The Gerry chronicles: carbon tax & bad economics

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.

The end?

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.

As you can see – Gerry hasn’t done too well so far. But like all good troopers, he hasn’t given up. Based on a few quick sentences I wrote at catallaxy, Gerry decided to have another go. Poor guy.

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.

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* 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.

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UPDATE: For a further slap-down of Gerry’s next article, see the comments 1 – 5 below. His credibility is now entirely gone.

59 thoughts on “The Gerry chronicles: carbon tax & bad economics

  1. Like one of the bouncing clowns… you just can’t keep Gerry down. He responds again. Consistent with the importance of Gerry’s contributions, I’ll give my response in this comments thread.

    Mostly, he just repeats all his old mistakes. He carps on about how a carbon tax would have economic costs. Yes, Gerry. We know. I said that from the start. I’ve repeated it many times.

    He repeats a bunch of lies, which I’ll fisk.

    It follows from this fallacy that any policy that destroys capital combinations with the sole object of creating new but less efficient capital combinations is a first cousin to “the war is good” fallacy.

    I agree. But I never made that argument. I never argued that there is an economic benefit in the carbon tax. Indeed — I argued that there is an economic cost. Will Gerry apologise?

    Irrespective of Mr Humphreys’ protestations, his original article did not make a single reference to capital or to living standards.

    So what? My article wasn’t about the mechanism by which taxes harm the economy. My article was about, “what is the best policy to reduce carbon emissions”? Gerry might as well complain that my article also didn’t explain the theory of comparative advantage or biological evolution. Will he apologise?

    My very point is that the proposed carbon tax would bring changes and that these changes would damage living standards by shortening the capital structure.

    So, a carbon tax is bad for the economy. Yawn. We know Gerry. I’ve said that several times. I’ll say it again — a carbon tax is bad for the economy. I’ll also say — a fuel tax and income tax is bad for the economy. Now the question is, what does Gerry think about fuel tax and income tax? Does he like those taxes? Does he think they’re good for the economy? Does he think that cutting those taxes would be good for the economy? Answer the questions Gerry.

    Any Austrian economist would immediately point out that these taxes [fuel & income] are not direct taxes on capital, and that different taxes bring about different results.

    Of course different taxes have different results. Any economist (or non-economist) can tell you that. Gerry is trying to excuse income & fuel taxes. How absurd. Income tax double-taxes savings, therefore investment, therefore capital accumulation. Fuel is a vital input in the production of nearly all goods, including capital goods. The important point is that all of these taxes (electricity, fuel & income) have a negative impact on the economy. Gerry is concentrating on the mechanism of the impact so that he doesn’t have to actually argue the central issue.

    Mr Humphreys insists on referring to a tax on electricity while my point is that the carbon tax is a tax on the means of generating electricity. Two entirely different things.

    First, a carbon tax is not a tax on generating electricity. It is a tax on generating electricity while producing carbon emissions. If carbon emissions reduce to zero, so does the tax.

    Gerry is right that this is different to an electricity tax… but he is wrong if he thinks this is important. The consequence of the tax will be (1) to increase the price of electricity (like an electricity tax); and (2) to bias the market in favour of non-carbon emitting electricity generation. Consequently, a carbon tax increases the incentive to invest in alternative energy by artificially increasing the potential profits from alternative energy (by taxing their carbon-hungry competitors). Obviously, like all market distortions, this leads to sub-optimal investments. Which is one of the reasons why a carbon tax is bad for the economy.

    But (once again) a fuel tax and income tax are also bad for the economy. A tax swap would give ambiguous results (dependent on the details).

    Now the one sure-fire way to get less of a product is to raise the cost of producing it.

    Yes. Like taxing income to get less production. Or taxing fuel to get less transport.

  2. part 2…

    He goes on to state that a carbon tax “does make alternative energies relatively more competitive. This will lead to a change in investments. What exactly is he [Gerry] disagreeing with?” This is terrible nonsense. The tax would not make alternative “investments’ more competitive. This could only be achieved by increasing their economic efficiency.

    I can’t tell whether Gerry is actually this dumb, or just hoping that his readers are. Clearly, I am not arguing that a tax makes alternative energies more efficient. But equally as clear, if somebody taxes your competitor, then you will do better. If coal was abolished (god-forbid) then people with shares in gas-fired electricity companies and other alternatives would make more money. This is so obvious, Gerry really owes his readers an explanation for why he was treating them like idiots.

