in some cases … but services nonetheless.

To understand this distinction between services on the one hand and wealth generating activities on the other hand, let me use an example I’ve given before. Suppose there are two couples on a tropical island. One person fishes, one has a garden, one gathers native medicines and building materials from the forest, one builds huts and makes clothes from local fiber. They could go on for a long time that way, because they are creating real wealth. They have food and clothing and housing, the things that we need to survive and thrive.

Next, suppose on a nearby tropical island there are two other couples. On that island one person is a barber, one is a doctor, one is a journalist, and one is a musician. Noble occupations all, but services all … those folks will have nothing to eat, nothing to wear, nothing to keep the rain off. None of those occupations create any real wealth at all, while all the activities on the first island do create real wealth.

This means that if we want our country to be wealthy we need to do everything we can to encourage manufacturing, agriculture, and extraction. And that brings me back to the subject of this essay, the energy tax masquerading as a “carbon tax” and crudely propped up by the laughable “Social Cost of Carbon”.

Let’s set aside for the moment the question of whether a given tax is used wisely or not. And let’s also set aside the consideration of WHAT we tax. Instead, let’s look at the effects of WHERE in the economic cycle we apply our tax.

Each of the three ways to earn wealth has both inputs and outputs. For example, I’ve worked a lot as a commercial fisherman, an extractive industry. The inputs to this way to generate wealth are a boat and motor, nets, diesel, a captain, and some deckhands. The output is yummy fish.

Similarly, the inputs to manufacture are things like raw materials and labor and energy and machinery. The outputs are manufactured goods.

In the third and final way to create wealth, inputs to agriculture are things like water and seeds and fertilizer and tractors and diesel and farmers and field workers. The outputs are fruits and vegetables and fiber and oils and all the rest of the things we grow.

So let me pose you a theoretical question. Assuming that we need to tax the wealth generating process … is it better to tax the inputs to the process, or to tax the outputs of the process?

The answer is perhaps clearest in the field of agriculture, where the question becomes:

Should we tax the seed corn, or should we tax the resulting corn crop?

The first and most obvious reason that we should tax the corn crop is because taxing the seed corn makes it more expensive, and thus it discourages people from planting. We don’t ever want to do that. Discouraging the generation of wealth weakens the economy. We want to encourage the generation of wealth.

The second reason not to tax the seed corn is that agriculture, like all ways to generate wealth, has a multiplier effect. Every single corn seed will likely turn into a plant yielding hundreds of corn seeds. Taxing the seed corn means a farmer can buy less seed … and a reduction of one seed can reduce the eventual crop by a hundredfold. This damages the economy in a second and distinct way.

Finally, there is a third separate hidden damage from taxing the seed corn instead of the  corn crop. Having grown up on a remote cattle ranch I know that farmers are broke in the spring and generally only have cash when the crop comes in. The same is true of most wealth generating activities. Money is scarce at the start of the process and ample at the end. This means that extracting the dollars by taxing the inputs to the wealth generating activities puts a much greater strain on the individual wealth generators, the farmers and the fishermen, than does extracting the same dollars from the outputs of the process.

From these three separate kinds of damage it is clear that taxing the inputs to wealth generating activities is generally a mistake.

And this brings me back again to the question of taxing energy. The problem is that energy in the form of fossil fuels is an input to all forms of large-scale wealth generation. This means that driving the cost of energy up for any reason, or in any manner, imposes a greatly magnified cost on the economy through at least the three separate and distinct mechanisms I listed above.

And this is the reason that I am utterly opposed to any kind of tax on energy, whether it is a so-called “carbon tax”, a “renewable energy mandate”, or any other measure to increase energy costs. We have businesses fleeing California for neighboring states in part because our laws REQUIRE that we pay astronomical costs for electricity from expensive green power sources.

When I was a kid, my schoolbooks were clear that cheap electricity was the savior of the poor housewife and the poor farmer. And growing up on a remote cattle ranch where we generated our own electricity, I could see as a kid that it was absolutely true. Having ample cheap electricity transforms a family, a farm, a town, or a society.clinton-energy-tax

But now, based on the crazy war on CO2, people are doing everything that they can to drive the cost of energy up. Obama’s Energy Secretary famously said he wanted US gasoline (petrol) prices to go up to $8 a gallon like in Europe. Obama himself said that his electricity policy would necessarily cause electricity prices to “skyrocket”. We were into this nonsense all the way back to Clinton.

Let me recap. In addition to energy cost increases hitting the poor harder than anyone, taxing or increasing prices of any of the inputs to wealth generation also damages the economy in three separate ways.

First, taxing or increasing the price of the seed corn discourages planting.

Second, taxing or increasing the price of the seed corn has a very large effect because of the multiplicative power of wealth generation. Since each corn seed can become a plant that produces hundreds of kernels of corn, anything affecting the seeds has a disproportionately large effect on the eventual production.

Third, taxing or increasing the price of the seed corn hits the producers when they have the least money to pay the tax.

Now, consider the role of energy in this process. For all three wealth-generating activities, energy is an input. And this in turn means that any increase in energy prices reduces wealth generation by more, sometimes much more, than the price increase would suggest.

==================

Let me move to a final topic, the size of the claimed Social Cost of Carbon. Estimates range from a “negative cost”, or what ordinary humans would call a “Social Benefit of Carbon”, through net zero cost to a cost of fifteen hundred dollars per tonne. Let me take eighty dollars a tonne as a representative price for the following calculations.

In 2016, humans emitted on the order of ten gigatonnes (10E+9 tonnes) of carbon in the form of CO2. At eighty bucks a tonne, that works out to about $0.8 trillion dollars per year. Since the global GDP (the value of all goods and services) is about eighty trillion dollars per year, supporters of a carbon tax have pointed out that if we taxed all emissions that is only one percent of GDP. They say that this is a small price to pay.

But this is a simple view that ignores several important things.

First, the critical metric is not GDP. It is GDP growth. GDP growth averages something around 3% per year. This continued growth is critical both to provide for the needs for an increasing population as well as to providing for lifting the global population further out of poverty. A drag of one percent on the economy reduces growth by a third.

Next, the carbon tax itself would be somewhere around 1% of GDP or less … but that doesn’t allow for the multiplier effect of taxing energy. Because energy is an input to all forms of wealth generation, for all the reasons discussed above the cost to the economy of taxing an input to all wealth generation is much larger than just the size of the tax itself.

Finally, the magic of compound interest and the “rule of seventy”. At three percent growth per year, the “rule of seventy” says that the economy will double in size in 70 / 3 = 23 years. But if we foolishly impose a carbon tax and it drags economic growth down by only a single percent, at 2% growth it will take 70 / 2 – 35 years for the economy to double in size. And since all of these CO2 fears are a long ways out, fifty or a hundred years, over time the small drag of a carbon tax on the economy will loom large.

All of this leads us to a simple conclusion. Even if you wish to fight the eeeeevil scourge of CO2, increasing the cost of fossil fuels is the wrong way to go about it. The associated present and future damage from increasing energy costs, both to the poor and to the economy, far outweigh any possible future benefits fifty years from now.

Now me, I see no reason to fight CO2. I don’t think CO2 is the secret temperature control knob of the climate. No persisting complex natural system is that simply controlled.

But if you do want to fight CO2, DON’T RAISE THE COST OF ENERGY. If you raise energy costs in any manner you are fighting CO2 on the backs of the poor housewife and the poor farmer, the very people  you are claiming you are helping. And it’s not just the poor you are hurting. If you raise energy costs you are doing untold damage to the economy itself.

There are other options. Go for greater energy efficiency if you wish, that will reduce emissions without increasing energy cost. Get more production out of each gallon. Or support a shift from coal to natural gas. That shift does both—it reduces both energy costs AND emissions of CO2. Or for the third world solution, fog nets in Peru provide water for hillside dwellers without requiring energy to pump water up the hills. And as always, the mantra of reduce, reuse, and recycle combined with general energy conservation all can cut emissions without cutting CO2.

Because in all of this useless and futile fight against CO2, I can only implore everyone to follow the Hippocratic Oath, which says “First, Do No Harm“. And that means no carbon tax in any form, no “renewable mandate”, no “cap-and-trade”,  because they all raise the cost of energy. A carbon tax, backed up by the anti-scientific political cover story for that tax called the “Social Cost of Carbon”, will do and in some parts of the world already is doing immense harm to both the economy and the poor. Carbon tax and the “Social Cost of Carbon” do uncalculated damage, they should be avoided completely.

My best to everyone,

w.

As Usual: if you comment, please QUOTE THE EXACT WORDS YOU ARE REFERRING TO, so that we can all understand your exact subject.

Previous Posts on the SCC:

The Bogus Cost Of Carbon

[See update at the end] From the New York Times a while back: In 2010, 12 government agencies working in conjunction with economists, lawyers and scientists, agreed to work out what they considered a coherent standard for establishing the social cost of carbon. The idea was that, in calculating the costs and benefits of pending…

Monetizing Apples And Oranges

Let me start by thanking Richard Tol, Marcel Crok, and everyone involved in the ongoing discussion at the post called “The Bogus Cost of Carbon”. In particular, Richard Tol has explained and defended his point of view, giving us an excellent example of science at work. In that post I discussed the “SCC”, the so-called “Social Cost of Carbon”. There…

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257 thoughts on “The Economic Cost Of The Social Cost Of Carbon

  1. The intent is to cripple Capitalist economy and who it impacts is of no concern to the perpetrators. AGW has nothing to do with temperature.

    • Indeed. I think Willis is missing the point when he says:

      “taxing the inputs to wealth generating activities is generally a mistake.”

      It is not a mistake if your intent is to shut down the production system. It seems that many hardcore enviros want exactly this.

      While stopping pointless consumerism where we spend our lives on a treadmill, working in futility to buy another manufactured good which we already bought last year but no longer works because of designed in obsolescence may be highly desirable, we need to work out what to replace it with before shut it down.

      The current paradigm of ever increasing debt to buy ever more useless objects over and over again is just a form of economic slavery. Debt bondage.

      A friend just showed me his internet connected food blender which cost him about 1000 euro-bucks.

      We urgently need to find a better way of using our resources and working lives.

      • Greg, you are correct, and additionally think about this: the voting block most likely too put the “I know how to spend your money better than you do” crowd into office are mostly from the service sector. So these huddled masses in the service sector think (feel?) that the three pillars of wealth generation are evil processes that should be made to pay for their conduct. I live in Argentina where the extractive sector is not permitted to advance and the ENSO effects make the agriculture sector erratic and the combined effect is permanent recession. And just to make sure it’s really a mess there is a 21% sales tax on everything! I’m hoping that President Trump and his Cabinet look at things like Willis states it, and maybe some real health will come back into the economy. Looks like the Climate Change nonsense has gone from the Whitehouse website so we all might have some hope in this reagrd.

  2. A carbon tax as a disruptive force on the input to wealth creation. That is exactly what the Malthusian Left wants.

    The elitists want a return to a feudal society. No large, prosperous middle class able to compete with them for “luxury” resources.

    Algore, DiCaprio, Obama, LeGarde, Trudeau, Soros, Steyer, Obama, Clintons, and all the uber rich of Hollywood, … by their wealth they all are insulated from their policy prescriptions. Expensive energy, they don’t care. Rampant violence in urban slums, they do ‘t care. Open borders so cheap labor continues, they love that.

    Reducing consumption by poverty of the working class ensures they and their families enjoy the wealth and privilege they desire.

    -How can one enjoy a Carribean vacay when the prolitariate cruise ship comes to dock on your island getaway?
    – What if the prolitariate use up all the diesel for their silly farm power stroke Cummings diesel Dodge power wagons while their private jets have to compete with that consumption?

    Let’s not kid ourselves anymore about what this carbon tax nonsense is. It is a frontal assault on the very foundation of western capitalism that built free markets, and the most properous middle class the world has ever seen. And the Left hates that.

    • The problem for the elites is that, if they smash the economy by reducing the rest of us to poverty, the economy won’t be able to produce the goods they need to support their lifestyles.

      A good example is medicine. Right now there are medicines that aren’t produced because the diseases they treat are too rare. There’s no money to be made producing those medicines.

      If we make it so 99% of the population can’t afford drugs at all, there will be a whole bunch more diseases for which drugs can’t be produced economically. In that regard, the elites will be worse off than they are now.

      The above logic applies to most manufactured goods. Our economy is incredibly complex. Every manufactured good has to be supported by a web of dependencies. Consider the business jets that carry the elites. The machine tools that are used to build them won’t be made without the market for commercial aircraft. If we kill the economy by making it too expensive for regular folks to fly, then commercial aircraft won’t be built. That means the machine tools to build them won’t be built. That means no corporate jets to fly the elites around.

      The elites will be worse off in absolute terms. Of course, in relative terms, they will live like kings. The problem is that I would rather live like the peasant I am today rather than as a king two hundred years ago. The reason I can live better than a king of olden times is that hundreds of millions of other people are doing the same.

    • Exactly—Just keep following the money, and it becomes the old shell game, as to whose pocket it is really going into. Do you honestly think that Jerry Brown’s Carbon Tax , in California, is really “..going back to the poor impoverished underclass…(That he is creating)..”, or into the pockets of those like Tom Steyer, and his NexGen group who are flooding the airwaves with Green ads..? From what I understand, DeCaprio’s Fantasy island doesn’t even have a natural source of water, other than rain….Wonder how they are going to power that desal plant??

  3. Wash DC demonstrators against Trump carried signs calling for the end of Capitalism. Birds of a feather …

    • Did they print the sign with their Apple computer on their Canon printer while wearing shoes by Prada? Let’s get rid of all those running dog capitalist corporations.

  4. Willis,
    Thanks for and excellent posting that clearly explains the impact of raising the cost of fuels which are so critical to a healthy economy which includes jobs.
    Since it is so obvious, it is inexplicable to me that so many of our politicians are unable or just don’t want to understand it.
    This simple fact stuck home to me in the 70’s/80’s (I think) when the price of oil was around $100/Bbl.. Just using logic it struck me how expensive energy filtered into virtually and product we buy because every thing we use and need requires energy to produce or grow or transport it to market. Because of this and probably other factors, inflation ran rampant. Even a cheap person like me was deciding to buy a new car now even though I did not yet need it since the cost was going up faster than I could save the added cost later.

  5. wut?
    ” you want to tax the outputs of wealth production.”
    no, WE do not. I do not. you do, though.
    like i need more insipid apologetics for the monstrosity of collectivism.
    this articvle is rhetoric of an office (rent) seeker.

    • gnomish, as I said, this post is not about whether the tax is valid or not. As I said, my point was that IF you want to tax you do NOT want to tax at the beginning of the wealth generation cycle.

      It was not an apology for a tax. It was a clear statement of the reasons that a carbon tax is a huge mistake.

      Regards,

      w.

      • just so you know- i’m legit and not trolling you on this – which is why i’m gonna bother to elaborate even tho, to me, it’s like turkeys discussing the best day of the week for thanksgiving…
        to me, it’s not right vs left or any kind of simple strawfoot/hayfoot prepositional analogy.
        the axis is state vs individual.
        the justification for a state at all is to protect us from – guess what from…
        a man has a right to provide for his own defense but only at his own expense.
        if that man becomes the agent of predation and takes what belongs to another by force then that man is now the threat from whom others have need of defense and the right to defend themselves against.
        neither you nor anybody else has any right to the property of another man. there is no right to violate rights,

        english is only my first language but it seemed to me that you were not condemning a tax but endorsing an alternative form of taxation.
        like as if there’s a preferred orifice for suprise sex with strangers. it represents a threat of harm.
        and when it’s done by a person who invokes an imaginary crowd of supporters with first person plurals, using this bandwagoning gaslighting tactics of the demagogue it makes me want to scream.

        it doesn’t matter if you understand or agree. i respected you enough to explain it. that’s as good as it gets.

      • gnomish January 20, 2017 at 11:19 pm

        english is only my first language but it seemed to me that you were not condemning a tax but endorsing an alternative form of taxation.

        Thanks for the reply, gnomish. I had said the following (emphasis mine)

        Because in all of this useless and futile fight against CO2, I can only implore everyone to follow the Hippocratic Oath, which says “First, Do No Harm“. And that means no carbon tax in any form, no “renewable mandate”, no “cap-and-trade”, because they all raise the cost of energy.

        When I say “no carbon tax in any form” that seems quite explicit to me. And none of the proposed alternatives I listed involved taxes. This is why I ask people to quote exactly what they are referring to. I haven’t endorsed anything.

        Overall, you seem to misunderstand what I’m doing. I am ANALYZING THE EFFECT OF THEIR PROPOSED CARBON TAX to show just how very destructive it is to wealth production. I am not endorsing an alternate form of taxation. I’m pointing out that in addition to screwing the poor, they’ve chosen a very destructive form of taxation that is very hard on the economy.

        Regards,

        w.

      • WILLIS,
        I am in full agreement with your thesis not to tax energy as an input to producing the basis of wealth.
        However, I think that the way you separated your three primary examples from all other services is quite artificial.
        There really is only one primary wealth source — some natural material. Manufacturing takes one or several such natural materials and changes them in some way to be more useful. So in a real sense manufacturing is a service. Also it often is difficult to say the first step in this process is more valuable than later so-called services steps.
        As a simple example, a person in a more primitive society strips long bits of wood from a log and weaves them into baskets — a fundamental creation. But after he sold six such baskets locally, there was no further market. A second person had a truck and then took many baskets to distant cities. There he sold hundreds of baskets. Not only was the total amount of wealth created greatly expanded, but the good that came from owning a sturdy basket was greatly multiplied.
        Making things from nature may be “fundamental”, but alone is quite often characteristic of a primitive society.

        Out of curiosity, would you classify producing an original software program as fundamental or service? It is fundamental, and the raw material used is human brain power.

  6. “if we want our country to be wealthy”

    The leftists don’t want that. In their fantasies (from which their protests and policies are based) they’d rather have this:

    “We have wished, we ecofreaks, for a disaster… to bomb us into the stone age, where we might live like Indians.” -Stewart Brand, Whole Earth Catalogue

    Their 2009 Cap & Trade plan, which was really a thinly disguised de-industrialization plan, would have cut CO2 emissions by, ultimately, 83%. And we would have seen a near 20% cut already! Devastating! As the energy cuts got bigger and bigger there is no way that efficiency or prohibitively expensive renewables could make made up even a small fraction of the loss of energy. Indeed, with the 2009 Cap & Trade lunacy Obama’s Science Czar would have gotten his dream:

    “A massive campaign must be launched to de-develop the United States.” -John Holdren, 1973

    So would have the first UNEP Director:

    “Isn’t the only hope for the planet that the industrialized civilizations collapse. Isn’t it our responsibility to bring that about?” -ex UNEP Director Maurice Strong

    • The Whole Earth Catalog was all about self-sufficiency. The trouble is that, carried to its logical extreme, self-sufficiency requires that more than 9/10 of the world’s population has to die because the last time we had true self-sufficiency was the stone age. The only reason the planet can support the human population it does is technology.

