The every-angry Gerry Jackson has sparked another debate about a carbon tax, disapprovingly citing my monograph on the topic (pdf) and declaring that a carbon tax will “drastically slash living standards”.
It is unclear whether Gerry is aware that electricity and petrol are already taxed.
In the past few days Gerry has written three articles on the topic, and his lap-dogs (including GMB) have also penned thousands of words in his defence. In particular, there is one obsessed nutter who writes here, here, here and here. As I have been traveling I have been limited to a few quick comments. Until now. Be warned… this is a long post.
Most of his first article has nothing to do with a carbon tax, and while I would use different language, I actually agree with most of what Gerry writes. War and destruction are not good for the economy. They destroy capital and it is the quality and quantity of capital that dictates living standards.
I also agree with Gerry that a carbon tax would not be good for the economy. It may well encourage more investment in alternative energy, but this would come at the expense of other investments that have a higher free-market return. Also, while electricity demand is relatively inelastic, and change in consumer behaviour away from the free-market behaviour does represent a “deadweight loss” of welfare.
Indeed, it is only right at the end that Gerry becomes unhinged. He accuses me of making a more subtle version of the above “war is good” argument. Of course, I never did this. Mistake number one.
His “evidence” against me is that I say that a carbon tax will encourage investment in alternative energy. I did say this. It is a simple fact that taxes change behaviour. If Gerry doesn’t believe this then he doesn’t understand the first thing about economics. If he does believe it, then why is he criticising me for stating the obvious? That’s two mistakes.
In response to my “sin” Gerry introduces a quote which says that taxes are not a market process. Of course they aren’t. I never said they were. That’s strike three…
He then mentions the evils of the EU carbon policies and the attitudes of some environmentalists. Presumably Gerry thinks these points are relevant, but they are not. Then, without any rational argument whatsoever, Gerry concludes that my proposal amounts to bad economics and will lead to a “catastrophic drop in living standards”.
That’s simple not true. We already have a tax on electricity (the GST) and very high taxes on fuel, and we have escaped catastrophy. I agree that a carbon tax has costs. But the fuel tax and income tax also have costs. If you increase the tax on electricity but decrease the tax on fuel and/or income then there will an economic cost (from the higher electricity tax) and an economic benefit (from the lower fuel and/or income taxes). It is unclear which effect would be larger. Indeed, if a carbon tax replaced a fuel tax (as I suggest in my paper) this is the equivalent of having a lower tax on a broader base… which is generally considered to increase economic efficiency.
The above points are fairly basic. It takes a significant amount of misplaced confidence for a person to deride others as a “bad economist” when they are so confused. Gerry is not short on misplaced confidence. He suffers delusions of adequacy, and so when faced with my quick rebuttal to a friend in a private e-mail, he decided to have another go.
Gerry’s second article doesn’t do as well as his first.
He disapprovingly quotes me as saying: “A better approach to encouraging the switch to non-fossil fuels is to put a price on carbon, which makes all alternative energies relatively more competitive and then allows the market process to discover the best new energy sources.”
I did write the above. It is 100% accurate. A price on carbon does make alternative energies relatively more competitive. This will lead to a change in investments. What exactly is he disagreeing with?
He complains that I advocate a tax that would override the market allocation of resources. First, I’m not advocating anything*. Second, of course a carbon tax distorts the market process. I say that explicitly in my paper. What is Gerry trying to prove?
He again cites a quote that says a tax is not a market mechanism. He denies that he implies I say otherwise. Which means the quote (which he uses twice) is entirely redundant. Weird. Once again, I totally agree that a tax isn’t a market mechanism. Once again – what is Gerry trying to say?
He hasn’t yet made a point.
He says that the “revenue-neutral” nature of the tax is not relevant. This says a lot about Gerry. There are two options with a carbon tax. Either you tax and spend. Or you tax and tax-cut. I have argued strongly that the later is better than the former. Gerry can’t tell the difference. In his own words “what’s so good about revenue netural”.
Of course the “revenue-neutral” element is important. As Gerry points out, taxes distort the market allocation of resources (leading to deadweight loss and mal-investment). This isn’t just true for a carbon tax. It is equally true for the fuel tax and income tax (and all other taxes).
I’ll explain it again for the people in the cheap seats… a carbon tax will create an economic cost, but removing other taxes will create an economic benefit. Gerry agrees that a carbon tax creates an economic cost. And as a free-market advocate presumably he understands the economic benefits of tax cuts. So what is he disagreeing about? Your guess is probably as good as his.