    I made it very clear in my article why “revenue-neutral” is irrelevant and also misleading.

    Yes you did. And you were wrong. It is very important whether there are offsetting tax cuts. To evaluate a proposal of “carbon tax & income tax cuts” you need to evaluate the impact of (1) carbon tax; and (2) income tax cuts. If you ignore the 2nd part, then you haven’t evaluated the proposal. This point is so obvious that I find it hard to believe Gerry doesn’t understand. Which means he’s dishonest. Will he apologise?

    Regardless of what Mr Humphreys would have people believe, I never said he “claimed that a carbon tax will be neutral”. This is a pure invention on his part.

    No? Really? Let’s check a direct quote from Gerry: …makes a mockery of his [John’s] assertions that a carbon tax could also be “welfare-neutral” and “equity neutral”. (Does any serious economist really think there is such a thing as a “neutral tax” in any form?)

    Opps. Looks like Gerry has been caught lying. Naughty boy Gerry.

    And it was he — not I — who said that a carbon tax should “be revenue-neutral, efficiency-neutral, and equity-neutral”.

    No, no, no. That refers to a revenue-neutral carbon tax. That is, a carbon tax, combined with other tax cuts. This is obvious to everybody, except Gerry. If there are any Gerry supporters still out there, they must be cringing right now.

  3. part 3…

    He is clearly asserting that tax cuts would offset the costs of a carbon tax.

    Nearly. I am saying that tax cuts will create an economic benefit. Does Gerry disagree? It’s not clear whether that benefit will be more or less than the cost of a carbon tax. But it is clear (at least to me) that such a proposal is better than all other proposals to reduce carbon emissions. Which was the topic of my paper.

    But he can only do so by ignoring the effects of the tax on the capital structure.

    Rubbish. All he is saying is that a carbon tax would have a cost. Of course. But the offsetting tax-cuts have a benefit. Gerry keeps ignoring this… which raises the question: does Gerry think that income/fuel tax cuts would produce an economic benefit?

    Moreover, his argument implies that by maintaining individual spending through tax cuts living standards will not fall.

    This sentence is dishonest. I argued that tax cuts create a benefit because taxes distort behaviour and therefore lead to a misallocation of resources. Reducing taxes reduces this distortion, and therefore leads to an economic benefit. This is a simple point and well understood by all economists (austrian and otherwise). Does Gerry agree? Does he understand?

    In contrast, Gerry tries to turn my argument into one about maintaining individual spending. Gerry’s lies and distortions really are getting too much. Will he apologise?

    Mill was labouring the point that anything that directs spending away from investment does so at the expense of real wages.

    Indeed. An income tax double-taxes savings, which is a tax on investment. Therefore, lower income taxes will lead to more investment, and consequently higher wages. Indeed, all taxes shift behaviour from welfare-maximising behaviour and so cause a welfare loss. I’ve said this from the beginning. Gerry is still battling with this point.

    His response to this insight is to argue that the quote is “absolutely irrelevant”.

    Nope. My response is as above. All taxes distort behaviour and cause costs. Including carbon tax, fuel tax & income tax. A carbon tax will have costs. Cutting fuel/income tax will have benefits. Gerry — do you understand?

    Mr Humphreys admits that though a carbon tax cannot “make Australian firms more competitive” cutting the fuel tax would. He is obviously assuming that the costs of his tax-induced changes to the capital structure will not offset a reduction in fuel costs.

    Interesting use of words. Note that Gerry also “admits” that a carbon tax doesn’t make firms competitive. As for fuel tax cuts, does Gerry “admit” that lower fuel tax is better than higher fuel tax or not?

    Gerry is right to imply that higher electricity prices will impact on the transport sector(and the rest of the economy). Likewise, lower fuel prices will impact on the electricity sector (and the rest of the economy). To properly assess a tax swap, you need to consider both parts. Gerry only considers half the story. He does so because he is dishonest.

    He argues that the tax would bring about “a moderate increase in electricity prices”. If this is so, are we then to assume that the tax itself will raise little revenue?

    Are we then to assume that Gerry didn’t actually read the original paper? Did he just run off half-cocked without actually knowing what I wrote? I discuss the revenue implications in the paper.

    If this is the case, where is the price incentive to seek out alternative energy sources?

    Read the paper Gerry… read the paper. In the electricity-production market, if you tax one type (ie “dirty” coal) then you provide an advantage to the other options (eg “clean” coal, nuclear, gas, renewables). That increases the expected future return from investment in alternative energy… which leads to more investment in alternative energy.