      If humans were still in the hunter-gatherer mode, Earth would have reached its capacity at about 100 million people. With humans producing food and living in high-rise buildings, that number increases significantly. link

      We are highly interdependent and the hippies, libertarians, and survivalists don’t realize the implications of that. Do-it-yourself sounds wonderful until you experience the impossibility of do-everything-yourself.

      • Exactly, Bob. What the whole earthers never seem to comprehend is that even things as simple as a weed hoe or cooking pot or pocket knife implies an iron mine and miners and smelters somewhere and a foundry with forges and tools and workers which implies even more mines and miners and tools. And fuel.

        I’m blessed to live in a rural area with acres of woodland that I can cull every year for winter wood heat (low so far this year -30C) but I’m privileged to be able to do that with a chain saw and to haul it in a truck not cut with a homemade stone axe and haul in an ox cart. And, if I don’t cut enough wood and run out I can just flip a switch and stay warm (and alive)

      • … not cut with a homemade stone axe …

        I once cut down a largish tree with a nice sharp steel axe. If you didn’t witness it at the time, you’re out of luck because there won’t be a repeat performance. :-)

      • What libertarians are you speaking of? Libertarians in name only, perchance. Libertarians, formerly known as (classical) liberals, want maximum personal liberty and sovereign individuals trade whenever it is mutually beneficial. This includes their sovereign extensions as voluntary associations. Some government is necessary due to Man’s fallen state such that some will not civilize themselves. A soundly organized custom and culture is required for a soundly functioning society, Societies are created by the individuals. Promote barbarism in the people, you get barbaric cultures and thus barbaric societies. As a sovereign individual, I always have these competing choices: 1. Do without, 2. Make my own, and 3. Pay someone else to make it. Take that away from me, then I’m not free. Note that take it from someone else is not an option. [Also note that asking the government for permission to do 1 through 3, nor having the government take it are not options, either.]Taking it from someone else must result in my own punishment, provided an ordered liberty is the goal.

      • intentions don’t equate to results, dav09

        you might bear in mind that everything you say was discovered and said and written thousands of times in the past couple of thousand years. for some of us it’s not news.
        if commiebob missed out, it’s not from looking too hard…lol. he has a right to be what he makes of himself. he must make his own mistakes. enjoy his pain.

    • cdquarles January 21, 2017 at 2:37 pm

      Here’s an example:

      gnomish January 20, 2017 at 11:19 pm

      … the justification for a state at all is to protect us from – guess what from… a man has a right to provide for his own defense but only at his own expense.

      It sounds to me as if gnomish wants to be his/her own police department, fire department, and everything else.

      • No. He doesn’t want to be forced to pay for some particular provider of police, fire – or any other – service. Saying gnomish – or libertarians in general – believe or advocate that each person has to provide those services on their own, with no collaboration or cooperation with others is, to put it as politely as possible, a gross misrepresentation.

      • … a man has a right to provide for his own defense but only at his own expense.

        Does that include the right to plant a machine-gun nest in the front yard along with the tulips?

      • commieBob says:
        “Does that include the right to plant a machine-gun nest in the front yard along with the tulips?”
        fine – just keep your tulips away from me!
        nanogressor!

      • Apologists for the State are really good at making up contrived examples of bad things which might happen without the State, and even better at totally ignoring the immense amount of bad things which actually have happened and actually will continue to happen which couldn’t happen without the State.

        A few machine-gun nests amongst the tulips of suburbia would be a small price to pay to eliminate the possibility of World War One, World War Two, US Civil War, Holodomor, Khmer Rouge, Cultural Revolution, to name offhand just six instances of State perpetrated mass slaughter and destruction.

      • Dav09 January 22, 2017 at 6:28 am

        … A few machine-gun nests amongst the tulips of suburbia would be a small price to pay to eliminate the possibility of World War One, World War Two, US Civil War, Holodomor, Khmer Rouge, Cultural Revolution …

        If I thought that would work, I would heartily agree. What I worry about is that, when the government doesn’t have a monopoly on physical force, the vacuum is quickly filled by warlords, paramilitaries, criminal gangs, and terrorists. Certainly, that seems to happen with failed states 100% of the time.

      • so, if one finds a single example of force being exercised by anybody who is not authorized by law, is the concept of ‘the gov has a monopoly on the use of force” falsified?
        would it cause you to modify your proposition to better reflect reality?
        a powderpuff snowflake diet will make your fat look really butt…

      • Dav09 January 23, 2017 at 6:48 pm

        Thanks Dav09. The article reminds me that my Anthropology prof pointed out that any system can work as long as the people agree.

  7. Willis welcome to being a responsible adult. Willis spent much of his life as a California hippie. Working at a nuke plant is why I do not have much time for such idiots.

    Working in the power industry is a 24/7/365 job. I paid taxes on income and property. Power plants pay taxes on property, income, sales, and generating tax.

    The taxes were used to provide services like schools and fire departments. It works.

    Then the activist (aka, California hippies and assorted dogooders) decided energy companies were evil and consumers needed protection. Politicians figured out that they could tax the hell out of energy and the energy companies would get the blame.

    This not a universal problems. Many places in the US have reasonable taxes on energy. It is the California hippie mentality that fosters ‘social justice’ with the unintended consequences of hurting the poor.

    A carbon tax is an example of a sin tax. Some decide what is best for others. But it is just an excuse for collecting taxes. Taxes on booze and and a pack of smoke also hurts the poor more than the rich.

    Since there are other solutions that do not involve taxes, it is about taxes.

    • Retired Kit P January 20, 2017 at 10:56 pm

      Willis welcome to being a responsible adult. Willis spent much of his life as a California hippie.

      Jeez, Kit, welcome to being an unpleasant adult. I’ve been responsible since I started working at age 13, and your unfounded allegations of irresponsibility lack both truth, merit, and friendship.

      However, if I ever do get to be an adult, you’ll be the first to know.

      w.

      • if growing up on a working ranch (implies chores and an early introduction to the work ethic) and sweating to cord up firewood to sell for college expense, and working in commercial fishing makes one a “hippie” then I guess I are one too, Willis. Peace, bro..;… (can’t wait until I grow up. Since I’m retired it should be any day now.)

      • Willis good reply, you are a star!
        I had my first job at 10, I worked hard and saved like crazy. The results were a great/hand made road bike at 13 I cycled from Liverpool into North Wales every Sunday winter and Summer often 150 to 200+ miles round trip. My Own Fender Teli guitar and Vox AC 30 amp by16. A Used Morris minor at 17, A Ford Zodiac at 18 and then a self financed 6 months travel all over Africa and Europe as a hippy at 21. Self reliant never afraid to work any job and all the better for it!

        PS- great writing as usual.

  8. You can create wealth in another way: by thinking.

    As in thinking the explosion engine or the transistor and so on.

    Extraction can create wealth and so can thinking of a mean to have a faster, cheaper extraction mean. Growing crops can generate wealth as well as thinking some mean of making better and cheaper crops on the same piece of land. Manufacturing can create wealth as so can thinking of a way to improve it.

    Think of the industrial revolution.

    • Adrian Roman January 20, 2017 at 11:19 pm

      You can create wealth in another way: by thinking.

      As in thinking the explosion engine or the transistor and so on.

      Thanks, Adrian, but I must disagree. Good ideas are a dime a dozen. Imagining something that might or might not ever get manufactured doesn’t actually create anything we can use. Until it is an actual manufactured product it is just another good idea.

      w.

      • ” Good ideas are a dime a dozen.” Obviously I did not talk about those cheap ideas. The industrial revolution was not made with cheap ideas, but with great ideas. Humanity had all the three mentioned ingredients before the industrial revolution but nevertheless it did not do so great. The main reason was that the ideas were missing.

      • With all due respect, Willis, thinking is exactly where wealth comes from. It comes from a correct assessment of subjective values and turns a potentiality into a reality. There are two kinds of economic goods, and yes, services are economic goods. These are capital goods and consumption goods. Note well that the two feed back on each other and that consumption goods will have to be produced for capital goods to have their potential value made actual.

      • Adrian Roman January 21, 2017 at 1:58 pm

        ” Good ideas are a dime a dozen.” Obviously I did not talk about those cheap ideas. The industrial revolution was not made with cheap ideas, but with great ideas. Humanity had all the three mentioned ingredients before the industrial revolution but nevertheless it did not do so great. The main reason was that the ideas were missing.

        I’m not talking about cheap ideas either. I’m talking about great ideas. The road to manufacturing is littered with great ideas.

        The lack in this world is not ideas. The lack is champions who can convert those ideas into reality. Like they say … talk is cheap, and so are ideas.

        w.

      • Nah. Those ‘champions’ are one million to one great idea. They are a dime a dozen. A great idea: the wheel. Almost anybody can manufacture a wheel. Including the individuals from societies that did not have the wheel. So maybe you talk about any idea, I don’t.

      • Good ideas and production based off of those ideas are sometimes not on the same wagon. Example : Edison and Tesla.. Edison was a master promoter, who had many extremely wealthy , high heeled investors, and hired Tesla to maintain his DC power system, yet , ended up with the means of production for electricity along with most of the credit , after Westinghouse (Then Tesla’s employer ) failed in their promotion of the same. Many of Edison’s patents were actually those of employees of Edison, similar to in house patent contracts with workers in many industries. The timing of the need of an idea often determines which idea becomes successful, along with the promotion, and that idea is not often the one which is the best., but one that is first, or promoted heavily. Similar to our Political system, in ways..

    • Ideas are only valuable if they are manifested through work into something tangible that other people are willing to pay for. It is not mere thought that on its own is of value.

    • When a beaver builds a dam, he creates wealth for himself and his family, so perhaps we are not so unique.
      My personal favorite depiction of wealth creation, at 1:00

  9. where to begin …

    Willis’ opening bits reflect an understanding that historically is placed somewhere between Francois de Quesnay and Karl Marx. This was overturned by Jevons, Menger and Walras between 1871 and 1877.

    Willis rightly notes that the estimates of the social cost of carbon suggest that the initial burden of climate policy should be a tiny fraction of total income. He overlooks that the feedbacks are negative: If the social cost of carbon is imposed as a carbon tax (a negative economic impact), the tax revenue is spent (a positive economic impact, even if all the money goes to gold statues of the president’s daughter).

    Instead, Willis resurrects his “climate policy will be our ruin” argument by comparing tax revenue to economic growth, a meaningless comparison.

    Alternatively, you could have a look at the data: Norway has had a carbon tax since 1991. Other jurisdictions followed, including the UK, Ireland, British Colombia. Three areas use tradable permits instead: EU, US NorthEast, California. The notion that climate policy will be a major drag on the economy simply does not stack up.

    • Alternatively, you could have a look at the data: Norway has had a carbon tax since 1991. Other jurisdictions followed, including the UK, Ireland, British Colombia. Three areas use tradable permits instead: EU, US NorthEast, California. The notion that climate policy will be a major drag on the economy simply does not stack up.

      Richard – I have a lot of respect for you, for many reasons. Maintaining your integrity in regard to the IPCC among them and many other things. But I find this statement astonishing.

      Are there two Norways? One that implemented a carbon tax and one that didn’t so that we can compare them? Is there a second UK? Or BC? Or California? The fact is that you don’t know how those economies would have performed without those measures. So you cannot say if they are a drag on the economy or not.

      • “Norway has had a carbon tax since 1991”

        ROFLMAO..

        Norway uses nearly all Hydro . That means that carbon tax affect basically no-one except some manufactures that need carbon in their product

        It is a FEEL-GOOD POLITICAL gesture, at best. !

    • Richard Tol (@RichardTol) January 20, 2017 at 11:46 pm

      where to begin …

      Willis’ opening bits reflect an understanding that historically is placed somewhere between Francois de Quesnay and Karl Marx. This was overturned by Jevons, Menger and Walras between 1871 and 1877.

      Richard, good to hear from you. However, that is argument by assertion plus name-dropping. Sorry, not impressed. You’ll have to make your argument, not resort to magical incantations.

      Willis rightly notes that the estimates of the social cost of carbon suggest that the initial burden of climate policy should be a tiny fraction of total income. He overlooks that the feedbacks are negative: If the social cost of carbon is imposed as a carbon tax (a negative economic impact), the tax revenue is spent (a positive economic impact, even if all the money goes to gold statues of the president’s daughter).

      Richard, you repeat the error many economists make of not distinguishing activities that produce wealth from activities that are services. You seem to think that we can take money from a productive activity, give it to barbers, and end up just as wealthy.

      Curiously, this is not an uncommon failing among economists. I’m not sure why.

      Instead, Willis resurrects his “climate policy will be our ruin” argument by comparing tax revenue to economic growth, a meaningless comparison.

      I am absolutely not equating tax revenue with economic growth. I am noting that in this particular instance, the tax is extracted from the INPUT to the wealth producing activity. Perforce, this will reduce the amount of wealth produced. And thus it will indeed affect both economic growth and the GDP. Not only will it affect economic growth, but because it is taken from the input side of the wealth generation process, the effect will be magnified beyond just the size of the tax itself.

      Alternatively, you could have a look at the data: Norway has had a carbon tax since 1991. Other jurisdictions followed, including the UK, Ireland, British Colombia. Three areas use tradable permits instead: EU, US NorthEast, California. The notion that climate policy will be a major drag on the economy simply does not stack up.

      Richard, you know very well that that argument won’t wash. According to exit interviews, businesses are currently fleeing California because of high energy costs from a carbon tax (cap and trade plus renewable mandate). People in BC drive to the US to buy their fuel to avoid the carbon tax. The Chicago carbon market collapsed in a heap.

      And regarding Norway, as you also well know, the fact that some nation has had a carbon tax for some amount of time proves nothing. Countries have survived all kinds of asinine taxes, doesn’t make them harmless.

      Finally, I fear that you are engaging in magical economic thinking. You are claiming that you can extract money from the input side of wealth production without affecting the amount of wealth produced. Doesn’t work that way.

      w.

      PS—Those interested in the British Columbia carbon tax fiasco, here are my posts on the subject:

      British Columbia, British Utopia 2013-07-11

      I was pointed by a commenter on another blog to the Canadian Province of British Columbia, where they put a carbon-based energy tax scheme into effect in 2008. Before looking at either the costs or the actual results of the scheme, let me start by looking at the possible benefits…

      Fuel On The Highway In British Pre-Columbia 2013-07-12

      Supporters of the British Columbia (Canada) carbon-based energy tax that I discussed in my last post have made claims that the data shows this tax was a success … so being a suspicious-type fellow, I thought I’d take a look at the data myself. I didn’t figure the tax was…

      The Real Canadian Hockeystick 2013-07-13

      Well, the leaders of the carbophobes in British Columbia are already declaring victory for their carbon-based energy tax as a way to reduce CO2 emissions. They highlight as a main indication of success the reduction in per-capita gasoline use, and my research shows that their numbers are right. Here’s a…

      Why Revenue Neutral Isn’t, and Other Costs of the BC Tax 2013-07-15

      I hope against hope that this is my last post on this lunacy. I started by foolishly saying I would write about the benefits, costs, and outcomes of the BC carbon-based energy tax, so I was stuck with doing it. I discussed the possible benefits of the tax in “British…

      • Willis, Richard

        I have great respect for you both but I’m not really clear what you are arguing about. Tax has effects on wealth creation, but it is primarily concerned with wealth redistribution (whether from rich to poor or poor to rich, is another matter).

        What creates wealth is better described as an increasingly efficient division of labour (of which technology is the greater part). And for what it is worth, I will define wealth as an increasing amount of leisure time (that is, time not spent obtaining essentials for staying alive, such as food, water, shelter, warmth – as Willis says). We can spend that increased leisure time by consuming increasing amounts of services such as medical, entertainment, holidays, fashion etc. And service/ leisure industries can themselves become more efficient under the influence of the market and they in turn create more wealth by doing so (more services purchased at less cost). In that, I think I am with Richard.

        On the whole, though, I am with Willis. Better to tax the leisure/service side of things than to tax the fundamentals like energy. Taxing energy won’t be much felt by the wealthy, but is the crucial thing for the poor of advanced nations, and for the whole population of undeveloped nations. Wealthy nations such as Norway think they can get away with it because the additional cost is lost to sight at those levels of GDP. Lesser nations cannot. Energy underpins every element of health, wealth and wellbeing. It is, in fact, the KEY to wealth. Don’t tax it!

      • probably because your understanding of economics is stuck in the 19th century

        Richard,
        I don’t want to insert myself into the discussion between you and Willis, but this comment provides zero value. If you think Willis is wrong, explain the mechanisms which illustrate this. Saying Norway has a tax is meaningless because you don’t have an identical Norway sans tax to compare to. Denigrating an explanation by saying you don’t understand economics rings of the same haughtiness displayed by climate science who, when confronted by irrefutable evidence that they are wrong, retreat into the snotty defense that “you aren’t a climate scientist so you wouldn’t understand”.

        I disagree with Willis on a number of points, but his main point is correct, and anyone who has ever had bottom line P/L responsibility knows it without any study of economics involved. When you tax the inputs to a business, the “cost” of that tax is magnified by the supply chain. Business functions on profit margin. So raise the cost of my inputs by $1.00 and I must raise my sell price by $1.30 to maintain my profit margin. My customers in turn must raise the price on their products that subsume mine by $1.69 to maintain THEIR profit margin. The more layers there are in the supply chain, the more that base $1.00 gets magnified. You can study economics all day long, but this is how business works.

      • My issue is that you need to distinguish between services which are wealth creating (hair dresser, gardener) from services which are primarily about wealth transfers (much of insurance and lawyers.) The wealth transfers are much more difficult to identify, but these are inherent drags on the economy which is the opposite of most services. You can usually tell the wealth transfer services from the amount of rent-seeking they gain through government contacts.

        Wealth redistribution goes both ways — to the poor or to the wealthy. Intuitively, most of us understand the compassionate need for wealth transfer to the poor. This money is usually re-spent anyway. However, it is much more difficult to understand the need for massive transfers to the wealthy (money which is usually not re-spent.) Bankruptcy relief for someone who is broke is much more valuable to the economy than bankruptcy relief for a billionaire, because this allows a person to rejoin the productive workforce.

