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.
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…
You and Jack Ma seem to be on the same page. I think you both are right.
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
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
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
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.
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
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
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
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.
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.
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.
Are you serious? A consumption tax is less broad because it is income with savings taken away.
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.
Yes, education is a service, but services add to the economy. Education is a valuable service.
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
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.
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.
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.
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
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
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
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.”
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.
It is pretty standard economics that taxes have a dead-weight loss and therefore inhibit economies.
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
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:
So … your claim is that you are right and MODTRAN is wrong …
Let us know how that works out for you.
w.
Retired Kit P January 21, 2017 at 8:54 am
QUOTE MY WORDS, YOU !@ur momisugly#$%^!! 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.
Your rules not mine. Get over yourself Willis.
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
See, this is why I want people to quote the words they disagree with. His claim is that
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.
seaice1 January 21, 2017 at 2:58 am
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
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:
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:
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.
Tim Hammond January 21, 2017 at 3:37 am
What is this, the Hillary Clinton school of discourse? What’s next, you gonna call me “deplorable” as well as a lunatic?
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:
That in a nutshell is the difference between real wealth and haircuts.
w.
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.
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.
David Dirkse January 21, 2017 at 4:47 pm
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:
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.
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
Dang … miss the point of the island example much?
.
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.
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.
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.
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.
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.
Who mandated ‘Women’s March on Washington’ to represent ‘women’?
donb January 21, 2017 at 6:21 pm
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.
Stop carbon tax now!
increasing the cost of fossil fuels is the wrong way to go about it.
Richard Tol (@RichardTol) January 22, 2017 at 3:32 am
Thank you, I will take it in the sense intended. Please extend the same courtesy to me.
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.
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 …
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: $$
”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.
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.
lorcanbonda January 23, 2017 at 12:28 pm
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 —
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.
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.
@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.