    Taking solar and wind as an example — and one he used — we will find that compared with coal-fuelled power stations these alternatives are horribly inefficient.

    Why doesn’t he cite all the alternative energies that I mention?

    Anyway, I didn’t promote any particular type of energy. I mentioned a bunch at random… but it’s not really important which alternative energy gets the advantage. If solar/wind are horrible options, then they will lose out to hot-rock, gas, clean-coal and nuclear. Or perhaps new technological innovations will totally change the debate.

    In the near future, I imagine “dirty” coal will remain dominant… even with a moderate carbon tax. Over time, technological innovation will provide other options, and the electricity market will slowly shift.

  4. part 4…

    The power industry recently warned governments that mandated “emission cuts” … could “wipe more than $10 billion off the value of older coal-fired power stations” … This strongly suggests that Mr Humphreys’ optimism is somewhat misplaced.

    Which optimism? Of course a tax on coal-electricity hurts coal-electricity producers. Just like a tax on DVDs would hurt DVD producers.

    …But Austrians point out that these so-called investments [in alternative energy] are really malinvestments that could not pay for themselves in a truly competitive environment. Therefore, expending money on them does not promote capital formation but the dissipation capital.

    True, then false. Gerry is right that investments would be better if there were no distortions. But he is wrong to imply that the alternative investments are worthless. They have a lower value, not not zero. Anyway… this is just another repeat of the old “carbon tax has an economic cost” mantra that we all agree with, but Gerry keeps repeating as though it will save his credibility.

    Mr Humphreys categorically states: “Gerry claims that I refuse to accept limitations on some energy sources”. I said no such thing.

    Really? Let’s quote Gerry back to him: Mr Humphreys’ refusal to allow that solar and wind have drastic and insurmountable natural limitations suggests that he has trouble handling facts when they conflict with his opinions.

    Once again, Gerry has been caught out in a bold-faced lie. Does he expect his readers to be fooled by this? And will he offer an apology?

    Nor did I state that he ever “argued for or against any particular type of alternative energy”.

    I never said he did.

    Nevertheless, it was he who stated that a carbon tax “would encourage Australia to start shifting away from its reliance on carbon intensive ‘dirty’ coal”. I think any unprejudiced reader would be justified in concluding that Mr Humphreys was arguing against coal-fuelled power stations.

    No — I was stating a fact. A tax on “dirty” coal would lead to an incentive to shift to alternative energy. This is a pretty obvious statement of facts.

    Unfortunately inventing quotes and then attributing them to others in an attempt to discredit critics seems to be par for the course with Mr Humphreys.

    At least he’s funny. Unintentional perhaps. But funny. After being caught out in several straight-out lies, Gerry now wants to just throw mud around everywhere, hoping some will hit.

    He accuses me of “technology-pessimism”. This is a gross misreading of my article. What I did say is that wind and solar could never be more efficient then centralised power generation.

    First, he’s wrong. We don’t know what technology could make possible in the future. Secondly, so what? Solar and wind are only two of many possibilities. The issue is whether any alternative can compete with “dirty” coal. Clearly, if you believe in the power of technology, it is very easy to imagine a world with different power generation. The fact that Gerry concentrates on what we currently can’t do shows he is stuck in the past. Bitter old man syndrome perhaps. How old are you Gerry?

  5. part 5…

    Finally, Gerry wants to repeat his petty complaints about my article on Austrian economics. Amuzingly, the quote he uses to oppose me proves me right. I say that Menger started the Austrian school in the late 19th century. Gerry disagrees, and then quotes:

    Menger … was successful in establishing a school of enthusiastic and highly talented followers, the Austrian School, whose doctrines spread over the whole world

    His other quotes also confirm that there was a clearly recognised “Austrian school” in the early 20th century.

    Gerry’s point is that the Austrians and neo-classical schools were closely related in the early years. True. But so what? I’m writing an introduction to Austrian economics so it’s relevant to note that the Austrian school is generally said to start with Menger, and the neo-classical school was generally said to start with Marshall (building on Walras & Jevons).

    Gerry’s other point is that the Austrian school became less influential around the 1920s. Sure. In my article I mention that Austrian economics fell from favour for a while, before making a mini-comeback in the 2nd half of the 20th century. Like I said in my post, he’s just whinging because he’s a whinger.

    Mr Humphreys inadvertently revealed his ignorance of the Austrian school with his hilarious statement that “I consider myself a follower of both [schools]”. This makes as much sense as claiming to be a catholic atheist.