      • Richard Tol (@RichardTol) January 21, 2017 at 5:42 am

        “Curiously, this is not an uncommon failing among economists. I’m not sure why.”

        probably because your understanding of economics is stuck in the 19th century

        davidmhoffer January 21, 2017 at 11:30 am

        probably because your understanding of economics is stuck in the 19th century

        Richard,
        I don’t want to insert myself into the discussion between you and Willis, but this comment provides zero value. If you think Willis is wrong, explain the mechanisms which illustrate this.

        Richard, I agree with David, but I tend to put it in an earthier way.

        I say that when a man starts throwing mud as you have done, it is a clear sign that he’s out of scientific ammunition.

        That’s twice you’ve tried to bluff me, the first was something about Karl Marx.

        Now, you’re a smart guy. And you clearly think I’m wrong. In addition, it’s clear that in my world failure is always an option. I’ve been publicly wrong more than once. It’s how I learn.

        But equally clearly, you are unwilling to QUOTE WHAT YOU THINK IS WRONG and explain to us just where I went off the rails. Instead you snipe at the edges and make ad hominem accusations to see if they will stick.

        Which tends to make a man … you know … suspicious …

        ================================

        To return the the question at hand, the statements which you did NOT quote were the statements that started all of this. Let me review the bidding. To begin with, you said:

        If the social cost of carbon is imposed as a carbon tax (a negative economic impact), the tax revenue is spent (a positive economic impact, even if all the money goes to gold statues of the president’s daughter).

        Note that you are asserting equivalence, saying that a non-wealth-producing activity has the same “economic impact” as a wealth-producing activity. In response I had said:

        Richard, you repeat the error many economists make of not distinguishing activities that produce wealth from activities that are services. You seem to think that we can take money from a productive activity, give it to barbers, and end up just as wealthy.

        Curiously, this is not an uncommon failing among economists. I’m not sure why.

        You ridiculed me for that rather than answer it.

        Despite the ridicule, I stand by that statement. There is a net loss to the economy if you take money from farmers and give it to barbers. You start out with well-fed people with bad haircuts. You end up with immaculately-tonsured individuals who are starving to death. Yes, as you point out the amount of dollars is exactly the same … but it is still an obvious net loss to the economy nonetheless.

        That is the part that both you and many other economists continue to overlook, and I’m still not sure why. If you have an explanation, now would be the time to advance it.

        w.

      • Those who live near the U.S. and Canada border do their own trading if they want to and have for a long time.

        People are very creative about how to trade cross-border. Economic information about this is lacking.

        One example is truckers fuel up in the U.S. and drive right through Ontario. No new Ontario carbon taxes will be collected from creative people.

      • Willis writes —

        There is a net loss to the economy if you take money from farmers and give it to barbers.

        I disagree. There is a net loss to the economy if the government mandates that these farmers have to have their hair cut at a government licensed barber at least once a month, but there is a net gain to the economy if the farmer chooses to spend his money on a professional haircuts.

        Cutting hair is a bad example here — barbers are an economic resource. It’s the government distortion of the free market which is bad. There still may be a reason for government influence (for instance, the removal of lead from gasoline), however, the benefit must be worth the economic cost.

        My problem with the Social Cost of Carbon (SCC) is that many people consider it different ways and many “climate scientists” want to use it to drive behavior. If we add $40 per ton of carbon, there will be a cost to the middle class, but nobody will change their driving habits. “Climate Scientists” will then seek to increase the assessment on the SCC until it begins to drive behavior the way they want. This would probably be at least $800 per ton or more.

        By comparison, gasoline costs rose by a factor of three from 1998 to 2007 (from ~$1.50 to $4.50). Consumption did not begin to drop until the recession of 2007 and then dropped by ~ 10%. Environmentalists are targeting at least a 50% reduction which will require an economic depression.

        $40 per ton will be a small (immeasurable) drag on the economy and another drop in the steady economic water torture of the middle class. $800 per ton will be a substantial drag on the economy.

      • Willis:
        Apologies if this feels like mockery.

        The social cost of carbon is a Pigovian concept. I would expect someone who critiques Pigou to have at least read Pigou. From your remarks, it is not obvious that you have. It is obvious, however, that you have not read Jevons. You cannot understand Pigou without understanding Jevons.

        I could, of course, repeat all that material here. Alternatively, you can walk to the local library and read up. Hey, these books are out of copyright protection so you can even read them online.

      • Richard, good to hear from you. However, that is argument by assertion plus name-dropping. Sorry, not impressed. You’ll have to make your argument, not resort to magical incantations.

        Beautiful Willis! Just Beautiful!
        A Churchillian response!
        Keep up the good work
        Mike Macray

    • Richard Tol writes

      “Alternatively, you could have a look at the data: Norway has had a carbon tax since 1991. Other jurisdictions followed, including the UK, Ireland, British Colombia. Three areas use tradable permits instead: EU, US NorthEast, California. The notion that climate policy will be a major drag on the economy simply does not stack up.”

      His argument is that a carbon tax will be highly regressive and that regressive tax will have a drag on the economy.

      As a comparatively socialist nation, Norway is a poor comparative example. Compared to most nations, the income inequality in Norway is very low which makes the concerns of regressive taxes lower. Norway has a World Bank Gini Coefficient of 25.9 compared to the United States of 41.1. UK is a better comparative example (Gini 32.6), but they have rampant reports of “fuel poverty” — I’d like to avoid that.

    • Classic Keynesian sleight-of-hand. All you have to do is move money around and economic numbers magically go up. The more times you can get money to change hands, the better. And nothing moves lots of money around better than deficit spending by the state. Income stratification? Heavier tax burdens? Burgeoning debt? Losing sources of real wealth creation? Who cares? The data shows the economy is growing, so all is well.

  10. Don’t eat the seeds, eat the corn…

    “Taxing any of the inputs to wealth production is destructive. Instead of inputs, you want to tax the outputs of wealth production.”

  11. Why go to all that hard work of creating wealth? There is a different way to acquire wealth, steal it from someone else:- hence the primary motive for crime, for slavery and in the case of nations, for wars & invasions. As Pistol said:-
    “We’re off to France—like leeches, my boys: to suck, to suck, their very blood to suck! ”
    Shakespeare: Henry V.

  12. Willis, a very clear, concise argument against taxing the inputs rather than the outputs. I especially like your style of writing which avoids all the usual superfluous cr*p that academics use to try and make themselves appear intelligent.

    I also fully support your views that you need to be wealth creators and not be just “service types”. When Maggie announced that the UK was no longer a manufacturing base, but a service economy, which although most probably very accurate, I knew the UK was doomed. We cannot exist in the long term by being purely a service economy.

    Maybe BREXIT will bring some wealth creation back into the country. Here’s hoping.

    • Actually it is possible for a service economy to sustainably exist. There is an important qualification, though, it must be able to trade with other economies. Willis puts it perfectly with his model of two island economies. With them far enough apart so that trade cannot occur the purely service economy must die (unless the participants learn agriculture and manufacture – in which case it is no longer a service economy).

      With the two islands sufficiently close, so that trade between the two can occur, the ‘service’ economy can prosper as its products benefit the agriculture/manufacture economy, and in return the products of the latter benefit the former. A bit of specialization is good for the people, rather than each having to produce everything and service everything. Microeconomics 101. Remember that the UK was described as a nation of shopkeepers – perhaps an exaggeration but a large truth was there.

  13. The reference to Norway is a bit misleading – Norway’s wealth has been created by North Sea oil and to some extent by the export of hydro power to the EU. They can afford, a bit like Saudi Arabia to have social programs that are simply devastating in other economies that have few natural resources.

    • the saudi social programs are just as devastating for them these days. they cannot afford them anymore. around 3 years until d-day and i don’t see the new american administration providing the help that may have been expected from previous administrations.

    • I was going to say that the ‘1’ in your ratio was generous, then I considered the very real human cost due to the dangers of fuel extraction. I applaud the engineers that continue to make this a decreasing cost.

      Carbon Dioxide is freely distributed throughout the world. The unintended consequence of increasing atmospheric Carbon Dioxide by burning fossil fuels adds this CO2 to the world domain. Its value is shared by all people. The olive tree in Greece, the grassy Mongolian plains, the fishing seas off Japan all have equal access. The polar bears benefit, penguins, panthers and plankton. Wherever there is photosynthesis/phytoplankton there is life (wealth) creation, that’s the ‘seed’ that has the multiplier effect.

  14. Willis misses out the biggest problem of a Carbon Tax. The theory is that global greenhouse gas emissions are causing the planet’s greenhouse gas levels to rise. Yet most of the people on the planet live in countries that have no primary obligation under the Rio Declaration of 1992 to cut those emissions. These non-policy countries have been developing rapidly in the last couple of decades and their fossil fuel emissions have been rising in step.

    These non-policy developing countries now have two-thirds of global emissions and well over 80% of the global population,and all the poorest nations, are likely to collectively increase their emissions by much more. So no matter how much an ineffective carbon tax succeeds in cutting emissions (or other, less efficient means such as renewables subsidies or regulation of industry) in the United States, global emissions will go on rising.
    It is even worse for manufacturing in the US. By increasing energy costs relative to non-policy developing countries, a carbon tax destroys American jobs. As developing countries are often less efficient in energy usage per unit of output, this can increase net global emissions. I explain in more detail, backed up with references and more data here.

  15. Here is a wonderful graphic display by Prof Hans Rosling showing the world’s countries health improvements over the last 200 years. If only we could get everyone to spend the 5 minutes to watch his video there would be very few people who would doubt the benefits of fossil fuels

    Amazing how all countries started as a tight bunch at the bottom left corner but once the IR started and developed quickly the wealthier western countries moved away. But now a lot of the once poorer countries have almost caught up to Europe, Nth America, OZ, Japan etc. Incredible to think that this has happened over the last 60+ years and certainly within my lifetime. The graphics and data collection for his display were all financed by the US taxpayer and today everyone can quickly look at all the UN and other data and easily understand it.

    Of course Lomborg and his mate Ridley have highlighted the incredible health benefits since the beginning of the IR and paid the price demonstrated by verbal abuse etc . Rosling has also had the dopey Ehrlich’s hot on his tail for trying to spread this good news. Here is his short 5 min video and a wiki bio of Prof Hans Rosling. Oh and he’s an award winning stats expert as well, plus many other accomplishments.

    https://en.wikipedia.org/wiki/Hans_Rosling

    • In this video Hans Rosling looks at the Bangladesh miracle that has occurred over the last 30 years or within just one generation. Why is it that a majority of the globe’s population are unaware of this miracle and the wider world health miracle since 1950?

      While Goklany, Lomborg, Ridley, Rosling and others have worked hard to counter our ignorance we still find that most so called EDUCATED people haven’t a clue. But why is this the case? I’ve had SFA education yet I can easily answer these questions and believe me I’m not super intelligent. But I do read a lot and I hate BS and BS artists.

      Here’s Rosling’s 2014 TED talk to a huge crowd. Even if you just watch the first 5 minutes it is worth it. It must be very difficult for these people trying to cut through the BS and nonsense to deliver the real facts and data. They certainly get very little help from the MSM.

      Reply

      margaret says:

      • College: A place where people go to learn more and more about less and less until they learn everything about nothing. Will Rogers. I believe this to be a warning.

      • Don’t forget Flyover, that per chance you need to go to a hospital for an operation, that both the anesthesiologist and the surgeon working on you went to college to learn their trade.

      • BZ ngard, this why I read WUWT. While 90% is BS, there is a 10% learning opportunity.

        Willis basic assumption is wrong. Today food and energy are a small part of a family budget even for the poor. There has been many times when I did not make a lot of money but I have never been poor.

        I was married when I joined the navy. I got my draft notice in bootcamp. Living off base, we car pooled and beer was not in the budget.

        If your income is low and you drive a jacked up pickup truck (not required for your job) to pull your boat, I would suggest you not poor. Willis will tell us how terrible raising fuel cost will be.

      • @Retired Kit P January 21, 2017 at 8:54 am

        Willis basic assumption is wrong. Today food and energy are a small part of a family budget even for the poor.

        How do you define “small part”?
        Under no circumstances would my family be considered poor and yet food and energy amounts to ~28% of my monthly budget. And we live in an area of the US where fuel, electricity, and natural gas prices are relatively low.

        We could, if needed, trim some from the budget. Playing around with the numbers, I estimate I could reduce this to just under 25%.

        Even if I managed to it get down to 20%, still don’t see this as a “small part of the family budget”.

        Furthermore, these costs remain fairly constant regardless of income.
        So someone making substantially less than I do, could have food and energy taking 33% or more of their budget. Hardly a “small part” of any budget.

  16. Gladstone once asked Michael Faraday what use electricity was. Faraday replied that Gladstone would soon be able to tax it.

  17. “Richard, you repeat the error many economists make…” I would be very careful about accusing a whole branch of study as having made a mistake based on my own half-arsed ideas.

    There is a principle of economics that says the burden always falls at the same place wherever the tax is imposed. Therefore it makes no difference if the corn or the seed is taxed.
    https://en.wikipedia.org/wiki/Tax_incidence

    • It may make no difference as to where the burden falls. The point in the article is that the amount of burden is greater when you tax the input.

      • “Should we tax the seed corn, or should we tax the resulting corn crop?”
        The point of the principle is that it makes no difference. You can tax shoes and people buy fewer shoes because the price is higher. You can tax shoe leather and people fewer shoes because the price is higher. It makes no difference. Tax corn and people buy less corn. Tax seed corn and people buy less corn. If people buy less corn because it is more expensive then farmers will buy less seed corn. the effect is exactly the same as taxing the seed corn. There is a huge and fundamental misunderstanding of economics throughout this article.

        The author would be well advised to listen to Richard Tol who in an expert in this field.

      • The author would be well advised to listen to Richard Tol who in an expert in this field.

        The author has made valid points to which Richard Tol has responded with “well you don’t understand because you are not an economist”. This is the type of response that is the sign of an “expert” with no facts to back up their opinion.

      • Alas, I fear Richard Tol sees the discussion as far too simplistic to get involved by explaining the basics. Richard has not really explained why Willis is so wrong. However, there are many reasons why people who spend their professional lives dealing with a subject might not want to spend their time teaching others about very basic parts of it that are available elsewhere. It might not indicate he has no facts, it might be frustration with telling things to people who will not educate themselves.

    • Please state the originator of said principle. Your link does not refer to production only commerce. More much less half of farming is commerce. The ethanol mandate which is a tax drove the cost of feed grain to the point where many small producers were forced out, The supermarket price of beef has jumped by more than 25%

      I take it you don’t make you living on the farm.

      • Flyoverbob, “The concept was brought to attention by the French Physiocrats, in particular François Quesnay, ” But the originator is not important. You can read about it in any Econ text book.

        Just think it through. Start with a market where prices are determined by supply and demand, which is a pretty good model for agriculture. The Govt. tax corn seed. If the farmer plants the same amount of corn he would have to put up the price of corn to cover the extra cost. The farmer knows this and so plants less corn because he knows demand will be lower, or plants less corn because corn seed is now more expensive than wheat seed or whatever. If farmers as a group did not put up prices then marginal farmers would go out of business and we get less corn.

        If the Govt taxes corn products instead we get exactly the same result. Consumers buy less corn products and so farmers plant less corn. It does not make any difference where the revenue is generated, the burden always falls on the same people.

        The burden of the tax is distributed in some manner over the producer and consumer depending on elasticities of supply and demand. In some markets this will be all on the producer, if the consumer can switch to an almost identical replacement.

        If we taxed only one variety of apple the consumer would suffer a reduction of consumer surplus as he switches to a slightly less preferred variety or pays the higher price. The farmer is stuck with his apple trees which take years to replace, so nearly all the burden falls on the farmer of this variety.

        If consumers drive the same number of miles regardless of gas prices, then a tax on gasoline will be paid for by consumers and not oil companies.

        In practice the burden is spread among producer and consumer – but it does not matter where teh revenue is raised. Taxing corn seed is the same as taxing corn products.

      • SeaIce — you are right. However, none of it is ever that simple. The argument is that the government should tax the profit, not the costs of production. Taxing the profits will actually shift the supply and demand curve to more production and consumption. Taxing the costs of production will shift the supply and demand curve in the way you suggest.

        It’s the difference between “supply side economics” and “demand side economics”.

  18. Unless and until people accept that PROFIT is the source of wealth and the lack of profit is the reason companies move from the US to China, Trump will have trouble turning things around.

  19. There are other options. Go for greater energy efficiency if you wish, that will reduce emissions without increasing energy cost. Get more production out of each gallon. Or support a shift from coal to natural gas.

    The first two options run into Jevons’s parodox. Greater efficiency will lead to increased use, which leads to higher emissions. Greater production, cheaper prices, higher demand, higher emissions.
    And how would you support a shift to natural gas? Without taxing the use of coal, you would have to offer subsidies to gas. Who’s going to pay for it? An income tax will hit the middle class. A consumption tax will hit the poor.

    A carbon tax would make coal more expensive than natural gas, supporting a move to natural gas. It would also offset financial gains from increases in efficiency.. ie you would get the same end result, for the same cost, but use less energy. This would help aviod Jevons’s parodox.

    Yes the tax would be a hit, but a one off hit. So to lessen the blow, you would start it lower, and increase it over time.
    And as we replace things so that they are more efficient, or build more gas power plants, wouldn’t that boost the economy? And as we start lowering our emissions, we would be paying less tax. So the negative multiplying effects you mentioned, would then revet to positive effects, further boosting the economy?

    And as it’s the poor you are concerned about, some/all of the money raised could be used as tax subsidies for those on minimum wage/below average wage. This would cover any additional cost the carbon tax imposes on them, and put more money in thier pockets, making them less poor.

    • Daveo,
      In a perverse way, encouragement to use gas over coal need not be from positive incentives. It can also be done by removal of negative imposts, which sadly are all too abundant these days.

    • And how would you support a shift to natural gas? Without taxing the use of coal, you would have to offer subsidies to gas. Who’s going to pay for it? An income tax will hit the middle class. A consumption tax will hit the poor.

      In the US the shift will happen anyway: cleaner burning and lower capital cost per MW to build. The thing which held back natural gas for power all these years was the high price volatility for gas. If you’re building a plant with an expected service lifetime of 40 years and the main operational cost is fuel, you need to have confidence the fuel will continue to be available at a reasonable price. Fracking provided that confidence.