Gerry then has a whinge about wind and solar not being good enough. Perhaps. I don’t really care what alternatives are used. Technology, innovation and entrepreneurship are wonderful things and I imagine they will overtake the entire AGW debate in the medium term future. With a bit of luck, nuclear might be competitive in the near future. Gerry claims that I refuse to accept limitations on some energy sources. In contrast, I have never argued for or against any particular type of alternative energy. Once again – he is simple wrong.
The technology-pessimism of Gerry is unwarranted, but even if it’s true his conclusions are wrong. If technology freezes and alternatives can never catch up, then nobody will invest in them. So there is no problem of mal-investment.
Gerry can’t have it both ways. Either profit-maximisers will invest in alternative energy technology (showing that they do have a future) or if technology freezes then people won’t invest (so there won’t be any mal-investment).
But this is all a bit of a side-track. So let’s go back to Gerry’s core silliness.
As though he enjoys digging a hole for himself, Gerry mocks my proposal by saying “[d]oes any serious economist really think there is such a thing as a “neutral tax” in any form?” His mistake should be clear to normal people, but let me explain it (again) to the Gerry-philes. I have NOT claimed that a carbon tax will be neutral. I’m claiming that a carbon tax will be welfare-negative, and that other tax cuts will be welfare-positive.
To paraphrase Gerry – does any serious economist not understand this?
So far Gerry has spectacularly failed to make a point. In the next step of his happy dance he now desides that I am “a rather disingenuous fellow”. What is my crime now? I’m glad you ask.
I use the caveats “potential” and “suggests” with regards to AGW. I think those are fair caveats, and Gerry might agree. But later I mention that there is “an emerging consensus in Australia that the government needs to take further action to help combat AGW”. This makes Gerry sad, though it’s not clear why.
He says that science doesn’t progress through consensus. I never said it did. Indeed, I wasn’t even talking about the science, but the public policy response. I think it is abundantly clear that the Australian government is going to undertake further action to combat the potential threat of AGW. My contribution to the debate is that I’m asking for associated tax cuts to lessen the economic costs. Gerry’s contribution to the debate is… well… to whinge and abuse.
Gerry then wants to get into a science debate. I’m not interested. I am fairly sure that I understand the science better than Gerry, but that is not relevant to the economic debate. I didn’t write a science paper. I wrote a paper on public policy. The question I addressed (which I made clear in my paper), is this: if the government is going to act on the potential threat of AGW, which policy is the least cost? My answer was a revenue-neutral carbon tax. Notwithstanding Gerry’s bluster, that answer still stands.
No! It gets better. In the next fun-filled chapter of Gerry’s credibility suicide he decides to attack me for an article I wrote (pdf) for the IPA Review last year. This is a side-track from the carbon tax debate, so skip it if you want.
First, he complains about the title, which I didn’t choose. He also doesn’t like the content. Regarding the divergence between the neo-classical and austrian schools of economics, he insists that there wasn’t a “split in the sense that Humphreys puts it”.
As is usual for Gerry, it’s not clear what he means. There is obviously a “split” between the neo-classical and austrian schools or we wouldn’t be referring to them as two different schools. The most obvious time to notice the split is the time when people started self-identifying as “neo-classical” and “austrian” which happened at about the time of the marginal revolution in the late 19th century.
This is not to say that the different was significant at the time or that austrian and neo-classical economists don’t work closely together or that people don’t learn from both schools. Even today, I consider myself a follower of both. And I agree with Gerry that there wasn’t a huge difference between the schools in the early 20th century. But with historical hindsight it is fairly well established that the austrian school started with Menger and the neo-classical school started with Walras, Jevons & Marshall. For an introductory article, that is appropriate information to pass on.
Gerry also wants to whinge about my attributing classical economics to Smith and Ricardo. This is very well established among all reputable economists. Of coruse there were many other economists in the 19th century and many disagreements and interesting debates. But when you have a few words to summerise the early economic development it is quite standard to just stick with Smith and Ricardo (and often J.S.Mill). Once again, it is hard to see why Gerry is whinging, except for the self-evident fact that Gerry likes a good whinge.
And finally, Gerry comes out with the old argument that Hayek actually weakened the Mises argument against socialism. Some radical austrians like to argue this and go on about how Mises was better than Hayek, but they are wrong. And the revisionist history of a few bitter old men isn’t necessary in a short introduction to austrian economics.
He once again states that “revenue-neutral” is not relevant. Wrong. He once again points out that a carbon tax would be negative for the economy and lead to mal-investment. Correct, but I haven’t argued otherwise. He doesn’t correct or apologise for any of his many previous mistakes… even though they are blindingly obvious.