    Gerry is just being a bigot now. It is perfectly possible for somebody to appreciate the contributions of two schools of thought. Indeed, I would argue that it is absolutely necessary. It is this attitude by some austrian economists that holds back austrian economics. If they worked with other economists, instead of against them, then we would all benefit.

    Finally — Gerry complains that I didn’t write 100,000 words covering every small debate and every early economist. Yawn. It’s quite normal and appropriate for me to skip many people.

    But given his credibility vacuum now… his critique is hardly important. Indeed, like disagreeing Bob Brown or GMB, it is probably proof that I’ve done something right.

  6. Any reason the post titled “Police Raid Terminally Ill for intending Suicide” was pulled? It showed up in my RSS reader but is not here on the blog. Looked very interesting.

  7. The author at mangled thoughts writes:-

    Windmills and ‘solar’ are totally useless for electricity generation. There is only one alternative to coal fired plants, nuclear power plants.

    The essence of this statement gets repeated a lot by the more ardent critics of Johns paper. The problem with windmills and solar of the photovoltaic variety is that they rely on intermittent energy sources. The wind speed varies naturally and the sun does not shine so bright when there are clouds and it does not shine all when it is night. I’m pretty much in agreement with these concerns. I don’t think these particular options are scalable alternatives to the likes of coal or nuclear. Certainly not without massive cost on duplication and other such measures. Which is why any any framework that is adopted should avoid technologies being selected according to naive notions about their “green” credentials. However it does seem to me that these options are also attacked because they are easy targets. There are a number of renewable energy technologies that don’t suffer such problems of intermittance.

    Picking winners is a bad idea when it comes to government policy towards energy. However given that the electricity sector in Australia has been government owned for such a long time it is hard to say that the result is a product of any sort of free market activity. A carbon tax is about picking losers which is also not an ideal scenerio. However of all the ways being proposed to make coal a loser it seems like the least bad option.

  8. Pingback: Club Troppo » Missing Link Daily

  9. Terje did you not read what I wrote? Do you Terje in fact get to nuance the application of the policy that you are pushing…. Given that you are backing up a mindless leftist lie?

    See I don’t think you do. In fact I know that you don’t get to nuance it. Leftists wait for some alleged libertarian to make their move. Look at that petition that 76 incompetent economists signed. It was announced the minute that Johns ridiculous paper was released. And it contained the same bogus arguments and bait and switch.

    The movement is after global cap and trade. Thats what they want. They just take this gift of yours and they keep pushing. Humphreys policy is appalling. But as bad and as economically illiterate as it is its not what we are going to get if we keep backing up these lies. To push carbon tax LITERALLY is not to push carbon tax ACTUALLY.’

    We are just going to have to keep going over and over and over this until you guys get it.

    We have to go entirely the other way. We have to be on a social level actively in favour of nuclear and liquified coal plants going up side by side on our city fringes.

    On a tax level we have to at least get rid of any taxes for retained earnings when it comes to energy production companies of any sort. Because so much effort has gone into discouraging investment we cannot afford for investments not to go ahead. It would be better if any energy production and distribution company be taken entirely out of the tax system. As if they were on a tax island haven just off the coast. With none of the employees paying any tax either. Part of the neoclassicals one-eye-blind thinking is that they imagine that such a tax exemption would create all this distortion. It wouldn’t. All it would do is get heaps of capital investment and capital REinvestment going which meant we didn’t have to worry about the government getting involved and we could deep-six any subsidies.

    The idea that such a scheme would create this great amount of distortion comes from them not looking at the whole economy and not focusing on the movement of capital investment into the industry. They get about with static equilibrium models of one sort or another in their head.

  10. I haven’t seen John address any of the ideas from “Mangled Thoughts.” This guy knows what he’s talking about. A carbon tax will, along with myriad other measures already hardwired into our society, cause heaps of damage. It will indeed cause capital destruction. Not just on its own. But along with the NIMBY, zoning and environmentalis measures already on the books and the irrationalism generally within our society. A carbon tax is just yet one more nail in the coffin.

    Its know use just calling this guy an obssessed nutter. He’s right and John is wrong. John has the habit of simply ignoring reality when he doesn’t like it. This fellows and Gerry’s ideas ought to be understood and addressed. Understanding what they are saying would be a good first step. Neoclassical economics types have to learn about Gross Investment and the capital structure.