      Rather than impose a carbon tax, just approve expanded fracking leases on public lands and grant the pipeline permits. Current federal policy actually gets in the way of accelerating the shift to natural gas.

    • Daveo, did your mother have any children who were not stupid?

      If you want to replace coal plants to reduce the use of fossil fuels, you build nuke plants.

      Communities with nuke plants love them. Why? Nuke plants pay lots of property taxes and provide high paying jobs.

      Nukes are not too popular with California hippies who worry about radiation but not getting high.

      Since I am skeptical about CAGW, I only advocate building nukes to meet power demand.

      • Kit, yes shd did, unlike your poor mother who obviously rasied a fool. Please point to where in Willis article he mentioned nukes? Can’t find it? Well take your rant some place else. Are you really retired, or just cant keep a job causd you talk up irrelevant crap?

  20. A 100% tax credit to US employers on their US payroll taxes would reduce taxes on labor as an input to the wealth generating process and remove a large incentive to offshore production.

    • Ultimately tax credits are paid for by different tax payers. Would you volunteer to pay higher so another doesn’t pay? Someone always pays full price . . .plus tax.

    • We should end payroll taxes and use only income and wealth taxes. A tax credit on payroll taxes is only economic friction (i.e the company pays half of your payroll taxes today, but doesn’t get the credit until next year.)

  21. The gas and oil industries are heavily taxed already, The promoters of carbon taxes never seem to mention that they’re arguing for even higher taxes on an already heavily taxed industry and commodity. There were riots recently in Mexico as the A-narco/socialist Mexican gov’t raised the price of unleaded gasoline up to over $4/gallon. Are Mexicans paying the “true cost” for their petro-based economy? After all, the “true cost” is far higher than the price you pay at the pump because of all those darn externalities “they” tell us. Not to pick on the Catholic Church, but the old line about paying money for “indulgences” for the sin you are going to do anyway makes me wonder if there is anyway to wire the money directly to God? Or is the Mexican gov’t as close as some of us in this life will ever get?

    • Look at that Vatican, the money was not directly wired to God, just those at the Vatican, with every level from the receiver in a church to the Pope taking their cut. And those that think it is, and there are millions, who believe this, are seriously deluded…

      Tax on sins. Tax on windows. Tax on CO2.

  22. Sorry, had to stop when the wealth discussion went into the land of the lunatics.

    Let’s take banking. An intermediary ensures that those with excess capital (savers) can provide that capital to those with potential investments but no capital. A banker aggregates the savers money and lo an behold a new factory is built. That function, that service, isn’t creating wealth? Of course it is.

    Let’s take hairdressers. You pay to have your haircut because you value the way you look. You put a higher value on that look post-hair cut (if you did not, you would not pay). So if we had no hairdressers, that value could not exist. Thus it is utterly obvious that hairdressers create wealth.

    Let’s take a book. You pay, you read it, you are amused. That amusement is wealth, that’s why you pay for it.

    The idea that “wealth” is only material things is simply dumb. What wealth is is the very basic key to understanding the very basics of economics.

    • Yes, that troubled me, thanks for setting it out so clearly. UK’s manufacturing output is as high as it’s ever been in real terms (even when we were the workshop of the world) but services are now much higher and we are much wealthier (even if Royal Navy can’t beat everybody else any more!).

      Cape St Vincent 14 February 1797, Admiral Sir John Jarvis on HMS Victory with 15 ships of the line as the Spanish fleet is spotted through the early morning fog.

      “There are eight sail of the line, Sir John”
      “Very well, sir”
      “There are twenty sail of the line, Sir John”
      “Very well, sir”
      “There are twenty five sail of the line, Sir John”
      “Very well, sir”
      “There are twenty seven sail of the line, Sir John”
      “Enough, sir, no more of that; the die is cast, and if there are fifty sail I will go through them”

      On 11 February, Commodore Horatio Nelson on the frigate HMS Minerve had passed through the Spanish fleet unseen in heavy fog. Nelson reported the location of the Spanish fleet on 13 February but did not know its size (because of the fog). Jervis’s immediately sailed to intercept.

    • Tim, I disagree, using your hairdresser example, this service only transfers wealth, it does not create wealth. Once the hair grows back, that wealth disappears. Wealth can be transferred, haircuts cannot. Another example are cars, bolt together one unit of steel (iron ore & energy combined), one unit of engineering and one unit of labor services, then sell it for 5 units as people place value (two units of profit) on the prior three units being combined, two units of wealth seem to have been created, they have not. Once that cars service life it up, it is only worth one unit of steel (scrap). The only way to re-inject those missing units of wealth, excluding “printing money”, is to dig, collect, grow and create new units of energy (heat or electricity). When you manufacture steel, you combine one unit of Iron ore and one unit of energy. When you machine or stamp steel it takes energy input. It is the energy input that start the cycle again. Iron ore would be almost worthless otherwise to a modern economy without the energy input (mechanical, heat and/or electricity).
      My understanding what is being argued by Willis is not text book economics but the initial source/input of wealth creation into the economic/human system. This is only raw materials and energy. “Amusement” is not wealth, it is created and destroyed within seconds. Books are wealth but can only be had when there is an excess of energy and raw material above and beyond what is required to sustain our basic needs. A humans, we will waste raw materials/energy to receive amusement or look good (or haircuts) as we like it but “social” wealth is not being argued here.

      • “My understanding what is being argued by Willis is not text book economics ”
        Well, not textbooks from this or the last century, as Richard Tol pointed out. If discussing economics (or anything else) then textbooks are a pretty good starting point.

      • Seaice, text book economics (I am just a laymen) suggest people and the skills they provide are the true measure of a nations wealth. Gold, copper, trees, fish, farming cannot either sustain life by themselves, nor could be harvested without human input and ingenuity. I agree with that (my) statement. But if a nation has no energy or resources, the nation cannot create wealth. Sure, some nations can become enriched by importing wealth and trading that with services (tourists vacationing on a tropical island) but if those services fall out of favor, or the wealth to procure those services is not there, that nation cannot generate wealth on its own without resources and energy. As is the case with many tourist driven economies in my example above.

      • Once the hair grows back, that wealth disappears. Wealth can be transferred, haircuts cannot.

        Transferable wealth is only one type of wealth. Don’t think of wealth like a savings account. Wealth is an item or service with an agreed upon value.

        There is a time value on such wealth. You are saying the equivalent that food has no value because once it is consumed, there is no value. A haircut is “consumed” like the food. It might last a month, but it has value to the consumer (i.e. you look more professional at work.) A barber can cut hair better and cheaper than you cut hair, therefore the service has value.

      • “You are saying the equivalent that food has no value because once it is consumed, there is no value. A haircut is “consumed” like the food.”
        Of course a good hair cut has value to humans but it is many levels up/removed from the original wealth creation which is is based on energy input (sun, hydrocarbons, nuclear, etc) using natural resources. You can trade a hair cut for bag of potatoes, both get consumed. A month later, the farmer then can just grow another bag of potatoes (sun, minerals, water), you have nothing. The farmer can just keep creating wealth, you can only receive the proceeds of this wealth for services. Politicians provide a paid service, does this mean they are creating wealth? I am not saying it is free but for a small labour input, energy magnifies the output. In a real economy of course it is much more convoluted than this. My two cents.

      • I would add that it is also the difference between essential and non-essential economic activity. True wealth is created by essential activity whilst social wealth is created by non-essential activity. In the farmer/barber example, food production is essential but no one has to have a haircut save for reasons of vanity.

      • Agree somewhat David, but like I said in a real economy it is more convoluted. Farming is essential, but so is the service to repair the tractor, or the person that clears the snow off the roads so food can get to market. Someone could even argue the barber is an essential service, how else would the farmer look respectful enough to receive a bank loan for his farm, or attract the opposite sex for reproduction.
        When I think of wealth “creation”, I am actually arguing the “create” part (money from nothing). You plant one small seed, months later the return is multiple times larger than the initial input. This takes energy (sun, hydrocarbons, etc). Getting back to Willis point, tax the input, the output is reduced, better to tax the output. In other-words, don’t tax the seed, tax the bag of potatoes, otherwise we will have less potatoes.

      • I should clarify, Willis’s point was not about taxing the ‘seed’ (that was my example), his point was by taxing the energy input with a carbon tax, this will only reduce the output. If taxes are needed (and they are), it is better to spread that tax over the output, taxing the energy input just reduces the output and presumably the input tax would have to be exponentially larger to equal the same tax revenue as the output. If a tax could be put on the suns rays (I am sure they have thought about it), we would just have less food.

    • Tim says “An intermediary ensures that those with excess capital (savers) can provide that capital to those with potential investments but no capital. A banker aggregates the savers money and lo an behold a new factory is built. That function, that service, isn’t creating wealth? Of course it is.”

      The argument is that without the excess capital in the first place, the banker has nothing to lend. Making inputs MORE expensive means LESS excess capital and hence less money for bankers to lend to a new factory. To me, your counter argument seems to support Willis’s argument.

    • all well and good when it works like that tim. the reality, where banks create money by loaning money they do not actually have, did not work out so well in recent times.

      if your system was actually in place the tax payer would not have had to bail out numerous banks as a result of the 2008 crash.

  23. All your money are belong to us.

    Democrats, and some Republicans, would raise taxes to 100% on everything, if we let them. We won’t. So they use an incremental approach.

    Would you pay a carbon tax? “Sure, if it will save the planet.” A carbon tax is just a tax, wearing a special cloak to get you to okay it. It’s not about carbon, it’s about tax.

  24. Interesting analogies and for me, an unusually black/white clarity of view in an otherwise complex dynamic.
    Willis, you might clarify/amend the following…
    …And as always, the mantra of reduce, reuse, and recycle combined with general energy conservation all can cut emissions without cutting CO2.
    in the last but one paragraph…I could not make “sensetence” of this bit

  25. Personally I think the rich ran out of ways to tax the output further so started on taxing the inputs (perhaps also to control/reduce oil consumption in view of the limited supply). Either way the damage is evident, production of everything suffers and the workers have a hard time. Hopefully, the businessman in Trump will adjust this.

  26. I hesitate to pick a quarrel with Richard Toll, but I agree with Willis. Rich countries like Norway can afford the negative and regressive consequents of input taxes, but they slow the development of the third world. In an ideal world only two taxes make any sense. These are taxes on purchases and wealth and should be structured so as not to be a burden on the poor or discourage the reasonable accumulation of wealth.

    Of course we do not live in an ideal world and taxes can have unforeseen consequences from quaint and relatively harmless three wheel cars to the immensely harmful turbocharged diesel cars which have caused a greater reduction in life span in Europe that CO2 is ever likely to do.

    • “I hesitate to pick a quarrel with Richard Toll, ” If the subject is basic economics that would be very wise. Maybe there is room for discussion over selection of the exact discount rate for inter-generational transfers, but about the basics it is usually better to side with the expert.

  27. Don’t forget the quiet hand of feedback mechanisms of energy taxes. Obama and Hillary turned coal mining precints from democrat to republican. Oh, those nasty feedbacks….

  28. Taxes on energy are among the most regressive taxes known.

    I think that there is a strong analogy between “Carbon Tax” – a tax on energy and the Corn Laws – a tax on food. I also think that we can equate any tax on the wealth creation process as the economic equivalent of friction in mechanics. For any machine to run efficiently and therefore perform the maximum amount of useful work we need to reduce its internal friction and design an engine for which the maximum amount of output power is created from the highest density input energy source.
    The issue of energy density is critical here because for a given machine the maximum power is generated from the densest source of energy. A spoonful of sugar can be a useful energy source for a small mammal. Scatter the same teaspoon of sugar on the floor and its energy density is reduced. An ant can still benefit from the energy in each grain of the dispersed sugar, but a larger animal cannot, because too much energy is spent by the larger animal finding and collecting the individual scattered grains, compared to the low finding cost per sugar grain of the ant’s energy expenditure.
    Taxing the input energy is a loss to the wealth generation process because we are diverting energy to other means, so while Richard Tol is correct, we have not destroyed the energy and have put it to another use, we need to ensure that the diverted energy is also used in wealth creation and not consumption (“gold statues of the president’s daughter”). All the tax levied on the supply side of an economic machine that is diverted to consumption produces a less powerful machine and is therefore detrimental to society, as the wealth generation process suffers and becomes less effective.

    • Yes. Willis has described it well, but it is distressing how many people don’t realise the consequences. If expensive new taxes on water and food were introduced then there really would be real riots in the street, not just bad losers who don’t like an election result. Yet the importance of energy still appears not to be understood by the majority of talking heads in the MSM.

    • Energy density is a red herring. Efficiency is a red herring. If I were to offer you a vehicle that ran on one pellet of super-dense energy at 95% efficiency but cost $100,000,000, or a less efficient vehicle that ran at 35% efficiency but cost $5,000, which would you choose?

      • Your example is silly. More of a red minnow than red herring. In reality the low energy density sources like wind are the ones that are inherently costly in terms of acquisition, distribution, and especially reliability.

      • Hunter, you make my point. It is not energy density but cost that is important. You are using energy density and efficiency as a proxy for cost when there is simply no need to do so as we know the costs. Wind energy is not very expensive despite the low energy density and efficiency. You say low energy density production is expensive, wind is low energy density, so wind must be expensive. Why not simply look at the cost?

      • seaice1,
        The all in cost of wind, including the backup power and infrastructure to pick up the lapses and gaps in wind output, would make wind untenable nearly everywhere in the world.
        And the waiver on environmental degradation that a large windmill array inflicts on the landscape and environment is a soft cost taht has until now, for some perverse reason, been ignored by alleged environmental activists.

      • “Sealice (sic), has anyone ever told you you don’t have the first clue?” Actually, funny you should say that but they have. Although nobody has demonstrated that to be the case.

  29. Willis:

    I have just posted an analysis on US-issues.com which proves that over the past 150 years the control knob for temporary (apart from El Ninos) and permanent increases in average global temperatures has been the amount of SO2 aerosol emissions in the atmosphere, .

    There has never been any warming due to greenhouse gas emissions!

    Definitely worth reading and commenting on.

    .

    • Thanks, Burl. Before reading your analysis I’d make three comments:

      1. Complex persistent natural flow systems are governed by the Constructal Law, which makes it extremely doubtful that any single element or compound is the control knob.

      2. Anyone who claims that their research “proves” something about the climate misunderstands climate science. In climate science as in science in general nothing can be proven except mathematical theorems.

      3. I don’t go on a snipe hunt for anyone. I don’t have the slightest interest in rooting around looking for your deathless prose when I don’t know its name. If you want me to look at something, give me a link directly to the document.

      Best regards,

      w.

      • Willis:

        You had asked for the title and a link to my post identifying SO2 aerosols as the control knob for Climate Change.

        It appears that you may have missed my reply, so I am resubmitting the information..

        The title is “Climate Change Deciphered”.and it is a recent post on US-issues.com.

        I am looking forward to your comments.

      • Thanks, amigo. I got as far as this:

        Since 1850, there have been two economic depressions and 31 business recessions (1). ALL are associated with temporary increases in average global temperatures, typically about 0.2 deg. C. (for recessions).

        and I busted out laughing.

        Not happening. Sorry, but there is is nothing on this planet that would unequivocally cause a business recession every time there is a two-tenths of a degree warming. Nor is there any way that the climate is ruled by business swings.

        Finally, anyone who makes the claim that ALL (in all caps) of anything are correlated with minor temperature fluctuations loses my interest immediately. The climate is nowhere and never that predictable.

        Finally, after reading the rest of your paper, I repeat my objections from above:

        1. Complex persistent natural flow systems are governed by the Constructal Law, which makes it extremely doubtful that any single element or compound is the control knob.

        2. Anyone who claims that their research “proves” something about the climate misunderstands climate science. In climate science as in science in general nothing can be proven except mathematical theorems.

        I’m sorry to be so negative, but you have not come anywhere near close to establishing your case.

        Best regards,

        w.

      • Willis:

        You wrote “Sorry, but there is nothing on this planet that would unequivocally cause a business recession every time there is two-tenths of a degree warming”

        You have it COMPLETELY backwards. The business recessions CAUSE the warming shown on the accompanying graphs, for the reason which I have given.. Again, ALL of the recessions cause increases in average global temperatures….

        You also state “The climate is nowhere and never that predictable”

        On the basis that about .0.2 deg. C. of temporary warming will occur whenever there is a business recession, climate can be quite predictable.

        Also, in the essay, I show that it is possible to predict/project average global temperatures between 1975 -2011 to within an accuracy of .02 deg. C. or less, based solely upon the amount of reduction in SO2 aerosol emissions, is an example of essentially exact predictability.

        In view of the above, your repeated objections, 1 and 2, are both patently wrong.
        .

        .

      • Burl Henry January 23, 2017 at 11:52 am

        Willis:

        You wrote “Sorry, but there is nothing on this planet that would unequivocally cause a business recession every time there is two-tenths of a degree warming”

        You have it COMPLETELY backwards. The business recessions CAUSE the warming shown on the accompanying graphs, for the reason which I have given.

        Sorry, but that one makes no sense either. Volcanoes put out orders of magnitude more SO2 than the difference between peak business activity and business recessions, and they do it basically all at once … and they do not make a detectable fluctuation in the temperature. As a result, the idea that the climate is ruled by business recessions doesn’t pass the laugh test.

        In any case, your paper is only half done. Come back when you have actually calculated the statistical significance of your results, including the effect of autocorrelation, and we’ll talk about it. I don’t do graph squinting as an analysis method, I insist on real statistical analysis.

        w.

      • Willis:

        You COMPLETELY miss the whole point of my paper.

        The temporary warming which occurs during every business recession can only be due to the reduction in the amount dimming SO2 aerosols emitted into the troposphere because of the reduced industrial activity.

        The actual amount of the warming is IRRELEVANT, but is about 0.2 Deg. C. For a depression, where there is greater reduction in industrial activity, the warming is higher (about 0.5 deg. C.).

        Since the unintentional reduction in SO2 aerosol emissions will cause average global temperatures to increase, it is absolutely certain that the EPA-driven intentional reduction in SO2 emissions will ALSO cause temperatures to increase.

        My presented analysis of the rise in temperatures due to decreased SO2 emissions is essentially a perfect match to NASA’s reported average global temperatures for the years 1975 to 2011.

        This completely eliminates any possibility of any additional warming due to greenhouse gasses.

        You wrote “In any case, your paper is only half done. Come back when you have actually calculated the statistical significance of your results, including auto-correlation, and we’ll talk about it”

        My paper meets Karl Poppers criteria that “Scientific theories must be falsifiable, and that prediction is the gold .standard for their validation”.

