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.