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Gerard
Jackson
Dealing
with someone as relentlessly deceitful as John Humphreys is indeed a tiresome
endeavour. Humphreys starts with the statement that “everybody knows, I wrote
a paper that said that a carbon tax was ‘relatively better’ than an emissions
trading system.” To begin with, an ETS is a
carbon tax. This fact is not altered just because the price of carbon is
exogenously set for an ETS. This is something that Samuel J at Catallaxy
pointed out. If Humphreys disagrees, then I suggest he debate the matter at
Catallaxy and not here.
That a
self-professed economist could write a paper on a carbon tax versus an ETS
and not realise that the latter is merely a more complicated version of the
former should beggar belief. It certainly brings into the question the state
of the author’s critical faculties. I always argued that no “matter how it is
dressed up any emissions trading scheme (ETS) is in fact a carbon tax which
in turn translates into a tax on economic growth and hence living standards.”
Yet Humphreys set up a false choice and then declared that to disagree with
him “is to say that you think an emissions trading system is better than a
carbon tax.”
John
Humphreys is desperately is trying to convey the impression that his paper
was merely an attempt to explain why his carbon tax would be better than an
ETS. In fact, his paper was a full-blooded apologia for a carbon tax and an
indirect defence of the greens’ man-made warming hoax. For example, he writes
on page 1:
To
combat man-made climate change, it is necessary
to address emissions of greenhouse gases including carbon dioxide. (Emphasis
added.) The goal of government action on climate change is to reduce our
reliance on carbon-intensive energy (specifically, ‘dirty’ coal) so that
human activity produces less greenhouse gas. [No wonder he finds “the IPCC
estimates plausible and an appropriate starting point for analysis.”]
Good
grief, this is one of the sacred tenets of the fanatical green cult and he
has publically wedded himself to it. Having made his true position very clear
he then stated on page 8 that his “paper does not take a position on the
debate about whether the Australian government should do something about
greenhouse gas emissions.” I honestly don’t know whether Humphreys is
just plain stupid or incredibly brazen.
Humphreys,
who passes himself off as an economist and free market supporter, argued that
the best way to encourage the growth of “alternative energies” is to “put a
price on carbon”. But as genuine free market economists Gerald O’Driscoll and Mario J. Rizzo correctly stated: “taxation is a
method of intervening, not an alternative to intervention or nonmarket
allocation.” Nevertheless, the interventionist Humphreys insists that
pricing carbon “allows the market process to discover the best new energy
sources.” However, Alan Moran of the Institute of Public Affairs correctly
observed:
[A
carbon tax] would not only stifle current business operations, but would also
virtually eliminate new investment in power generation as well as other
energy intensive processing. Leakage of important industries overseas would
inevitably follow, despite the energy intensive allowances which are in place
or intended.
Ramming
the point home on another occasion Moran stated that a “carbon tax or
alternative action fails to pass a cost: benefit test for the world as a
whole and still less for Australia.” Well, that is not the sort of
thing that would faze the indomitable Mr Humphreys: no sooner did he don his
free market hat to sagely warn us that it’s very bad policy to have
politicians and bureaucrats picking winners than he swiftly replaced it with
his green hat to warn us that a policy of picking winners was just what we
needed. One method he proposed
is to
subsidise low-emission energies and new technologies and the Australian
government has already spent almost $2 billion on this. This option involves
politicians directing government funds toward particular
industries or technologies. For example, the government uses a range of
programmes to direct funds toward improved wind and solar energy, energy from
pig waste and from using biomass waste from sugar mills, cloud-seeding for
more hydropower, geothermal energy from hot dry rocks, wave power, and a
range of other energy alternatives.
This is
what Alan Moran had to say about the results of that brilliant piece of
economic thinking:
In
point of fact, action that had been taken — lots of taxpayer funding of poor
value renewable research, renewable standards and in some cases carbon taxes
— amounts to considerable sacrifices without any payback.
Moran
also noted:
Regrettably,
replacing low-cost mining and energy industries that make use of our comparative
advantage with alternative activities would dramatically reduce our overall
income levels.
The
reason why so-called renewables are so costly is because they do not work, if
by work you mean supplying energy for an advanced economy and not some green
phantasy land. This is because they face insurmountable natural and economic
obstacles, a fundamental fact that our right has failed to recognise.