        Since the paper meets both criteria, and perfectly matches the rise in average global temperatures over the past 36+ years, it fully describes reality, What could possibly be gained from a “statistical ” analysis?

        Relative to your remark that volcanoes don’t make a detectable fluctuation in the temperature, I would remind you of the 1815 eruption of Mount Tambora which lowered global temperatures for about 5 years (816 was “the year without a summer”).
        ..

  30. I’ve discussed in the past that there are three and only three ways to create real wealth.

    How do you explain Delta Airlines? They neither grow nor extract nor manufacture, but I along with a bunch of other people willingly give them money in exchange for their service, which comes down to saving me time. I can get from Atlanta to Seattle in 5 hours instead of the three days it would take by train. Is that not real value?

    I think it is, and Delta is the reason workers at Boeing have jobs manufacturing airplanes, which in turn is why workers at Alcoa have jobs making aluminum, which is why other workers have jobs mining bauxite. The reason there are willing buyers for all the stuff extracted and manufactured to finally produce an airplane is because Delta can make money in saving me time.

    I contend that creates value.

    • What happened to the jobs making aluminium in Washington State when California demanded cheap hydro power?

      What happened to the jobs making aluminium in Ohio State when new regulations made coal power more expensive?

      If you can not answer these questions, you may also be confused why Trump got elected.

      There are a lot few American aluminum workers flying Delta.

      I am not at all surprised that Alan is confused about creating wealth since he is another California service worker. Nothing wrong with providing a service.

      • RKP: I am not a California service worker. Your points above do not address the issue I raised. Where the jobs are is a separate issue from why the exist. The fact remains that aluminum workers (wherever they are) have jobs because what they produce is indispensable to the commercial aircraft industry, among others. And the workers in the aircraft industry, wherever they are, have jobs because what they produce is indispensable to commercial airlines, who can afford to purchase aircraft because they provide value to me for which I compensate them.

        Time is money and saving time creates value.

  31. When you allow an energy tax by implication you allow a targeted energy tax and that means you have the power to direct how energy will be used or not used through taxation. At this point you might just as well be a centralist government like Russia of the 1960’s, or Cuba today.

    Thanks, Willis, for bringing the flaws of energy taxation back to the front page.

  32. This is also about their agenda of pushing expensive, unreliable “green” energy on us. They do that with both “carbon” taxes (which especially hurts coal), and with subsidies. Fortunately, the election of Trump throws a monkey wrench into their plans.

  33. I think the intent of the carbon tax is to force us to use ALTERNATIVE (i.e. renewable) sources of energy, not to abandon the use of energy per se. However, since renewables, because of their inherent deficiencies (low density, unreliability, cost and lack of scalability) are more expensive, the end result is the same.

  34. Willis, this may be your most timely and significant post yet. I would urge you to consider editing this series of articles into a form that could be read by a broader audience as well as those who follow tax and finance. Does your math kung 4th permit you to convert these concepts into mathematics? If so, this could become a very serious powerful paper.

  35. Willis Eschenbach
    I heartily agree. A fourth way for wealth generation is transforming technologies including inventions (patents).
    Rather than a “carbon tax”, the US needs a strategic transformation in its tax code to be internationally competitive. Paul Ryan gave a brilliant eloquent summary of the impact of Obama’s and Trump’s tax policies on Charlie Rose Jan 18, 2017. US exports are DOUBLY taxed: By US tax on production labor, and by foreign import taxes. Foreign production for export is NOT taxed, and US does NOT tax on imports. Foreign companies are taxed ~ 23% while US companies are taxed 35% to 49%. US company earnings overseas are taxed at this higher rate when brought back. Redressing these tax imbalances is a critical target for Trump/Pence and Ryan.
    Ryan said:

    “So let me describe [border adjustability] really clearly: The rest of the world has consumption taxes, so when they make something in their country and they sell it overseas, they take the tax off of it. And then, when something comes in from overseas to their country, they tax it. We do the exact opposite. If we’re making—let’s just take Harley Davidson in Milwaukee—we make a Harley motorcycle in Milwaukee, we tax it. We tax it if it’s going to be ridden in Wisconsin, and we tax it if it’s going to be sold into Japan. So it’s taxed as it leaves and it’s taxed as it enters into Japan. Let’s take Honda—they make a gold wing, it’s a motorcycle that competes with the Harley—Honda makes this motorcycle, and if it’s going to go to America, they take the tax off of it because it’s being exported. And then, as it comes into America, it’s not taxed. So there are things untaxed twice. Our motorcycle is taxed twice.”

    See: Ryan’s full interview at: https://charlierose.com/videos/29730

  36. The tax farmers expect a positive effect on thier personal lives. This provides the life blood of the green blob making it very difficult to fight. Greenies learned the lessons of military procurement. Make some portion of the plane, tank, or missile in every state. Now let the Congressman vote against local jobs. TA DA!

    Wal-Mart has a PR problem. Hook up with the Natural Resources Defense Council to farm solar subsidies and get positive press. Neat trick that. Very transparent but it usually works. Saw a TV ad asking me to contact my Senator to stop Scott Pruitt at EPA. Apparently I will die from dirty air if I don’t. The cage match is on.

  37. Indulgence taxes are ubiquitous in the modern age. Anything that middle to infinate income can afford is ripe for taxing. The social costs are made up after the commodity or goods have been targeted. The resultant “sin tax” is applied just enough to social needs in such a way to justify the bank account enriching legitness of the subsequent exclusive tax-evaded clubs dedicated to talking about solving the sin, like the Clinton Foundation currently under investigation. The unwritten rule is to never solve the proposed sin lest the money and tax evasion hole dry up.

  38. One of the little con-jobs used by the promoters of a carbon tax is some kind of rebate that would allegedly make the whole process “revenue neutral” and the poorest will get their money back. In practice this is nonsense, of course. The damage is already done up front, as described by Willis above, and the rebate is invariably inadequate to repair that damage. Not to mention all of the required paperwork and processing costs that have to be covered somehow.

  39. Interesting article, but you miss the real engine of wealth: entrepreneurs. Before you can produce things productively, you have to know what to produce and who should produce it. The notion that Wal-Mart, Amazon, American Express, Federal Express, McDonalds, Microsoft, Google, Facebooks, etc are not wealth building is a materialist superstition. On the island, you really need someone who can figure out what is best and indeed, entrepreneurialism is implied. Read George Gilder or Ralph Peters and keep up the good work.

  40. You are really getting to the root of things
    There is an important distinction to be made.
    The origination of wealth is the foundation upon which everything sits.
    generating a margin or profit is altogether different.
    I am a farmer I have managed to produce some grain “Wealth” every year
    for the last 35 years but not necessarily a margin every year.
    I believe it is in the interest of the nation to promote risk taking in the origination of
    wealth. It is not in the interest of the nation to guarantee a margin.
    A few more things to ponder.
    1. Grain is unique among commodities because it is not existing. But you can store it. Old Idea.
    2. All wars are fought over land. That is where the wealth comes from.
    your nationality, religion, race or sexual preference just determines who’s side you are on.
    3. Lastly we store margins in dollars and have allowed dishonest people to poke a hole in the bin!

  41. I agree with your premise that the “Social Cost of Carbon” is a ridiculous concept. The reason being that they would include the “Social Benefits of Carbon” in the calculation and they have to assume that they can reasonably estimate the costs. This last concept is the one that makes the idea absurd. The Social Cost of Carbon is an easily manipulated concept to achieve a goal rather than achieve an understanding.

    I also agree that any fuel tax is a regressive tax just like sales taxes and government fees. Our government has grown through regressive taxes to avoid taxing their campaign contributors. To me, this is one of the biggest economic problems in our nation.

    For the rest of the narrative, you rely on questionable economics. I would be surprised if any legitimate economist would buy into it. I’m not claiming your conclusions are wrong, but some of your assumptions are poor. Some examples:

    1) “I’ve written before about how taxes on energy are among the most regressive taxes known.” This isn’t true. While energy taxes are regressive, there are many other more regressive taxes. The biggest is payroll taxes which pay for over a third of our government, yet is levied almost entirely against the middle class. Other significant regressive taxes include property taxes and sales taxes.
    2) “Here are the three ways to create wealth: First, you can manufacture wealth … Next, you can grow wealth—you can cultivate an apple tree, keep a home garden, or plant a thousand acres of corn. … Finally, you can extract wealth—you can drill for oil, dig for gold, or fish for trout in a mountain stream.”
    Again – there are many other ways to create wealth. I can’t believe an economist would let you slide with this assumption. The most obvious way (which will support your argument) is through distribution. Delivering those goods to the consumer is a significant component of wealth creation. Improving productivity is also wealth creation in that the value of one hour of labor is increased (fertilizer is such an example). Finally, many services can be wealth creating (although this is the most often abused.)

    A prime example is insurance. Insurance helps to reduce the cost in the transaction of goods. Few people could get a home loan without homeowner’s insurance. However, insurance companies have proven to be voracious rent-seekers (using their government influence to gain more income.)

    3) “On that island one person is a barber, one is a doctor, one is a journalist, and one is a musician. Noble occupations all, but services all … those folks will have nothing to eat, nothing to wear, nothing to keep the rain off. None of those occupations create any real wealth at all, while all the activities on the first island do create real wealth.”

    Yikes!!! Your concept of service wealth is very backward.

    A barber most certainly creates wealth just as any other manufacturing type of organization. Granted, it is not as significant as food or clothing production, but it is still the same concept as any manufacturing operation. He is converting a raw material (your hair) into something more valuable at a lower cost than you can. A doctor, musician, and (gasp!) even journalists can be wealth creating positions.

    Many services shift wealth usually at an economic cost (ex. lawyers, government, finance, and insurance,) but even these fields have examples where they increase wealth which is why they are so easily abused. The enforcement of laws maintains a free and fair exchange of goods, but lawyers can abuse these necessary laws to increase their income.

    In the end, I agree that the social cost of carbon is nonsense and fuel taxes are regressive (and harmful.) The result is that the most successful forms of taxation should be a progressive income tax (on corporate and personal income) and wealth taxes (as opposed to property taxes.)

    Regulations (including environmental regulations) are an important part of society. We can all understand the economic cost of a “love canal” type environmental disaster to the economy. The benefits of regulations need to be weighed against the cost. The Social Cost of Carbon pretends to accomplish this, but it fails miserably for many of the reasons you state.

    (Note: sorry for the dissertation.)

    • “I agree with your premise that the “Social Cost of Carbon” is a ridiculous concept. The reason being that they would include the “Social Benefits of Carbon” in the calculation ” As they of course are. That is why some estimates for the social costs at some periods is negative.

      • Let me say it differently. The benefits of the cost of carbon are not fully incorporated in the estimates. They do include some benefits of climate change and agricultural benefits, but there are many more economic benefits from inexpensive fossil fuels. For instance, getting to work.

        The truth is that many of the inputs to the social cost of carbon are little better than guesses. This means that the estimates are flexible based on the outcomes. $40 per ton would likely have little impact on carbon dioxide emissions, but it would add to the costs of the middle class. However, if that cost can be changed to achieve a desired outcome (and the desired outcome is reduced carbon emissions), then the calculation is worthless.

      • lorcanbonda, “there are many more economic benefits from inexpensive fossil fuels. For instance, getting to work.”
        You are mixing up economic with social costs and benefits. Economic costs and benefits are all included in the price of the fuel. Social costs and benefits are not. They are externalities.

        “$40 per ton would likely have little impact on carbon dioxide emissions, but it would add to the costs of the middle class.” You are suggesting that price will have little effect on consumption. That seems unlikely.

    • SeaIce writes:

      You are suggesting that price will have little effect on consumption. That seems unlikely.

      I’m saying that the supply-demand curve of fuel is relatively inelastic. IIRC a $40 per ton of CO2 tax would add ~ $0.40 per gallon to the cost of gasoline. I don’t believe this is sufficient to drive behavior.

      For this evidence, I referred to the increase in the cost of fuel from 1998 to 2007. During this period, gasoline cost rose ~ $3 per gallon with little impact on consumption. Following the recession, consumption dropped by ~10%, but the cost of fuel also dropped.

      As far as the economic vs social cost of carbon dioxide, I don’t consider them as mutually exclusive as you do. In other words, the economic cost does not equal the economic value. Or, another way to say it, the economic value has social benefits beyond the direct cost.

      • Iorcanbonda, I believe you are correct that the the fuel demand curve is relatively inelastic. The tax on fuel will have less effect on consumption than might be expected. Fair point and well backed up with evidence. I am not sure that this is true long term, as fuel economy of vehicles takes a long time to show up in the figures. Fuel is much more expensive in the UK compared to the USA and fuel economy of cars is way higher.

        As to the economic vs social cost, they are definitely different and mutually exclusive in principle. There a may be difficulties in picking it apart in practice.

      • SeaIce — I agree there may be a long term reduction in fuel usage as a result of cost. However, there are many differences between the UK and US which are not directly transferable. For instance, the size of the country means that there will more dependence on transportation and less capability for public transportation. Regardless, I believe the cost will need to be much higher than $0.40 per gallon to make a difference in carbon dioxide emissions — and most policies are looking for at least a 50% reduction in emissions.

        My bigger concerns is the unintended consequences for those at the margin. Many live at a distance from an employment center because of the cost of housing. With higher fuel taxes, their cost of their transportation rises faster than the norm. The unintended consequence is that the cost of fuel efficient cars will also increase (especially the limited supply of fuel efficient used cars) and the value of housing will also shift. These effects traps those who need to travel far to work with these higher costs. They can’t afford a new car; they can’t afford to move; and there is no public transportation to their region.

        I personally believe our government has been pushing these sorts of costs onto the middle class for decades. Health care is a prime example. The result is to drive the income inequality further apart. For example, those more wealthy can purchase the newer cars to offset the higher fuel prices. It’s only the middle class who can’t afford to change their behaviors.

        You could pretend that the government would offset these cost increases through tax breaks, but a casual reading of these posts explains how politically impossible such “welfare” is in today’s political climate. Any such breaks are usually sacrificed within a few years to pay for other programs.

  42. Willis: I agree with your notion of not taxing the means of production, but rather tax the products or outputs.

    I do disagree with your notion that “services” are not in fact part of production, indeed, services are the heart of the very means of production. Without services, there is no production.

    Services are indeed the means by which production occurs … whether it be labor inputs (a single family farmer can grow only so much food on an acre of ground if he or she only uses their own labor, so consequently farmers have retained the services of laborers to produce their crops), or material inputs (such as superior seeds, fertilizers, or special tools that allow the farmer to produce more product per unit of land and labor), and perhaps most importantly, intellectual services (coming up with better, smarter, more productive methods of production).

    So your model does not really support your argument very effectively.

    Indeed, intellectual services are enabling vastly more efficient means of generating energy while minimizing emissions, whether those emissions are harmful or not. Intellectual services developed fracking, which greatly improves the efficiency of producing hydrocarbon fuels, particularly natural gas, and this has resulted in a huge increase in natural-gas-fueled electrical generation, which in turn has greatly suppressed carbon emissions. Whether or not one is a dedicated warmist or skeptic, given that we still don’t really know the full impacts of the obviously big increase in CO2 emissions in the last 150 years, it makes common sense to sensibly avoid excessive emissions (which is of course a far cry from the radical actions that the warmists demand). Indeed, intellectual services are likely to enable mankind to develop new energy production methods that may in time completely eliminate atmospheric emissions of a wide variety of chemicals that are emitted today. That would be a very good thing, but something that should be pursued sensibly, and not radically.

    • Duane Truitt January 21, 2017 at 9:10 am Edit

      Willis: I agree with your notion of not taxing the means of production, but rather tax the products or outputs.

      I do disagree with your notion that “services” are not in fact part of production, indeed, services are the heart of the very means of production. Without services, there is no production.

      Services are indeed the means by which production occurs … whether it be labor inputs (a single family farmer can grow only so much food on an acre of ground if he or she only uses their own labor, so consequently farmers have retained the services of laborers to produce their crops), or material inputs (such as superior seeds, fertilizers, or special tools that allow the farmer to produce more product per unit of land and labor), and perhaps most importantly, intellectual services (coming up with better, smarter, more productive methods of production).

      If you can’t see the difference between activities that generate wealth and services, I would NEVER put you in charge of my business. This distinction is just as valid inside of a business as it is for an entire economy.

      Let me repeat for you my island example so we have something to discuss. One remote isolated island has a farmer, a fisherman, a builder, and someone getting native medicine and materials from the forest. They have everything they need to live there for generations.

      The other island has an educator, someone doing cost/benefit analyses of new energy production methods, a policeman, and a doctor. Note that these are incredibly necessary occupations … but they are all services, and they don’t generate real wealth. As a result, those people will starve to death or die of exposure within weeks.

      Why? Because there are only three ways to generate real wealth— extraction, agriculture, and manufacturing. Look around you at the things that sustain your life, at the walls and roof that keep out the rain, at the car that gets you to work, at the food that you eat. That is real wealth, and every bit of it comes from agriculture, extraction, and manufacture.

      Best regards,

      w.

      • Say the farmer, fisherman and builder get sick and cannot work. They can no longer produce anything. If they have a doctor to cure them they can all work again. The island with no doctor has a production of zero. The island that also has a doctor has full production. Yet you claim that the doctor does not generate wealth.

      • seaice1 January 22, 2017 at 4:52 am

        Say the farmer, fisherman and builder get sick and cannot work. They can no longer produce anything. If they have a doctor to cure them they can all work again. The island with no doctor has a production of zero. The island that also has a doctor has full production. Yet you claim that the doctor does not generate wealth.

        Thanks, seaice. I’m not sure why this is so hard to explain, but no, a doctor does not generate wealth. If you live on an island of doctors you will starve to death.

        As I said before, services are important, even extremely important. But they are not wealth generating activities.

        Perhaps it’s clearest when someone asked about trucks, and said because trucks allowed people to distribute the wealth and thus are part of wealth generation.

        But they’re not, because until the wealth is generated, there’s nothing to put into their trucks … they don’t generate wealth, they just haul it around.

        Regards,

        w.

      • Obviously you are so invested in your ridiculous economic “model” that ignores anything mankind has done since he graduated beyond hunting and gathering, you refuse to acknowledge that services are key to any form of wealth production.

        There is no wealth generated from growing only that which you can grow from your own field. Or mine from your own mine. Who will purchase your product? And using what form of payment? In your model, the only ones who can live are those who grow their own food … the barber will die because he doesn’t subsist on cutting hair.