  11. Trinifar,

    I had a read of your article:-

    http://trinifar.wordpress.com/2008/03/03/creation-of-a-different-planet-part-3/

    If you scrapped the conclusion the article could sound almost like one of Graeme Birds arguments about the risk of snowball earth returning. In deciding what action or inaction we should take in regards to climate change it does depend somewhat on the timeframe you choose to regard as important. Do we care about the welfare of people in 2100 and the risk of things getting toasty or do we care about the welfare of people in 3100 and the risk of things getting horribly cold. A natural climate may not be our friend.

  12. Well they are not Mark. They suffer the same issues. The answer is nuclear and liquified coal.

    Terje there is no warming risk. So there is no warming risk issue. And we can easily and cheaply cool the planet if we were so perverted as to wish to do it.

    You just have to get your head around the idea that this is a racket.

    And its not abnormal by modern standards. Leftists are always lying en masse about something or other. If they stopped this practice it would be shocking. Like the wind stopping to blow in Wellington and all the chooks falling over.

  13. Assuming you mean the inability of wind farms and photovoltaic solar to deliver reliable baseload as I outlined above then the examples I keep pointing to are:-

    * Hot Dry Rock Geothermal.

    http://en.wikipedia.org/wiki/Hot_dry_rock_geothermal_energy

    * Solar Updraft Tower.

    http://en.wikipedia.org/wiki/Solar_updraft_tower

    Arguably geothermal is a form of deep earth nuclear but it is not commonly classified as nuclear. No doubt other options such as biohydrogen are also being developed.

  14. Look nothing much is stopping these investments. Hence when you are supporting them what you are doing is trashing coal and nuclear. And you ought to stop it Terje. Yes some hot rocks investments might go ahead. And yes its likely that bureaucracy and failure to have clear homesteading rules is getting in the way of this also. But nothing like the obstruction that faces coal and nuclear is hampering such investments. So going on about this with a view to appeasing the bean sprouts munchers can do nothing else but get in the way? Are you advocating these investments for the South Africans as well now that the blackouts have finally arrived?

    These are not investments that you talk about in an emergency. They are for the much longer term.

  15. DavidL — my approach to GMB is the same as it’s always been. To moderate him and let in the occasional post if it is short, friendly and sensible. Suffice to say, I don’t approve many GMB comments.

    GMB — I removed your comment. If you want to write a 2000 word essay, do it on your own blog and post a link. I’ve moved your rant to here.

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  17. This entire running thread, and its emotive and abusive responses are very amusing. The inability of either side to politely disagree shows how irrational the entire debate is. Its a pointless exercise.

    If neither side can agree on the underlying assumptions, then there is no point postulating and creating economic models and frameworks based on those assumptions.

    In this case, the assumption being questioned is if man made C02 emissions will have net economic costs.

  18. We don’t need to agree with the assumption that CO2 emissions will have a net economic cost. We merely need to agree that the community at large has accepted this assumption and that government action to tackle the problem is essentially inevitable.

    I think it is perfectly reasonable to propose the least bad way to reduce CO2 emissions whilst also separately arguing with the assumption that CO2 emissions are a problem. And even if we all agreed that CO2 emissions were good for us (ie it saves us from the snowball earth scenerio) I would still argue that broadening the fuel tax was a good idea.

    This approach is also essentially how I argue the minimum wage issue. I argue that there should be no minimum wage. However if you are going to have a minimum wage then it should include a consideration of the unemployed as well as the employed and it should be applied on a regional basis not a national basis. The general concensus in the community is that we should have a minimum wage so there is merit in pushing both barrows.

    Likewise with income tax. I don’t think we should have income tax. However I readily argue for ways to reform income tax. The general concensus in the community is that income tax is necessary. So arguing for ways to make the income tax less of a problem has merit.

    I do the same with monetary policy. I don’t think we should have government created fiat currency. However we are to have government created fiat currency then inflation targeting is better than quantity targeting. Bretton Woods was better than floating.

    I do the same with guns policy. I don’t think we should have restrictive laws on firearms. However if we are to have a licensing regime I’ll argue that self defence should be included as a valid reason for getting a license.

    I really don’t understand why people have such trouble with this approach. It is common enough in all walks of life. If you don’t want to go out for dinner tonight but the rest of the family does then you might indicate a preference for a quite restaurant which serves steak. It does not mean that staying home isn’t your preferred option.