Regardless
of what the wunderkind John
Humphreys asserts, using state power to direct investment into channels
favoured by politicians is not a free market policy, particularly when it
will lead to a drastic drop in the standard of living. And the standard of
living is the critical question. I explained in previous articles that a
carbon tax —in any form—amounts to a tax on the capital structure. I
pointed out that a carbon tax does not resemble a GST or an excise tax
because it is a direct tax on the source of production, which is another
reason greens love it. Therefore, such a tax is an attack on economic growth.
This is why Sinclair Davidson was able to say that
the
carbon tax is not intended to
generate or promote economic growth. It is specifically intended to retard
growth.
This
destruction of capital would obviously lower output and real wages. This fact
renders absurd the idea that a carbon tax can be compensated for by tax cuts.
Steve Kates arrived at the same conclusion. Unlike John Humphreys the
estimable Steve Kates rightly argued that “you cannot compensate for lower
productivity” and that
we
should really be trying to work out what happens if you raise the actual cost
of production in carbon dioxide producing industries. And what raising the
cost of technologies that emit carbon dioxide does is put you down onto a
lower isoquant representing a lower level of production. Using indifference
curve analysis is typical of those who think only in terms of consumption but
never let value adding issues cross their minds. Carbon taxes will make us
much, much worse off.
Because
of the higher relative cost, we are driven to use higher cost technologies,
which means that the quantum of resources used per unit of output goes up.
Therefore we have less output. Translate that back to the indifference curves
if you like and what you find is that since we are poorer, we cannot
compensate everyone for the higher tax since we are producing less value
added than we did before.
In
short, Humphreys’ carbon tax would, if fully implemented, be a disaster for
the standard of living — which is precisely what I argued. Completely
impervious to sound economic thinking and actual evidence Humphreys seriously
argues that his carbon would have “little or no economic cost.”
If
Humphreys has any objections to what has been said here, then I suggest he
take it up with the abovementioned authors. Better still, if he thinks I
treated him unfairly perhaps he could persuade someone — anyone! — from the
Institute of Public Affairs or Catallaxy to come here and explain why he is
right and I am wrong.
I spent
some time searching the net for an article by Humphreys attacking a carbon
tax. I could not find one. Nevertheless, Tim Andrews, who set up the
duplicitous Stop Gillard Carbon Tax group along with Humphreys, argued that
Humphreys had redeemed himself because he opposed Gillard’s carbon tax. Note
that Andrews and Humphreys only opposed
Gillard’s tax: they were not opposing the principle of a carbon
tax. It seems that this pair thinks that the only bad carbon tax is a Labor
Party carbon tax.
To
defend Humphreys Tim Andrews had to deliberately ignore the fact that
everything Humphreys has written relating to the subject favoured a carbon
tax. It should be clear, even to Andrews, that an honest man can draw but one
conclusion. Despite overwhelming evidence to the contrary, including
his heavily loaded paper, Humphreys tries to brazen it out by insisting that
he was only trying to show that a carbon tax is more efficient than an ETS.
But not
only is an ETS a carbon tax both forms are equally destructive because, as
Steve Kates said, and Austrians would agree, they reduce the economy to a
“lower level of production”, a fact that Humphreys and his supporters never
trumpeted. Then again, perhaps they just cannot grasp it.
Humphreys
is always screaming that he has a degree in economics, the implication being
that only those who are, like Humphreys and Davidson, properly credentialed in the discipline deserve
to be heard. Ludwig von Mises, one of the great economists of the last
century, knew better. This is why I am leaving the final word on this matter to
him:
Whether
we like it or not, it is a fact that economics cannot remain an esoteric
branch of knowledge accessible only to small groups of scholars and
specialists. Economics deals with society’s fundamental problems; it
concerns everyone and belongs to all. It is the main and proper study of
every citizen.
Note: The
following links are to a number of articles in which I used Austrian capital
theory to explain the destructive effects of a carbon tax on the capital
structure.
Carbon taxes versus living
standards
Why is the Centre for Independent
Studies supporting the destructive carbon tax?
Why the Centre for Independent
Studies should come clean on its support for the destructive carbon tax
Why a carbon tax is a direct
attack on living standards
Why the ETS report and Rudd’s
carbon tax are a threat to the economy
Carbon taxes energy production and
technology: more green nonsense
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