        Did you ever hear of “capitalism”? “Capital” is a financial service that matches accumulated wealth to those who would use capital to produce. Those with capital use services to put it to good use, and those who need capital go to those with capital, and all the various middlemen who conduct financial services, in order to obtain the capital they need to produce a product. In producing, the entrepreneur will consume financial services (capital, whether invested as equity or loaned as debt, plus all those engaged in said services including accountants, bankers, lawyers, equities marketers and managers, etc. etc. – all of which are, by the way, “services”), technical services (those who design and manufacture tools, whether simple hoes and scythes, or complex modern farm machinery including tractors, combines, etc.; as well as those researchers who develop superior seeds, superior fertilizers, superior insect controls, as well as those who design and build irrigation systems, and who design and build transporation systems like roads, railroads, ships, etc. to transport the farmer’s products to his end use consumer customers, as well as all those middlemen who finance transactions, handle currency exchange, deal with import/export rules, etc. etc.).

        The list of services necessary for a single farmer today to grow and sell farm products is literally endless. And I’m not talking about haircuts, or other simplistic and trivial examples as you used.

        No – I would not trust you to conduct any business at all in anything but a pre-civilizational, hunter-gatherer world that no longer exists. Even “stone age civilizations” in isolated remote locations in the world still organized themselves as civilization, which means that persons come together, specialize in the services they provide so as to deliver a more efficient, more productive group of humans.

        Really, where did you go to school? Didn’t they teach you anything?

      • Duane Truitt January 23, 2017 at 10:00 am

        Obviously you are so invested in your ridiculous economic “model” that ignores anything mankind has done since he graduated beyond hunting and gathering, you refuse to acknowledge that services are key to any form of wealth production.

        There is no wealth generated from growing only that which you can grow from your own field. Or mine from your own mine. Who will purchase your product?

        Duane, you seem totally confused about the concept of “wealth”. If we say “that man is wealthy” does that mean he is selling what he owns and worrying about who will purchase his wealth?

        Wealth is a concept which is totally separate from purchasing, viz:

        wealth
        welTH
        noun
        an abundance of valuable possessions or money.
        “he used his wealth to bribe officials”

        Note that this says nothing about “who will purchase your product”. Wealth is “valuable possissions” like food and clothing and housing and medicine. Real, tangible goods.

        Next, services are NOT “the key to wealth production”, that’s backwards. Think about my island example. On one island there are only wealth producers—a farmer, a fisherman, and the like. They have NO people providing them services, and despite that, they generate an abundance of real wealth.

        On the island of the doctor and the musician and the service providers, on the other hand, everybody starves to death.

        For example, do truckers generate wealth?

        Nope. They are service people. They haul wealth around, that’s why they have trucks. But they do NOT generate any new wealth.

        Sorry, but services are called “services” for a reason …

        w.

      • Thanks, seaice. I’m not sure why this is so hard to explain, but no, a doctor does not generate wealth. If you live on an island of doctors you will starve to death.

        Willis, please abandon this line of thought. At the very essence, you can understand that a doctor generates wealth because the farmer is willing to trade his crop for that service. However, this is fundamental to a capitalist nation — services are wealth creating.

        I understand what you are trying to say. There are services which only shift wealth without creating the wealth. A prime example (in some cases) is lawyers — they spend months preparing a case to take money from David Steyn and give it to Michael Mann. That is not wealth creation. Worse yet, there is enormous friction in the economy created during that shift in wealth — The lawyers take their cut, the courts need to be paid for, and much of that money can’t be used by the economy until the issues are resolved.

        However, most services are wealth creating. The farmer pays a barber to cut his hair because his time is more valuable when he spends it in the fields. If he pays $28 for a haircut which lasts four weeks, then the value of the haircut depreciates by $1 each day, because “time is money”. It’s the same way a building (which is worth more than its raw materials) depreciates over time.

        This doesn’t change your underlying argument, but it disguises it in ways that many people can see is wrong.

      • I’m not sure why everyone is having such a hard time understanding Willis’ argument.

        If it helps… think of services as a wealth multiplier. That is, some service S1 might increase the effectiveness or efficiency of some means of production… but won’t actually produce wealth itself.

        Mathematically… it would be Wealth_total = Weath_initial * S1(some service).

        Notice… that if Weath_initial is zero… then Weath_total is zero. That is… services produce no wealth, in an economic sense. Willis’ point is that only extraction, agriculture (which might be considered a form of extraction) and manufacturing enter into the equation at “Weath_initial”. The rest are services, and thus multipliers.

        Also note, that nothing says that the multiplier associated with some service is greater than one (1.0). Government services, for example, typically are less than 1.0, and thus decrease the efficiency of the economy.

        Regards,

        Anton Eagle

  43. It would seem to my simple mind that many of our problems stem from the fact that those who levy taxes have become confused about the reason for having taxes in the first place. Taxes should be levied because the government has identified a need to spend money on something or other. However, taxes such as carbon taxes or sin taxes are apparently levied because the government has decided in its wisdom to change the behaviour of the taxed; the government is indulging in social engineering rather than taxing because it has a need for money.

    If one accepts as a basic principle that taxes are levied because, and only because, the government concerned has a need for money, then it is reasonable to extract those taxes in such a way as to cause the least harm to the economy. For example, high corporate taxes reduce the amount of money available for businesses to reinvest and ultimately grow the economy, so tend to cause more harm to the economy than, say, income taxes. Conversely, if one accepts that taxes are levied for social engineering reasons then the principle of least harm to the economy is weakened. The Obama administration apparently believed that profits were inherently evil, and used high corporate taxes as a means to discourage them.

    One hopes that a pragmatist such as Donald Trump will adhere to the principle of least harm to the economy.

    • The gist of it is that taxes reduce the economy, therefore we should not have taxes. Except we actually need to provide income to support the government.

      The next question becomes which way to levy a tax so that it does the least harm/most good. The best ways (as it turns out) is to tax income and wealth.

      These are basically the surplus of the economy. Income taxes don’t slow the economy because these taxes are paid on net income, not revenue. So, if you buy corn seed, that purchase is not taxed. It is only the profit on the sale of corn that is taxed. If you decide that you need $100k annual salary to live and income taxes reduces that figure to $80K, then you will produce an extra 25% to make the net income. In other words, income taxes can increase productivity (relative to other taxes.)

      This is the gist behind the idea of Value Added Taxes in Europe. However, these have become effective sales taxes. The worst type of taxes are payroll taxes. These types of taxes have risen from 10% of our federal revenue to 35%. This increase drives the income inequality, yet nobody discusses the reduction of them.

      • If by least harm you mean least distortion of the economy the best tax is a head tax. This does not induce any change in behavior (except in a few cases where people might kill themselves). Tax on income reduces the benefit of working so encourages leisure, which is a distortion. Tax on wealth discourages wealth production, which is a distortion.

        if course a head tax has other problems, not least is that it is regressive.

      • By least harm, I mean that the economy will continue to spiral up at a steady rate (over time.) Money that is spent in a productive economy has a multiplier effect relative to money which is saved or invested (such as those funds used to bid up stock prices.)

        A head tax is not a harmless tax. Any sort of poll tax is regressive and destructive to a viable economy. Right now, our federal income is a hair over $3 trillion and the population is 300 million (round numbers.) This means that a poll tax for federal spending would be ~ $10,000 per person (states and local governments would add ~4,000.)

        A family of four would pay $56,000. I shouldn’t have to explain how different that is to pay for a family who earns $50,000 compared to a family who earns $10 million.

        The least harmless tax is a progressive income tax. It needs to be progressive because mandatory costs (food, energy, housing) take up a much higher portion of a poor person’s salary than a wealthy person’s.

      • the best tax is a head tax. This does not induce any change in behavior

        Other than to move to a jurisdiction where there is no head tax.

        Tax on income reduces the benefit of working so encourages leisure

        No, it forces me to work MORE in order to feed my kids and save for retirement.

        .Tax on wealth discourages wealth production

        It does no such thing. People in a position to accumulate wealth will accumulate as much of it as they can. What taxing wealth does is add incentive to store that wealth in a manner that cannot be taxed. By moving it to an off shore tax haven for example.

        You’re better of with your empty “listen to the experts” argument. That tactic completely masks your misunderstanding of the subject.

      • DavidMOffer writes in response to SeaIce

        No, it {A tax on income} forces me to work MORE in order to feed my kids and save for retirement. … It {A tax on wealth} does no such thing. People in a position to accumulate wealth will accumulate as much of it as they can.

        Exactly. I often wonder about people who dismiss the effect taxes have on actions. For instance, payroll taxes and equivalent mandatory costs (such as health insurance) rewards companies for moving jobs overseas. Whereas income taxes do no such thing. The last thing we should do is tax hiring.

        One area that I disagree concerns the effect of taxation on moving assets overseas. Obviously, we need to have protections against actions like that just like we have protections against income tax evasion. But I was thinking theoretically under the assumption that we would have enforcement.

        Theoretically, income taxes and wealth taxes are the most effective (or the least counter effective) on the economy. People and corporations will try to shelter their income or wealth, but none would try to reduce their income or wealth just to avoid taxes. Their actions would be the opposite — try to increase income.

      • An income tax has more than one effect. It reduces the incentive to work (because you get less for it). It also increases the amount of time you need to work to bring in a particular income. Hiow these balance out will depend on the individual. I find it useful to postulate an extreme level to illustrate. A tax of 100% would mean it was not worth anyone working.

        A consumption tax can be better than an income tax and have pretty much the same effects. The problems you point out with the head tax are real and why we do not have one. It illustrates the difficulty of defining “the best tax”. It depends very much on your intended purpose. If you purpose is to have least economic distortion, then a head tax is best. This is because it cannot be avoided by changing behavior – although emigration is the exception to this, as you point out. However, you will probably have other objectives as well, such as an element of progressive redistribution.

        Generally a tax will have less distortion if it is applied over a broader base. Thus income tax is less distortionary than an energy tax. A consumption tax is even broader than an income tax. It covers consumption derived from unearned income, so gets around the problem of “earned income” disguised as capital income.

      • SeaIce writes

        An income tax has more than one effect. It reduces the incentive to work (because you get less for it). It also increases the amount of time you need to work to bring in a particular income. How these balance out will depend on the individual. I find it useful to postulate an extreme level to illustrate. A tax of 100% would mean it was not worth anyone working.

        Nobody is talking about a 100% tax rate which would be insane. An income tax is less disincentive to work than a payroll. Would you agree with that? The question pertains to the most effective way to raise the $3.8 trillion to fund the federal, state, and local budgets. All taxes have an economic impact, but which taxes have the least negative economic impact. My argument is that wealth taxes and incomes taxes are the least damaging to the economy. Payroll taxes and sales taxes (such as carbon taxes) are the most damaging.

        A consumption tax can be better than an income tax and have pretty much the same effects.

        No, (1) Consumption taxes reduce consumption which is negative GDP growth and (2) Consumption taxes are regressive. People who have excess cash on hand can save some.

        The problems you point out with the head tax are real and why we do not have one. It illustrates the difficulty of defining “the best tax”. It depends very much on your intended purpose. If you purpose is to have least economic distortion, then a head tax is best. This is because it cannot be avoided by changing behavior – although emigration is the exception to this, as you point out.

        Of course, that is not really true. It can be avoided by having fewer children. Then, (if you take it to your extreme example) we will have a nation of elderly who have to keep working just to pay the head tax which rises each year to offset the nation’s death rate.

        Generally a tax will have less distortion if it is applied over a broader base. Thus income tax is less distortionary than an energy tax. A consumption tax is even broader than an income tax. It covers consumption derived from unearned income, so gets around the problem of “earned income” disguised as capital income.

        Are you serious? A consumption tax is less broad because it is income with savings taken away.

  44. Excellent piece Willis. I always enjoy your posts. However, re the different pathways to wealth creation, how does schooling to produce “educated minds” fit in? Is not an educated population a form of wealth?

    • Thanks, Joseph. Put it to the remote island test. Do you want to live on an island where everyone is an educator, or where everyone is a farmer, a fisherman, or gets wood and medicines from the forest?

      It’s hard to eat schooling … so yes, education is indeed a service.

      w.

  45. Willis, I am unconvinced. While I agree with you entirely on the “social cost of carbon”, I don’t see that it targets the “seed corn” any more than it targets anything else.

    First, you ask, “Should we tax the seed corn, or should we tax the resulting corn crop? The first and most obvious reason that we should tax the corn crop is because taxing the seed corn makes it more expensive, and thus it discourages people from planting…”

    It is equally true that setting high enough tax on the resulting crop will surely cause people to avoid planting corn and look for other opportunities.

    Later, you state, “…I know that farmers are broke in the spring and generally only have cash when the crop comes in. The same is true of most wealth generating activities. Money is scarce at the start of the process and ample at the end…”

    How does putting the tax at the “end of a process” not leave people also short of money for the next start? When I ran a large agricultural operation, I could budget costs very accurately and I had a line of credit. The costs to start differed in no way from costs occurring anywhere else in the course of operation.

    Now entrepreneurial activities are probably sensitive to timing of costs in a different way; but, quite a lot of the economy is a steady circular flow and there is little difference where in that circular flow the friction of taxation occurs. I am inclined to think that what matters more than anything else is the tax rate, the after tax profit, and the uses the tax is put to.

    Thanks for your consideration.

    • K. Kilty January 21, 2017 at 9:37 am

      Willis, I am unconvinced. While I agree with you entirely on the “social cost of carbon”, I don’t see that it targets the “seed corn” any more than it targets anything else.

      First, you ask,

      “Should we tax the seed corn, or should we tax the resulting corn crop? The first and most obvious reason that we should tax the corn crop is because taxing the seed corn makes it more expensive, and thus it discourages people from planting…”

      It is equally true that setting high enough tax on the resulting crop will surely cause people to avoid planting corn and look for other opportunities.

      Let’s take a poor third world farmer as an example, as things are often clearer at the bottom end of the scale where there is less economic “noise” in the signal.

      When it comes time to buy seed corn let’s say this poor bugger has 56 rupees to buy seed. Period. No credit. No land bank loans. Fifty-six rupees.

      ANYTHING that increases the price of the seeds reduces the amount of seeds he can buy … and because of the multiplier effect where one seed turns into a hundred kernels of corn, that reduction in seed corn in turn greatly reduces the amount he will harvest.

      Now, I agree that if you put a high enough tax on the final product you will also discourage planting … but the crop is worth a hundred times what the seed corn is worth. So to have the same effect the tax will need to be much larger in dollars.

      Or conversely, a tax of X dollars will do more damage when applied to the inputs of wealth generation than when applied to the outputs.

      Best regards,

      w.

      • The argument is that when you buy seeds to produce 100 bushels of corn, you could tax the seeds at $100 or the corn at $1 per bushel. to the farmer, it is the same cost, so it won’t change the cost of the corn.

        The problem is that seed could produce only 60 bushels in a bad weather year or 140 bushels in a great weather year. Plus, the value of the corn could change based on the availability. So, it is not really the same amount.

  46. The Social Cost Of Oxygen and Water

    Corrosion of metals costs the U.S. economy well over $300 billion per year. The Pentagon alone spends over $22 billion a year fighting rust. Underlying causes of this tremendous damage are oxygen and water.

    To estimate the total cost of free-radical damage, also caused by oxygen, would result in even higher, unimaginable costs.

    The combined total costs of corrosion and free-radical damage to society, thus, warrants immediate action. The greatest threat to human beings today, as evidenced by the above-mentioned, undeniable costs, involves these very substances in Earth’s atmosphere.

    Let us, then, consider a tax on oxygen as a necessary tax to offset these costs of destruction to our infrastructure and our very bodies. This tax is justifiable, because the costs of oxygen and water are immense … in any intelligent person’s judgement who denies any benefits of oxygen and water whatsoever.

    In fact, due to the overwhelming immediate threats posed by oxygen and water, we, as a civilization, have a duty to redefine the underlying concept of cost-benefit analysis to mean … cost-benefit-denial analysis. Furthermore, we have a moral obligation to label these substances for what they REALLY are — POLLUTANTS

    • Robert, you display a fundamental lack of understanding. The social cost of carbon emissions can be calculated because the amount of carbon in the atmosphere rises as we emit more. There is no social cost of H2O emissions because the water simply precipitates out. There is no social cost of oxygen emissions because we are not emitting oxygen at levels that will change the O2 concentration. Some may find your post may be amusing but has no value as an analogy with CO2.

      • Ah, but seaice1, you are restricting the concept of “emissions” to HUMANS, whereas my consideration of “emissions” encompasses ALL sources of “emissions”. Hence, my understanding is not so much lacking as it is expanding. In other words, I am not confining my application of this particular word to human beings, since other parts of nature emit substances too.

        H20 is continually … “emitted” … in various ways, as is oxygen. I simply do not accept the assumption that HUMANS have exclusive claim to this manner of description, as you seem to demand.

        Also, you assume that the critical “emissions” of CO2 are from the human source, but when you compare the percentage of the human source to the percentage of the non-human source, you will see that the human source is quite small, and I am NOT convinced that this small percentage has any effect at all on the greater percentage that is the minute percentage of all gases composing the whole atmosphere.

        The mistake that you make is attempting to restrict my sense of humor to your underlying premise, which I do NOT accept. In fact, I view your underlying premise that attempts to shackle my comedic exploits as flawed.

        You, thus, display a fundamental lack of humor. (^_^)

      • Robert, you are suggesting that we should introduce an Earthquake tax to reduce the incidence of Earthquakes.

      • Robert, you are suggesting that we should introduce an Earthquake tax to reduce the incidence of Earthquakes.

        Well, not quite, seaice1, but that would make about as much sense as introducing a tax to reduce the incidence of warming in Earth’s atmosphere.

        The point of my parody was to illustrate my sense of this senselessness:

        Alarmists see the real world temperature data, and then this gets adjusted to allow them to see what they want to see. The alarmists see clear arguments from mathematicians and physicists that disprove their radiation-physics mantras. They see plain records indicating NO increase in severe weather events. They see clear evidence of a greening of the Earth because of a slight increase in CO2, no matter from where it is “emitted”. They see reasonable arguments about what stage of the geological time line of ice ages we are in and how this shows that nothing out of the ordinary is going on with Earth temperatures or ice melt.

        Yet, they cry for a “carbon tax” to reduce the incidence of a warming of Earth’s atmosphere that all this shows does NOT exist. They cry for a tax on a non-reality. It’s a joke. Hence, my foray into the humor angle of it all.