  19. And another thing. It is a fallacy to claim that permitting emissions into the atmosphere is more “free market” than restricting emissions into the atmosphere. The former might be more liberal but it is not more “free market”. It is like arguing that permitting nudity on public beaches is more “free market”. I also routinely encounter a similar fallacy about what is more “free market” when it comes to fiat monetary policy but I’ll avoid digressing.

  20. But it goes further than that Jono. Slapping a cap and trade system on carbon ( I know that isn’t what John is proposing) and then eliminating the next possible option- nuke – is heading us toward serious economic problems.

    It’s more than emotional when you consider the issues involved here and where we could end up.

    Terje:

    there is a firm currently experimenting with hot rock based energy in the copper basin. Last time I looked the stockmarket wasn’t every enamoured with its prospects which means we are only left with the other option you mentioned.

  21. JC – Geodynamics just finished drilling their 4.5km hole and early indications are that things are on track. Nothing is guaranteed but I think they will figure it out. The issues will then hinge around commercialisation and cost.

  22. Terje, stop making sense. You’re scaring the fundamentalists.🙂

    Jono, the underlying assumptions aren’t the issue at all. Gerry made the claim that my proposal would result in huge costs. That’s simply not true. If he made his mistake nicely, I would have pointed it out nicely.

    And most of my jibes are in jest anyway and meant for amuzement value. Gerry has made plenty of good contributions in the past, and hopefully he will do so in the future. But after he wrote that crap about me, he needed a little slap-down.

  23. But isn’t that the thing, though terje. The commercialisation aspect is a huge problem, not to mention the fact that the cooper basin isn’t exactly just over the other side of the blue mountains.

    We’re really screwing around deep in the innards of the economy with this stuff (not John’s co2 tax) and I really can’t see how the arrow is pointing up in terms of rising living standards.

    As John mentions there is very little elasticity for energy so we end up getting screwed.

  24. JC – I’m kind of keen on promoting a CO2 tax as an emission mitigation concept precisely because I’m kind of not keen on ending up with cap and trade.

  25. JC – commercialisation is THE problem.

    Geothermal as a class of energy production is well established and mature. We have lots of suitable sites that hot dry rock geothermal might be applied to with heat sources not too deep. The hunter valley is a huge hot spot right near existing electricity infrastructure. The Solar Updraft tower is well modelled and technically proven. So in both cases the problems are primarily commercial not technical. The technology on both counts looks scalable. The technology on both counts would deliver baseload.

    The problem with both ventures is in getting investors onboard. Obviously both companies are keen to champion a government fee on carbon emissions because it enhances their business case. In particular it offsets some of the commercialisation risk. Unfortunately they are also likely to delay their initiatives if such government assistance is in the pipeline (which with Rudd elected is now the case) but not yet delivered.

    I don’t think either company should be given a leg up by the government except perhaps in dealing with development approval. However I also don’t think it is accurate to suggest that we don’t (or won’t) have scalable alternatives to coal and nuclear. And the previous government was not shy about handing out assistance to alternative energy plants although unfortunately they spent it on things like the large photovoltaic plant. If they are going to pick winners it is a pity in my view that they don’t pick more carefully.

    None of this is meant to justify any particular policy position. It is merely to say that banging on about the inadequacies of wind farms and photovoltaics is fair enough in so far as it goes but not in and of itself a death knell for the prospect of a prospereous growing economy built on renewable energy.

  26. John,

    No point wasting your time engaging in blog-wars with Gerry. Australia needs your economic skills in taking the debate to the academics in our mediocre universities through papers, books & articles.

    Everytime I hear economic commentators spouting the conventional wisdom that ‘tax cuts cause inflation’ or ‘the ACCC is necessary for a competitive market’, I cringe. At some point it becomes counterproductive to debate among ourselves if it distracts focus from the bigger picture.

  27. Sukrit:

    The present proposal to cut taxes is indeded inflationary because the surplus as far as i’m concerned is incubated inflation.

    The RBA can of course sweep away the funds through higher interest rate policy. At least that would be honest. However the surplus is inflation and it would better for all concerned if we simply destroyed that money.

  28. No – inflation is defined as sustained increases in prices. Tax cuts might be responsible for short-term effects, but ‘inflation’ properly defined is primarily determined by the growth in the monetary base.

    What’s annoying is when the ‘tax cuts cause inflation’ bogeyman is used as an argument against tax cuts, when the benefits of tax cuts exist independently of inflation and far outweigh any inflationary pressures (which can be easily tackled via monetary policy).