Apparently, some kind soul tried to explain the “revenue-neutral” concept to Gerry via e-mail, but he still didn’t get it. In response he quotes an absolutely irrelevant passage from Mill which says (correctly) that tax & spend is not good for the economy. But I’m not arguing for tax and spend. That’s exactly what I’m arguing against. I’m arguing for tax and tax-cut. It is really that hard to understand?
If somebody argued for a higher GST but a lower income tax, do you think Gerry would understand that? Would he oppose it? It would involve a higher tax on electricity, so presumably he would predict catastrophe! What if we currently had a high electricity tax and no fuel tax, and somebody suggested cutting the electricity tax and introducing a low fuel tax? Would he fall to pieces over such a plan, or would he support it? Hard to tell. I’m not sure whether he knows.
But here it gets weird. Suddenly Gerry realises that I’m talking about tax cuts! Thank god for small miracles. But he misunderstands the benefit of tax cuts. He says that a tax cut would make “funds available for investment in alternative energy sources that would now be competitive”. Perhaps. But that’s totally besides the point.
Gerry seems to have forgotten that all taxes create distortions to the market allocation of resources, leading to deadweight loss and mal-investment. Further, income tax actually double-taxes savings and so discourages investment and capital accumulation. Decreasing taxes will decrease distortions. That’s good for the resource allocation and good for the economy.
Nowhere have I ever argued that tax cuts are a good idea because the saved money can be spent on alternative energy. It’s such a strange straw man that I am genuinely confused where Gerry plucked the idea from.
Gerry then gets side-tracked with another pessimist rant about technology. It is absurd for him to dismiss out of hand all future technological developments and his understanding of various alternative energy sources seems sadly lacking. But as he doesn’t claim to be a scientist his ignorance there can be understood. Unfortunately, he continues to claim to be an economist.
He claims there would be a “massive” rise in electricity prices. Nope. If my proposal was put in place, there would be a moderate increase in electricity prices, spread out over a number of years. Is he still confused? Or just lying?
Gerry admits to being confused as to how a carbon tax will make Australian firms more competitive. It won’t. But lower fuel tax will. And lower income taxes would have a positive impact throughout the Australian economy. Gerry is the first “free-market economist” (sic) I’ve heard of that doesn’t know this.
For his next party trick, Gerry entirely makes up the stupid strawman of “taxing coal out of existence”, and saying (oh, so, wisely) that technological development won’t happen overnight. Quite true. But the coal/oil age will end. And just as the stone age didn’t end through lack of stones, the coal/oil age won’t end through lack of coal/oil… but because of technological development. The world is always changing, and that’s something I like about the world. Nobody (except Gerry) is talking about taxing coal out of existence. If there are no other alternatives, then even with a moderate carbon tax, coal will still be king.
And finally, to show us that he has a sense of humour, the bitter old man has a whinge about “abusive language”! Apparently, he expected civility. I generally prefer to have a civil debate with civil people. Normally it is better to ignore the angry, rambling, offensive types like Gerry… but occasionally it is necessary to slap down the arrogant little brats or else people might confuse their confidence for intelligence.
This fun little merry-go-round started because Gerry accused me of an argument I didn’t make and accusing me of bad economics and questionable ethics. He didn’t want a civil debate. He wanted to try and steamroll over people with his bluster.
Without apology, he then went on to to publish a private e-mail (while ignoring the opportunity to actually engage in a private discussion first), call me disingenuous, implies I’m not a serious economist, says I have trouble handling facts and make more than enough snide comments so that I can safely assume I’m not on his christmas list.
I don’t mind. There are plenty of grumpy old men in the world and if Gerry has decided that I’m the enemy, then so be it. I made a quick note on catallaxy pointing out Gerry’s mistakes and calling him a muppet and a tool. True to form, after a few more standard-Gerry insults, he misunderstood “tool” to mean he’s working for somebody. No Gerry – it just means you’re being an asshole.
And a bad economist.
* As the monograph notes several times, the policy question starts with an assumption that the government is going to take further action on the potential threat of AGW and then asks which policy alternative is the best. Personally, I don’t think a small revenue-netural carbon tax would do much good or much harm, so I’m not really fussed about it.
** Gerry (& friends) — if you ever do want to swap a few civil and private e-mails on the issue, feel free to contact me. I’m always willing to forgive & forget. But if you only want to lie about me in public, then accept your slap-down like a man.
UPDATE: For a further slap-down of Gerry’s next article, see the comments 1 – 5 below. His credibility is now entirely gone.