        My suggestion is that you review the perspective that is opposite yours. I used to be a global warming believer, but I could not remain in this camp, when I really looked at the opposition to it. A true “denialist” is somebody who refuses to look at the real evidence, and so the alarmists are the denialists, NOT moi.

  47. Willis is unaware of the phenomena know as “unintended side effects.” If you put the tax on seed corn, farmer will react by saving a portion of their corn crop to be used as seed for the next growing season. Farmers are smart and will go to extremes to avoid paying taxes, just like America’s newly elected draft dodger.

    • David Dirkse January 21, 2017 at 10:11 am

      Willis is unaware of the phenomena know as “unintended side effects.” If you put the tax on seed corn, farmer will react by saving a portion of their corn crop to be used as seed for the next growing season.

      Thanks for the comment, David, but folks, could you please stop fantasizing about what I do and don’t know? In general you don’t have a clue. For example, I grew up in the country. As a result, I know that dodge of “save your seed corn” along with a dozen others. Here’s a rule of thumb for future use:

      Didn’t Mention ≠ Doesn’t Know

      In any case, none of these change my point about where energy taxes hit in the wealth production process. Yes, farmers are smart. Yes, people do their best to avoid taxes.

      But how does that change the fact that energy taxes damage the economy by taxing the inputs to wealth generation?

      w.

      • Willis, there is not need for us to “fantasize about what you do and don’t know,” All we have to to is read what you write and what you’ve written to realize how little you know.

      • For example you say: “how does that change the fact that energy taxes damage the economy by taxing the inputs to wealth generation”

        Simple, “energy” is an OUTPUT and an input at the same time, so your categorizing it as an “input” only is wrong.

      • David Dirkse January 21, 2017 at 4:13 pm

        Willis, there is not need for us to “fantasize about what you do and don’t know,” All we have to to is read what you write and what you’ve written to realize how little you know.

        Once again you can’t find an actual objection to my ideas so you attack me personally. Read up on “ad hominem”.

        w.

      • David Dirkse January 21, 2017 at 4:16 pm

        For example you say: “how does that change the fact that energy taxes damage the economy by taxing the inputs to wealth generation”

        Simple, “energy” is an OUTPUT and an input at the same time, so your categorizing it as an “input” only is wrong.

        First, thanks for raising an actual objection to an idea in addition to your personal attacks.

        Yes, energy is an output of a small number of extractive industries such as oil extraction. But I’ve never denied that. In particular I’ve never categorized energy as an “input only” as you claim.

        In addition, I’m not clear why you think it is relevant that in a few industries energy is an output as well as an input. So what?

        What I’ve said is that energy is an input to all large-scale wealth generation. As such, taxing it reduces the amount of wealth generated out of proportion to the size of the tax.

        And NOTHING you’ve said so far changes that fact in the slightest.

        w.

      • First of all Mr Eschenbach, I apologize if calling a spade a spade is taken by you as a “personal attack.” Only someone with a fragile ego would consider it an “attack.”
        .
        Secondly you make the statement: “energy is an input to all large-scale wealth generation.” Now the problem with making such a foolish statement like that is use of the word ALL. One of the largest wealth generating mechanisms to date actually requires no energy input. The countless financial engineers working it tall buildings trading equities and moving pieces of paper and tiny magnetic domains around on little spinning disks and thru copper and fiber links have created an enormous amount of “wealth.” In fact the Federal reserve with few keystrokes have created trillions of dollars. Now you may say the energy was an input to their computers, but they could have done it with hand written drafts on accounts. So I suggest you edit your statement and replace “all” with “most.”

  48. Nearly all countries have taxed gasoline for decades, and I haven’t heard complaints about that somehow inhibiting economies. Likewise electricity, that is taxed today as well.

    • “Nearly all countries have taxed gasoline for decades, and I haven’t heard complaints about that somehow inhibiting economies.”

      Well, for every rise in the cost of gasoline of 80 cents per gallon, the U.S. economy is reduced by one percent. For every reduction of 80 cents per gallon of gasoline, the U.S. economy is stimulated by one percent.

      Raising gasoline taxes is one of the worst things you can do to an economy. It punishes the poor the most, taking what little extra money they have, right out of their pockets, and causes prices for many things to rise, and stifles the economy.

      Ask an American driver, or any driver, if he wants to see his gasoline prices go up, especially one who is barely making ends meet now. I bet I know what the answer will be. I bet you do, too.

      • Why do you suggest 80 cents? The federal gas tax in the US is 18.4 cents, or 1/4 of the figure you mentioned.

        Ask any American if they want ANY tax to go up, and they will say no. So your point is meaningless. You have posted nothing that shows that a gas tax is more harmful to the economy, or to the poor, than another tax such as a sales tax, income tax, or tax on services. A lot of working poor don’t own a car, they take public transit, so are not affected by gas taxes.The premise of Willis’ post was that an energy tax is more harmful than other types of taxes, not that folks don’t like taxes.

  49. You say “don’t think CO2 is the secret temperature control knob of the climate”. There is compelling evidence a more assertive statement is justified: CO2 has no significant effect on climate.

    CO2 has only one absorb/emit band in the range of significant terrestrial thermal radiation. Water vapor has “about 170 lines in the spectral interval 75-550 /cm” (http://articles.adsabs.harvard.edu//full/1938ApJ….87..497E/0000499.000.html) for each molecule and there are on average near sea level about 35 WV molecules for each CO2 molecule. Thus there are about 35 * 170 = 5950 absorb/emit bands for WV plus 1 absorb/emit band for CO2 for a total of 5951 absorb/emit bands. Doubling the CO2 increases this to 5952 absorb/emit bands. This is an insignificant increase of less than 0.02%.

    The fact that the WV absorb/emit bands are lower energy and considering the energy distribution in the gas molecules, the effect of doubling CO2 is actually even less.

    • Dan Pangburn January 21, 2017 at 11:20 am

      You say “don’t think CO2 is the secret temperature control knob of the climate”. There is compelling evidence a more assertive statement is justified: CO2 has no significant effect on climate.

      Unfortunately, if such “compelling evidence” were available we wouldn’t still be debating the question.

      In any case, have you looked at the MODTRAN online absorption calculator? There you can actually compare whatever you want.

      w.

      • Part of the “compelling evidence” is provided in the second paragraph. More is discussed in the first sections at http://globalclimatedrivers2.blogspot.com. IMO the ‘debate’ is over among people who actually understand this stuff. The challenge is to get the truth out to the politicians before they screw up the world even more.

        That MODTRAN calculator apparently does not account for thermalization and the thousands more absorb/emit bands for WV compared to the other ghg or that most of the WV absorb/emit bands are at lower and more plentiful molecular energy levels in the Maxwell/Boltzmann distribution.

      • Thanks, Dan. You say:

        That MODTRAN calculator apparently does not account for thermalization and the thousands more absorb/emit bands for WV compared to the other ghg or that most of the WV absorb/emit bands are at lower and more plentiful molecular energy levels in the Maxwell/Boltzmann distribution.

        So … your claim is that you are right and MODTRAN is wrong …

        Let us know how that works out for you.

        w.

  50. Retired Kit P January 21, 2017 at 8:54 am

    BZ ngard, this why I read WUWT. While 90% is BS, there is a 10% learning opportunity.

    Willis basic assumption is wrong. Today food and energy are a small part of a family budget even for the poor.

    QUOTE MY WORDS, YOU !@#$%^!! I’ve had it up to here with your nasty mudslinging. Just what the heck are you claiming is my “basic assumption”?

    I’ve asked you politely before to refrain from your ugly habit of incorrect, unpleasant generalizations without specifics. QUOTE MY WORDS! I can defend what I’ve said. I cannot defend your inchoate feverish fantasies of what I said. QUOTE MY WORDS.

    w.

    • Yes, when someone takes the time to compose a clear exposition, and somebody else makes a general remark demeaning it, then this shows, … well, … it shows nothing, which one can only assume mirrors the contents of the brain of the person making the cursory, thoughtless, knee-jerk remark.

    • Retired Kit P January 21, 2017 at 8:54 am

      Willis basic assumption is wrong. Today food and energy are a small part of a family budget even for the poor..

      See, this is why I want people to quote the words they disagree with. His claim is that

      “Today food and energy are a small part of a family budget even for the poor.”

      I disagree, and you all can see exactly what I disagree with.

      In fact, I disagreed so much that I got the data and wrote a new post about it. Turns out that energy alone, not “food and energy” but plain old energy, is 41% of the budget of the poor. It is not a “small part of a family budget” for the poor. BZZZZT. Next contestant, please!.

      In closing, let me invite you and everyone to do your own homework on your claims before uncapping your electronic pen … because at WUWT, as I’ve sometimes found out to my cost, mistakes and errors don’t last too long under the public gaze before someone says “Whaa?”.

      Regards to everyone,

      w.

  51. seaice1 January 21, 2017 at 2:58 am

    “Richard, you repeat the error many economists make…” I would be very careful about accusing a whole branch of study as having made a mistake based on my own half-arsed ideas.

    Oh, good, I do love concern trolls. Be “careful” as much as you wish, seaice, I rarely am. I will act as I wish. In any case, I did not accuse “a whole branch of study” of anything. Learn to read. I accused Richard of making an error many economists make … including you, apparently.

    Next, I note that rather than show us where my claim is wrong, instead of pointing out a single error you think I’ve made, instead you’ve wandered off into concern … coincidence? You be the judge.

    seaice1 January 21, 2017 at 6:09 am

    “Should we tax the seed corn, or should we tax the resulting corn crop?”

    The point of the principle is that it makes no difference. You can tax shoes and people buy fewer shoes because the price is higher. You can tax shoe leather and people fewer shoes because the price is higher. It makes no difference.

    That is called “argument by assertion”, where you simply state over and over that you are right … sorry, not impressed no matter how many times you repeat “it makes no difference”. I laid out my ideas and logic quite clearly. Heck, at the end I even gave a precis of the ideas involved. Let me get it for you, you might have missed it:

    First, taxing or increasing the price of the seed corn discourages planting.

    Second, taxing or increasing the price of the seed corn has a very large effect because of the multiplicative power of wealth generation. Since each corn seed can become a plant that produces hundreds of kernels of corn, anything affecting the seeds has a disproportionately large effect on the eventual production.

    Third, taxing or increasing the price of the seed corn hits the producers when they have the least money to pay the tax.

    If you think those statements are wrong, QUOTE MY WORDS and show us where I was wrong.

    Because simply stating ad nauseum that you are right goes nowhere.

    Finally, you say:

    You can tax shoes and people buy fewer shoes because the price is higher. You can tax shoe leather and people fewer shoes because the price is higher.

    The issue is not how much corn gets bought. The issue is how much corn gets produced … I’m not discussing the effects of taxation on the purchase of real wealth. That is your topic.

    I’m discussing the effects of taxation on the production of real wealth.

    Best regards,

    w.

    • Willis.
      “The issue is not how much corn gets bought. The issue is how much corn gets produced … ”

      This is the crux, I think. The amount of corn produced is the same as the amount of corn consumed. Remember we are assuming a market system where prices are determined by supply and demand. Do you think there is a difference? Are farmers producing corn that is not sold or consumers purchasing corn that is not produced? Can you explain how these quantities could be different.

      “That is called “argument by assertion”, where you simply state over and over that you are right …”
      I did not just assert my point, I talked you through it starting with “Think it through… ” Let me get it for you

      “Just think it through. Start with a market where prices are determined by supply and demand, which is a pretty good model for agriculture. The Govt. tax corn seed. If the farmer plants the same amount of corn he would have to put up the price of corn to cover the extra cost. The farmer knows this and so plants less corn because he knows demand will be lower, or plants less corn because corn seed is now more expensive than wheat seed or whatever. If farmers as a group did not put up prices then marginal farmers would go out of business and we get less corn.

      If the Govt taxes corn products instead we get exactly the same result. Consumers buy less corn products and so farmers plant less corn.”

      This demonstrated why it makes no difference which you tax, you get the same result. One implicit caveat is that the revenue raise by the tax at each point is the same.

      If you disagree please quote the part you do not agree with and demonstrate why I Simply asserting that one seed corn produces many ears of corn does not demonstrate this.

      ” I accused Richard of making an error many economists make … including you, apparently.” I am not an economist.

      “Since each corn seed can become a plant that produces hundreds of kernels of corn, anything affecting the seeds has a disproportionately large effect on the eventual production.”
      Simply asserting this does not make it true.

      The first point I raised here is the most important. the amount of corn produced is the same as the amount of corn consumed.

  52. Tim Hammond January 21, 2017 at 3:37 am

    Sorry, had to stop when the wealth discussion went into the land of the lunatics.

    What is this, the Hillary Clinton school of discourse? What’s next, you gonna call me “deplorable” as well as a lunatic?

    Let’s take hairdressers. You pay to have your haircut because you value the way you look. You put a higher value on that look post-hair cut (if you did not, you would not pay). So if we had no hairdressers, that value could not exist. Thus it is utterly obvious that hairdressers create wealth.

    Please return to my discussion in the head post regarding the two islands. If you wish to live on the island of hairdressers and musicians, be my guest. Me, I’ll go where real wealth is being created, and it’s not haircuts. You make Richard Tol’s mistake, so let me repeat what I said to him:

    There is a net loss to the economy if you take money from farmers and give it to barbers. You start out with well-fed people with bad haircuts. You end up with immaculately-tonsured individuals who are starving to death. Yes, as you point out the amount of dollars is exactly the same … but it is still an obvious net loss to the economy nonetheless.

    That in a nutshell is the difference between real wealth and haircuts.

    w.

    • There is a net loss to the economy if you take money from farmers and give it to barbers.

      These days each farmer feeds 155 people. Suppose that the farmers quit purchasing useless things like haircuts. Folks like barbers would either starve or take up some wealth producing activity like farming. They would quit buying the crops of the existing farmers. The whole thing would spiral down into everyone being a subsistence farmer. The economy would not benefit.

      There is the Paradox of Thrift which points out that, when people quit buying useless services and luxury goods, the economy tanks.

      This is not to say that you are wrong. An economy that doesn’t produce sufficient wealth can’t prosper no matter how hard working the people are. I know a lot of Filipinos and find them hard working, intelligent, and entrepreneurial … and yet the Philippine economy is very poor. Wealth production is a necessary condition for a strong economy. When that condition is satisfied, then apparently useless activities (like telephone sanitizers) actually improve the economy further.

    • “There is a net loss to the economy if you take money from farmers and give it to barbers.”
      Let us imagine a third island which has both services and producers. The banker can lend to the fisherman to get a bigger net and the farmer to get better tools. The insurance person can allow the fisherman to risk buying a boat. The doctor can cure the farmer and the fisherman when they are sick so allow them to continue farming and fishing. The wealth will grow much faster than on the producer only island, where the prohibition on services prevents any such intermediate activities. Soon they will have enough wealth to pay people to entertain them instead of sitting around. We might get musicians and artists, chefs and even hairdressers. And we will still have more farming and more fishing than the producer only island. Yet Willis insists that there is a net loss to the economy if you take from the farmers to pay the doctors, bankers, brokers, and entertainers.

      Willis is simply wrong, even if we measure wealth only in his limited terms. You can have your Island, Willis. I would prefer the one with the services.

  53. Willis, in your analogy, if the harvest is taxed, the tax is basically applicable to the next seeds, because that’s where the seeeds will be coming from, no?

    So in essence, you just advanced the taxation of the seeds one season.

    Now, how does it apply to the carbon tax. Apart of the stupid and pretentious arguments for its implementation (global warming) and its obvious intended purpose of promoting non-fossil based sources of primary energy, I do not see any bigger harm it can cause to the economy than any other tax.
    Yes it is regressive because it’s impact is felt by all population groups evenly, basically like a sales tax.

    Don’t get me wrong I will definitely be voting for Kevin O’Leary, who has abolition of carbon tax or carbon scheme of any kind in his program.

  54. David Dirkse January 21, 2017 at 4:47 pm

    First of all Mr Eschenbach, I apologize if calling a spade a spade is taken by you as a “personal attack.” Only someone with a fragile ego would consider it an “attack.”

    No, you are not apologizing. You are pretending to apologize for your attack by claiming you were just “calling a spade a spade”. Nice try. Here’s what you said:

    All we have to to is read what you write and what you’ve written to realize how little you know.

    No evidence. No quoting of a single thing I said. No demonstration that one thing is incorrect. Your claim is a purely subjective boast that any fool just has to “read” to see how little I know …

    David, you can piss on my boots, but you can’t convince me it’s raining. I can recognize a personal attack when I see one. If you don’t recognize that as a personal attack, you are beyond my poor power to add or detract.

    Secondly you make the statement: “energy is an input to all large-scale wealth generation.” Now the problem with making such a foolish statement like that is use of the word ALL. One of the largest wealth generating mechanisms to date actually requires no energy input. The countless financial engineers working it tall buildings trading equities and moving pieces of paper and tiny magnetic domains around on little spinning disks and thru copper and fiber links have created an enormous amount of “wealth.” In fact the Federal reserve with few keystrokes have created trillions of dollars. Now you may say the energy was an input to their computers, but they could have done it with hand written drafts on accounts. So I suggest you edit your statement and replace “all” with “most.”

    You’re still not getting it, so let me try again. You seem to think that trading equities creates wealth … hey, if you want to live on a remote isolated island where everyone trades equities and moves pieces of paper, up to you. I hope you enjoy eating paper.

    Me, I’ll live on the remote island where people are farmers and fishermen …

    w.

    • Yes Eschenbach, you can live on a remote island where people are farmers and fishermen. I’m sure you’ll enjoy the isolation. It most certainly will feed your ego since the population will be small, and you can bully most of the inhabitants. In the long run though, you’ll live a miserable existence, have a short life span, and probably die of a simple infection sans common antibiotics. Then again, you might die of a clot from a broken bone without a nearby hospital from all that farming and fishing.
      .
      If doubt “that trading equities creates wealth” you need to take a drive around Westchester County or Greenwich CT and get back to me about “trading equities.” Keep posting, you are displaying your lack of understanding of true “wealth” as it exists today and it’s clear you don’t comprehend modern day economies. (which supports my previous claim about how little you know.)
      ,,,,
      I guess in your world Warren Buffet is poverty stricken, but then, Warren could buy ten of the islands you might want to live on.

      • David Dirkse January 21, 2017 at 5:58 pm

        Yes Eschenbach, you can live on a remote island where people are farmers and fishermen. I’m sure you’ll enjoy the isolation. It most certainly will feed your ego since the population will be small, and you can bully most of the inhabitants. In the long run though, you’ll live a miserable existence, have a short life span, and probably die of a simple infection sans common antibiotics. Then again, you might die of a clot from a broken bone without a nearby hospital from all that farming and fishing.