  29. JC — I understand your point, but I think it’s better to clearly identify two different issues.

    One is monetary policy, and the problem with excessive money supply leading to inflationary pressures. While I don’t like it personally, the RBA was right to increase rates again.

    The other is tax policy. While expansionary fiscal policy can put upward pressure on interest rates, it is not itself a cause of inflation (unless funded through printing money). Further, tax cuts do not need to be expansionary fiscal policy, so long as they are matched with spending cuts.

    That’s what I support — tax cuts matched with spending cuts. I hope that’s what Rudd will deliver this May.

  30. Sukrit:

    the surplus is basically cash created from the monetary base that wasn’t allowed to be spent (due to taxes) and sent to the government where it has basically collected cobwebs. It’s is incubated inflation. They can send it back to its owners in which case the RBA will have to raise rates to drain it.

  31. Sukrit — I know I’m wasting my time with Gerry. I do it for two reasons. Just in case anybody is interested, I want to make sure they understand the full story and appreciate how truely dishonest Gerry has been. His credibility is destroyed.

    Second, it’s a bit of sport. Gerry decided to shoot his mouth off, but he picked the wrong target. He needs to be taught some manners.

    He really needs to start back-peddling quickly and offer a few apologies. Or this issue will drag him down. Any honest, intelligent supporters he used to have must be feeling pretty embarrassed now.

  32. They can send it back to its owners in which case the RBA will have to raise rates to drain it.

    Then that’s what they should do. As I said, the long-term benefits of tax cuts exist independently of, and outweigh, inflation. The alternative is to allow the government to hoard our money.

    In practice the total amount of money in the economy doesn’t change much, whether it’s held by consumers or the government. At some point, a government will come along and decide that the surplus should be spent on pre-election pork-barrelling.

    Given pork-barrelling occurs on a massive scale already (i.e. potential individual tax cuts being frittered away), it makes sense to be in favour of a tax cut for any reason whatsoever, because private spending is usually put to more productive uses than government spending.

  33. It’s far better to simply destroy the surplus and hand out the tax cuts through less spending.

    This surplus is bad shit and if it causes the RBA to raise rates again the damage will outwiegh the benefits.

    Losing 100 billion in stock market value is far worse than a tax cut benefit…. and by the way I love tax cuts so don’t get me wrong, but that money is simply inflation held by the government.

  34. Pingback: The PRODOS blog » Blog Archive » Australian Carbon Tax Debate

  35. John – I expect Gerry either didn’t read your original paper or he didn’t take much time to properly understand it. However I think the real reason that he came unstuck is that the motivation behind his original article was not really to refute the substance of your paper but to merely use it as an excuse to showcase his knowledge (and concern) about the ‘war is good’ fallacy and other such things. I suspect that he thought you were a sleeping dog that he could readily kick for free on his merry way to town.

    I disagree with Sukrits suggestion that this debate is a waste of time. Leaving Gerrys mistakes unrefuted wouldn’t be a good thing. And given the number of pingbacks on this thread I think Gerry has helped ferment greater awareness of your paper and it’s details which is no bad thing.

    Johns original paper is here:-

    http://www.cis.org.au/policy_monographs/pm80.pdf

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  38. Pingback: The PRODOS blog » Blog Archive » Viv Forbes: No Carbon Tax

  39. Well here are today’s headlines folks and if you follow this and similar links, I don’t get a lot of confidence that the advocates are looking at carbon taxes as replacing other taxes – it reads to me like they see it as a new tax on out-of-favour businesses that will be re-distributed to favoured social groups.

    Or am I being too cynical yet again ?

    Emissions trading ‘could produce $20b windfall’
    http://www.abc.net.au/news/stories/2008/03/20/2194865.htm