        Dang … miss the point of the island example much?
        .

        If doubt “that trading equities creates wealth” you need to take a drive around Westchester County or Greenwich CT and get back to me about “trading equities.” Keep posting, you are displaying your lack of understanding of true “wealth” as it exists today and it’s clear you don’t comprehend modern day economies. (which supports my previous claim about how little you know.)

        You misrepresent what I said. I didn’t say i doubted that trading equities can make a man wealthy. It can. So can burglary. But if you think that either a burglar or an equity trader CREATES wealth, I fear you haven’t yet grasped the concept.

        ,,,,
        I guess in your world Warren Buffet is poverty stricken, but then, Warren could buy ten of the islands you might want to live on.

        Pass … that’s too twisted for me to even touch.

        w.

      • Congratulations on Olympic standard totally missing the point, Dirkse!

        You really haven’t the first bloody clue, have you?

      • No Eschenbach, I haven’t missed any point, I’m just pointing out how badly your materialistic view of “wealth” is about 100 years behind the times. You have missed the point that in today’s world your pathetic existence on a small fishing and farming island does not take into account the concepts of “title,” “copyright” and “patent” forms of WEALTH. Your simplistic models of “wealth” are for simple minded people, and are suited only for “farmers” and “fishermen” that live on isolated “islands.” When you grow up and join us in the civilized world, your concept of “wealth” might catch up with the rest of us in the mainstream. It must be your inability to succeed in our modern world that is the reason you desire the simple life of “farming and fishing.” If that’s what floats your (fishing) boat, good for you, but don’t comment on “wealth” when you don’t know what it really is. The more you post, the more you demonstrate how narrow your breath of experience is, adding to proof of my prior statement regarding your limited knowledge base.

      • PS Eschenbach, when you are living on the remote island where people are farmers and fishermen, and your laptop/PC breaks, all your loving WUWT admires will wonder if you are still alive.

      • Dirkse “a small fishing and farming island does not take into account the concepts of “title,” “copyright” and “patent” forms of WEALTH. ”

        At best they enable research & development in large corporations, like Volkswagen. As such they may sometimes serve a temporary purpose.

        But imagine an island where everyone, farmers, fishermen, barbers and the bone mending surgeons could claim royalties the same way.

    • Thought I had posted something like this – apologies if it appears later. My idea is to live on a third island that has both producers and services. The economy will be much larger than either of Willis’ islands. My island will have more fishing because the fisherman can borrow from the bank and insure his boat, giving him means and confidence to buy a big boat. The farmer will produce more because he gets made well by the doctor when he is ill. My island will be wealthier in terms of “wealth” that Willis recognizes – that is fish and produce. It will also be wealthier because this increased production can pay for musicians to entertain, artists to amuse and even hairdressers.

      It cannot therefore be true that taking from producers to pay services must have a net cost to the economy. Transfers from producers to service providers on my island result in greater production.

  55. Excellent exposition, Willis.

    Thank you.

    You haven’t half stirred the ‘concern’ trolls up, you can tell how close you are to the target by the amount of flak you’re taking.

    • The flak is due to the economics positions he has taken. In a post apocalyptic world, then yes, only agriculture, extraction or mfg would carry any value. But not in today’s world – enormous wealth has been created in the software industry, for example, which does not fit into any of his categories.

      • “enormous wealth has been created in the software industry, for example”

        I myself have obtained a not insignificant quantity of wealth from the production of software, but I do not kid myself that I created that wealth, I appreciate that it had to be initially created either by farmers or by miners first and I acquired it by providing a useful service. But I did not actually create a single penny or cent of it..

        Although quite a large proportion was printed by the government and will have to be paid back eventually by future generations of course (although it will probably end up written off). But that does not constitute creating wealth either, of course.

  56. I suppose its not surprising that nobody listens.
    The origination of wealth and generating a margin are not the same.
    I have produced grain “Wealth” every year for 35 years.
    I did not generate a margin every year.
    We measure and store wealth in dollars and let dishonest people print it.

  57. Perhaps the “Anthropogenic Carbon Tax” is to promote the killing of cows, goats and sheep also the barley, cotton and wheat plants who are enslaved to humans.

    But the humans like Ban Ki Moon, Doctour Mann and bureaucracy beloved Jimmy Hansen should Go To The Quick and call for the eradication of humans, particularity heterosexual humans! To achieve their political ends! Is not THAT the goal of the “Women’s March On Washington” is all about! With the technologies of the National Institutes of Health, women and queers no longer need “men” to procreate their progeny!

    Q.E.D.

  58. donb January 21, 2017 at 6:21 pm

    WILLIS,
    I am in full agreement with your thesis not to tax energy as an input to producing the basis of wealth.
    However, I think that the way you separated your three primary examples from all other services is quite artificial.
    There really is only one primary wealth source — some natural material. Manufacturing takes one or several such natural materials and changes them in some way to be more useful. So in a real sense manufacturing is a service. Also it often is difficult to say the first step in this process is more valuable than later so-called services steps.
    As a simple example, a person in a more primitive society strips long bits of wood from a log and weaves them into baskets — a fundamental creation. But after he sold six such baskets locally, there was no further market. A second person had a truck and then took many baskets to distant cities. There he sold hundreds of baskets. Not only was the total amount of wealth created greatly expanded, but the good that came from owning a sturdy basket was greatly multiplied.

    Again I recommend the island test. An island of farmers can support themselves, because they create real wealth. An island of truckers cannot support themselves because all they do is move real wealth around.

    Now, it is indeed valuable to be able to move real wealth around. But please do not confuse that with wealth generation. For a nation (or an island) to sustain itself, it is not enough to move real wealth around. You need to generate real wealth.

    And far from being an “artificial” separation, as the island example shows, it is a life-and-death separation between wealth generation and services.

    w.

    • values are simply things that people want for some purpose or other.
      there are tangible and durable ones that don’t vanish upon first use.
      there are others that are instantly consumed and thereafter cease to exist.
      there are values that can not be amassed or stockpiled.

      once upon a time people drew a distinction between ‘necessities’ and ‘luxuries’
      willis draws a distinction between those values that characterize a positive sum game and those which do not.

      in a parody i once wrote i satirized ‘the service industry’ as a circle of workers fully employed blotting each other’s anuses.
      but now we’ve got a new basis of fake industry: activism.
      the distinguishing characteristic of that is that values are negated wholesale.
      the global fluffing and exhortation ‘industry’ may make a country fabulously wealthy in punditry and blow jobs and it’s computed as part of the GDP but it is a negative sum game.
      there is always less at the end than there was at the start.

      willis draws a valid distinction.

  59. Richard Tol (@RichardTol) January 22, 2017 at 3:32 am

    Willis:
    Apologies if this feels like mockery.

    Thank you, I will take it in the sense intended. Please extend the same courtesy to me.

    The social cost of carbon is a Pigovian concept. I would expect someone who critiques Pigou to have at least read Pigou. From your remarks, it is not obvious that you have.

    A “Pigovian” tax is a tax that is designed to correct for unmonetized effects of some activity. Emission of actual pollutants (which does not include CO2) is the classic example. I am not critquing Pigou, I have no beef with him or his taxes. I said nothing about the validity of Pigovian taxes. This is why I ask people to quote the exact words they are discussing.

    Instead of commenting on Pigou, I am and have been criticizing the immense underestimation of the uncertainties involved in your method of calculating the correct value for said Pigovian tax. See below.

    It is obvious, however, that you have not read Jevons. You cannot understand Pigou without understanding Jevons.

    I fear my understanding of Pigou is not relevant, as I have not critiqued him. As a result your comments about Jevons don’t apply.

    Instead, I have critiqued the idea that your numbers have any real-world meaning, for two reasons.

    First, the uncertainty of your results goes from the seafloor to the tropopause. You have constructed a very long chain of possibilities, viz:

    IF we can successfully predict how CO2 may continue to rise over the century, and
    IF despite the lack of successful predictions, the theory that CO2 roolz temperature is true, and
    IF the “climate sensitivity” of temperature to CO2 is large enough to make a difference, and
    IF the amount of consequent temperature rise causes significant inimical changes in the weather, and
    IF from now to 2100 they haven’t figured out how to protect themselves from those weather changes, and
    IF we can convert those weather changes in every year up to 2100 into future physical damages, and
    IF we can convert those future physical damages into future dollars, and
    IF we can predict how the actual discount rate will change over the next century …

    THEN we get your claimed present value of the future social cost of carbon.

    You are asking me to believe that at the end of that we get actionable information. I say no. I say a chain is only as strong as its weakest link. I say uncertainties propagate from start to finish in that long chain. I say that we may not even be burning fossil fuels in the year 2100. I say we haven’t reduced the uncertainties in the so-called “climate sensitivity” in thirty years, indicating fundamental problems at the core of the theory that temperature slavishly follows forcing. I say we don’t know how much it will cost to repair hurricane damage in the year 2080.

    In fact, the future costs may be zero. Consider. Nobody knows why the Roman and Medieval eras were generally warmer than surrounding times.

    Nobody knows why we then went into the Little Ice Age of the 1600s and 1700s.

    Nobody knows why we didn’t keep cooling at that point and go into a true ice age (and it is fortunate that there were no climate activists back then, the screaming would have been deafening).

    Nobody knows why it didn’t simply stay as cold as it had gotten in the Little Ice Age, but instead started warming at about half a degree per century.

    Nobody knows why that half-degree-per-century warming has continued right up to the present time … but we know it wasn’t CO2.

    And most of all, despite all of the whiz-bang climate models, nobody knows whether the earth will be warmer or cooler in the year 2100, or by how much. We do NOT understand why the earth gradually warms and cools, and anyone who claims otherwise is reaching for your wallet.

    As a result, I do not find any estimates of claimed future costs of “carbon”, including yours, to be significant in any form or manner. The values are dwarfed by the uncertainties, which means that it is just guessing. The entire “Social Cost of Carbon” endeavor is nothing but politics to advance a cause, because with those uncertainties what you are doing is not a scientific endeavor in any form. You should just be honest about it and call it the “Subjective Cost of Carbon”.

    And of course, the people involved know that … which is why the hair of the climate activists at the Department of Energy (DOE) caught fire when the Trump transition team asked them who at the DOE was working on the SCC farrago …

    Second, you are comparing real observable present benefits with wildly uncertain future costs. This is comparing apples and oranges. We know that the earth is greening from increasing CO2. Satellites measure the additional plant growth, commercial growers use the same physical process by adding CO2 to their greenhouses. We can make reasonable estimates of the global dollar value of the increase in our food and fiber crops.

    But we have no evidence of any real observable present costs of CO2. Nor has there been any net damage from the warming since the Little Ice Age, as I believe you have pointed out.

    So it’s actually worse than comparing apples and oranges.

    It’s more like you are comparing apples and smoke …

    I could, of course, repeat all that material here. Alternatively, you can walk to the local library and read up. Hey, these books are out of copyright protection so you can even read them online.

    Or you could speak directly to the issues that I’ve raised …

    Thank you for your willingness to defend your claims,

    w.

    • but don’t imagine tol has less ambition than Drake & his equation.
      tol has his eyes on the prize: $$

  60. ”One person fishes, one has a garden, one gathers native medicines and building materials from the forest, one builds huts and makes clothes from local fiber.”

    Willis, you are behind in your reading by about 240 years.

    There is more to building island wealth than island mfg., implementing agriculture and mining these days as Adam Smith pointed out in “Wealth of Nations”. Division of labor, free trade and productivity count for your islands wealth and longevity, mercantilism or beggaring thy neighbor’s island was afterwards no longer thought to be the course to each island’s wealth. Your islands can not build wealth needed for disposable income, though they might be able to subsist at meager levels as before Smith changed economics. GB cannot produce all the food it needs, so imports & exports of more than the 3 basics are needed to build its wealth.

    How do you know that garden will be productive enough to feed your two couples healthily over the 4 seasons? Where did the seeds, productive implements come from? Where did the knowledge & eqpt. to fish productively come from? to make clothes? to build a hut and find the right medicines? Today we have the gov. with free K-12 and subsidized higher education going for your islands wealth along with their defense as they store food eyed by your other island’s hungry inhabitants. Apparently you are against progressive AND regressive taxation which leaves flat tax. Ok I’ll buy that, say 20% of earned income (GDP) enabling the gov. delivering the essential services to build real wealth rather than just subsistence living.

  61. Thanks, gnomish. While what you say may indeed be true, I do my best to avoid ascribing motives to other people, for a simple reason.

    The reason is that I’m often unaware of at least some of my own motives, even years after the fact … so how can I judge your motives?

    So I do NOT ascribe any motives to Richard Tol, and I disagree with your claim that he’s only in it for the money. You don’t know that.

    Best regards,

    w.

    • riiiight.
      well, i didn’t say he had only one reason or motive, did i? looks a bit strawmannish- and you are not unwitting, so wuwt?
      there are so many employers just crying for the guidance of an economic scientist – especially one who’s special expertise is the externalities of my breath.
      surely a man becomes an economist because he’s passionately driven by the knowledge that his life will be productive and he will create so much wealth.
      the demand is vast and it’s a seller’s market because of the huge and risk free ‘profits’ economic science creates.
      monetizing current debt is so yesterday- monetizing debt of unborn generations is where the big bucks are. diversified portfolio calls for social justice derivatives nowadays.

  62. lorcanbonda January 23, 2017 at 12:28 pm

    Thanks, seaice. I’m not sure why this is so hard to explain, but no, a doctor does not generate wealth. If you live on an island of doctors you will starve to death.

    Willis, please abandon this line of thought. At the very essence, you can understand that a doctor generates wealth because the farmer is willing to trade his crop for that service.

    Absolutely not. This is a fundamental principle of accounting, which is that trading assets does NOT generate new wealth.

    In your example, the wealth creator gives the barber or other service person his wealth in trade for a haircut. There is ZERO new wealth generated in the exchange. All that has happened is that the barber now has the wealth and the wealth creator now has a haircut … so where is the new wealth that has been generated?

    If you answer “the haircut”, then if I just get my hair cut every day I’ll be immensely wealthy, right? …

    w.

    • Willis write —

      Absolutely not. This is a fundamental principle of accounting, which is that trading assets does NOT generate new wealth.

      Yikes! Trading a service for assets is not “trading assets”! Everyone may place a different value on a service, just like some people place a different value on clothes or furniture. Bill Clinton paid $200 for a haircut, but it was worth a lot more to him than it is for me.

      At its very core, capitalism is two people trading goods and services so that both of them benefit. In the case of the haircut or any freely exchanged service, this is true. There is no doubt that anti-competitive practices can shift this balance of power in favor of monopolies which is why we need government action.

      This balance is also shifted in the case of taxes or government regulation. I’m a firm believer in the “Broken Glass Principal”. Just because government regulations add cost, does not mean that we don’t have regulations — as a society, we need to understand the costs of the regulation relative to the benefits.

      Medical care is a unique service in which the balance is shifted too far in favor of some providers. It’s tough to place a fair value on “not dying” and it’s tough to find a discount heart bypass operation on E-bay. This is why a centralized, socialized medical system makes sense to many people — too many health insurance providers and pharmaceutical companies have their hand in that pie, enabled by federal law without protections by the government.

  63. Maybe the third time is the charm.
    This excellent post is trying to point out the physical nature of the origination of wealth.
    Most people confuse this with simply generating a margin or profit.
    Margins are necessary to be sure however let us understand that nothing can be accomplished
    without first originating wealth from the only place we have to get it the earth!

    • Thanks, Steve. Farmers understand this stuff. Accountants also understand this stuff. I know because I’m both.

      Economists? Not so much, although some (like Reinert) assuredly understand this issue.

      w.

  64. @Douglas Goldman

    “How do you define “small part”?”

    The number 10% comes from a study I read sometime ago examining the myth of the good old days and why things are better today especially for the poor.

    I was raised by adults who lived through the depression and WWII. Feeding a family on a budget and conserving energy was a necessity. Skill passed on to the kids. When I was working, I packed a lunch and ate at my desk.

    “Under no circumstances would my family be considered poor and yet food and energy amounts to ~28% of my monthly budget.”

    Douglas I have a problem with anecdotal experience. During the energy crisis of the 70s, I was on a fixed income in the navy and heated with oil. My heating bill doubled then doubled again. It hurt. We had good friends, also navy families, who had $1000 heating bills which were five times our bill. We had big old houses. The difference was sealing up the drafts. Old house do not have to be drafty.

    When our ship went to the shipyard adding 80 miles a day, we car pooled.

    Look around today. Starbucks has a drive through. You do not have to even turn off your engine to pay $4 for a cup of Joe.

    Feed corn fuels pellet stoves. A small chicken coop will not only feed a family but you can sell eggs to neighbors. There is satisfaction in this. Even had a beehive until a bear got it.

    Food and energy are cheap commodities. This allows people to make choices about how much they use. I can feed a crowd with a $100 in steak or a $5 pot of chilli. At company potlucks, I make green bean casserole using the recipe from the can of soup. It is always the first empty pan.

    Two points, first it about the choices we make. Second, I do not want the government to make my choices.

    • Weird, your reply ended up in two threads.
      Here is what i posted in the other one…

      @Retired Kit P January 23, 2017 at 9:52 pm

      You state “I have a problem with anecdotal experience” and yet nearly everything in your post is anecdotal.

      I consider eating out and starbucks (Yuck!) a luxury. i did not include any of that type spending in the 28% figure. When I pull out just my energy expenses, they appear to line up pretty well with the chart above.

      Food is the bigger expense: Two ravenous teen boys and another growing quickly.

      I suspect your “$100 in steak or a $5 pot of chili” will provide a small meat portion to that crowd – not the whole meal. Ditto for the green bean casserole. A single dish does not a meal make.

      I have no doubt the poor are much better off today then yesterday. Really, we have very few people in the US who would be considered poor from a global perspective.

      And you are right, it is about choices. You have chosen to live in a place where you can raise chickens.
      I have chosen to live in a place with excellent schools and is close to work. My commute is 5 miles.

      I think 10% is very unrealistic.
      Take someone making $40K/yr with 5 mouths to feed.
      10% gives $333/mo for food & elec / gas / oil. Forget about fuel for a car.

      Oh, and I am completely in agreement with keeping government out of it.

  65. “I have chosen to live in a place with excellent schools and is close to work.”

    As we have. Life is more about making choices than statistics.

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