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  44. There are reasons that no Company in the world will invest in a nuclear power plant they include:
    · The problem of radioactive waste is still an unsolved one. The waste from nuclear energy is extremely dangerous and it has to be carefully looked after for several thousand years (10’000 years according to United States Environmental Protection Agency standards).
    · Insurance can only be obtained for the first $350M of damages.
    · High risks: Despite a generally high security standard, accidents can still happen. It is technically impossible to build a plant with 100% security. A small probability of failure will always last. The consequences of an accident would be absolutely devastating both for human being as for the nature (see here or here ). The more nuclear power plants (and nuclear waste storage shelters) are built, the higher is the probability of a disastrous failure somewhere in the world.
    · Nuclear power plants as well as nuclear waste could be preferred targets for terrorist attacks. No atomic energy plant in the world could withstand an attack similar to 9/11 in Yew York. Such a terrorist act would have catastrophic effects for the whole world.
    · During the operation of nuclear power plants, radioactive waste is produced, which in turn can be used for the production of nuclear weapons. In addition, the same know-how used to design nuclear power plants can to a certain extent be used to build nuclear weapons (nuclear proliferation).
    · The time frame needed for formalities, planning and building of a new nuclear power generation plant is in the range of 20 to 30 years in the western democracies. In other words: It is an illusion to build new nuclear power plants in a short time.
    I propose to ramp up Geothermal Power supplies.
    Geothermal power stations have been providing base load power for generations. They do not rely on tranient sources of energy so are avilable 24/7. “Twenty-four countries generated a total of 56,786 GWh (204 PJ) of electricity from geothermal power in 2005, accounting for 0.3% of worldwide electricity consumption.

    Geoscience Australia estimates that if we were able to extract just one percent of Australia’s geothermal energy, it would be equivalent to 26,000 times Australia’s total annual energy consumption.”
    Source: http://minister.ret.gov.au/MediaCentre/Speeches/Pages/MinisterialStatementTheVastPotentialofAustralia'sGeothermalResources.aspx

  45. “Dave”

    Most of what you have written is utter crap.

    The IFBR uses nuclear waste as fuel. Nuclear waste isn’t effective as material for a dirty bomb – you’re better off stripping smoke detectors. IFBR/LMR systems do not meltdown. The simple solution of 9/11 attacks is to bury them in bunkers. Digging holes is still cheap engineering construction. IFBR fuel/waste cannot be used for nuclear weapons. The new gen IV/IFBR reactors are close to being standardised and acheiving modularity.

    You’re parroting quips from the early to mid 1980s. They’re now irrelevant and no longer factual.

    Here’s where you can learn more:

    http://bravenewclimate.com/

  46. More here:

    http://bravenewclimate.com/2011/02/24/advanced-nuclear-power-systems-to-mitigate-climate-change/

    This is a modified version of the full conference paper. This is the most up-to-date executive summary available, written for a general — albeit technically conversant – audience, of the Integral Fast Reactor. You can download the 16-page printable PDF version here.
    91st American Meteorology Society Annual Meeting, Jan 23-27, 2011, Seattle, WA Second Conference on Weather, Climate, and the New Energy Economy

    Advanced Nuclear Power Systems to Mitigate Climate Change
    Tom Blees1, Yoon Chang2, Robert Serafin3, Jerry Peterson4, Joe Shuster1,
    Charles Archambeau5, Randolph Ware3, 6, Tom Wigley3,7, Barry W. Brook1,7
    1Science Council for Global Initiatives, 2Argonne National Laboratory, 3National Center for Atmospheric Research, 4University of Colorado, 5Technology Research Associates, 6Cooperative Institute for Research in the Environmental Sciences, 7University of Adelaide

    Abstract
    Fossil fuels currently supply about 80% of humankind’s primary energy. Given the imperatives of climate change, pollution, energy security and dwindling supplies, and enormous technical, logistical and economic challenges of scaling up coal or gas power plants with carbon capture and storage to sequester all that carbon, we are faced with the necessity of a nearly complete transformation of the world’s energy systems. Objective analyses of the inherent constraints on wind, solar, and other less-mature renewable energy technologies inevitably demonstrate that they will fall far short of meeting today’s energy demands, let alone the certain increased demands of the future. Nuclear power, however, is capable of providing all the carbon-free energy that mankind requires, although the prospect of such a massive deployment raises questions of uranium shortages, increased energy and environmental impacts from mining and fuel enrichment, and so on. These potential roadblocks can all be dispensed with, however, through the use of fast neutron reactors and fuel recycling. The Integral Fast Reactor (IFR), developed at U.S. national laboratories in the latter years of the last century, can economically and cleanly supply all the energy the world needs without any further mining or enrichment of uranium. Instead of utilizing a mere 0.6% of the potential energy in uranium, IFRs capture all of it. Capable of utilizing troublesome waste products already at hand, IFRs can solve the thorny spent fuel problem while powering the planet with carbon-free energy for nearly a millennium before any more uranium mining would even have to be considered. Designed from the outset for unparalleled safety and proliferation resistance, with all major features proven out at the engineering scale, this technology is unrivaled in its ability to solve the most difficult energy problems facing humanity in the 21st century.

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