[phil_20686]

 Cyberyeti, on 2012-August-01, 04:24, said:

Tax just shovels money around, it doesn't create or destroy it.

Every tax needs people to administer it, which is a cost. There is also an opportunity cost, since the individual being taxed would presumeably have spent it in the way most pleasing to him, tax on gains if you spend it in a way less pleasing to him, which is a cost. Although its also "not real" as presumably someone is getting a benefit they could not otherwise afford.

To put it in perspective, the IRS in america costs about 14bn$, or roughly 1% of gdp. I think anything up to about 3% of gdp on administering tax is quite normal.

But yes, there are any number of ways a government can spend money where the return on investment is higher than the cost of administering the tax, which is probably why having tax takes between 30-50% don't have a huge or reliable effect on gdp growth.

[billw55]

 Cyberyeti, on 2012-August-01, 04:24, said:

Tax just shovels money around, it doesn't create or destroy it. Given what governments usually do with it, probably not great for the economy, but if the carbon tax is used to fund renewables, cleaner industry and carbon capture technology, needn't be a disaster.

.. and this is exactly what won't happen. Governments are famous for reallocating (some would say stealing) revenues ostensibly earmarked for certain purposes. When there is a big bowl of money, politicians and bureaucrats just can't keep their hands out it.

[Daniel1960]

FYI for those interested in cap and trade.

http://newscenter.lb...ent-incentives/

[Cyberyeti]

Quote

Tax just shovels money around, it doesn't create or destroy it. Given what governments usually do with it, probably not great for the economy, but if the carbon tax is used to fund renewables, cleaner industry and carbon capture technology, needn't be a disaster.

 billw55, on 2012-August-01, 07:06, said:

.. and this is exactly what won't happen. Governments are famous for reallocating (some would say stealing) revenues ostensibly earmarked for certain purposes. When there is a big bowl of money, politicians and bureaucrats just can't keep their hands out it.

Hence the "Given what governments usually do with it" part of my post.

And yes Phil, tax does take cost to administer, but also creates a larger pot of money which ought to be able to recoup that with economies of scale but rarely does.

[phil_20686]

 Daniel1960, on 2012-August-01, 07:52, said:

FYI for those interested in cap and trade.

http://newscenter.lb...ent-incentives/

I read that article, it was interesting throughout, but the whole article is scripted as if this was a failure for cap and trade, when it seems like a huge success. Merely by being instituted companies instituted SO2 reduction schemes that were much more successful than anticipated, so much so as to render the cap and trade plan moderately worthless as it now had much too many permits. However, the article appears to argue that Cap and Trade is pointless on the grounds that there was no actual trading, but SO2 reduction was the goal, and there is only no trading because they were to sucessful at reduction. I score that as an epic win.

EDIT: Its actually a pretty good mini example of how monetary policy is effective. Since the `central bank' is the one issuing permits, it can achieve price stability by dynamically changing the rate of issue according to the price.

[Daniel1960]

Phil,

I am not sure that I would call it a win or a failure. My take is that there is nothing special about cap and trade, and that any real effort would have had a similar result.

[luke warm]

 phil_20686, on 2012-August-01, 05:03, said:

Well you would be building renewable energy instead of non renewable, since the price is higher, that means you will be devoting more of your economic production to energy than otherwise, which is a `cost' in some sense, but given how much you might save in the long run its not obvious that you can evaluate the possible costs sensibly at all.

give me an example of what you're talking about re: "building renewable energy rather than non-renewable"

[Zelandakh]

Luke, I think it is clear here that Phil means solar, wind, hydro and tidal. If we are talking specifically about carbon emissions then one should really throw nuclear into the equation too, as well as some smaller-scale options such as capturing the heat from certain processes (such as incineration) and recycling it.

[luke warm]

 Zelandakh, on 2012-August-02, 01:57, said:

Luke, I think it is clear here that Phil means solar, wind, hydro and tidal. If we are talking specifically about carbon emissions then one should really throw nuclear into the equation too, as well as some smaller-scale options such as capturing the heat from certain processes (such as incineration) and recycling it.

ok, are those of you proposing carbon taxes saying that the money collected from such a tax will go toward r & d of "new" technology?

[phil_20686]

 luke warm, on 2012-August-02, 04:04, said:

ok, are those of you proposing carbon taxes saying that the money collected from such a tax will go toward r & d of "new" technology?

There is a strong incentive to use the cheapest form of energy possible. Carbon Tax makes fossil fuels more expensive, and thus diverts resources towards building renewables. It also puts incentives on company to take steps to save energy, but they have that anyway through energy prices.

[hrothgar]

 luke warm, on 2012-August-02, 04:04, said:

ok, are those of you proposing carbon taxes saying that the money collected from such a tax will go toward r & d of "new" technology?

I am proposing that carbon taxes are good, in and of themselves.
Don't care much what the resulting funds are used for.
I suspect that implementing a revenue neutral carbon tax would be the most palatable solution.

Here's the theoretical version of a revenue neutral carbon tax.

Carbon gets taxes, which shifts the slope of the budget line.
The income which is collected from the tax is returned to consumers which shifts out the budget line.
The revenue transfer continues until the consumer has enough money to hit their original utility curve.

At the end of the day, the consumer is as happy as they were before, but is producing less carbon but consuming more of other goods.

[WellSpyder]

 hrothgar, on 2012-August-02, 07:17, said:

I suspect that implementing a revenue neutral carbon tax would be the most palatable solution.
...
The revenue transfer continues until the consumer has enough money to hit their original utility curve.

I agree that a carbon tax that corrects for a negative externality should generally lead to a better outcome, and that this does not depend in any way on the money being invested in "green" energy.

But isn't there a danger in your analysis that "revenue-neutral" is not the same as "utility-neutral"?

[phil_20686]

 WellSpyder, on 2012-August-02, 08:05, said:

I agree that a carbon tax that corrects for a negative externality should generally lead to a better outcome, and that this does not depend in any way on the money being invested in "green" energy.

But isn't there a danger in your analysis that "revenue-neutral" is not the same as "utility-neutral"?

If your point is that even a revenue neutral tax here would have a cost, then yes, that is correct. A good way to see it is to think of the economy as producing things out of peoples labour. More expensive = more labour, so by moving to lower carbon energy, we are necessarily devoting a larger percentage of our labour to energy than we were, and that must mean that we are producing less of other stuff than we would be.

[hrothgar]

 WellSpyder, on 2012-August-02, 08:05, said:

I agree that a carbon tax that corrects for a negative externality should generally lead to a better outcome, and that this does not depend in any way on the money being invested in "green" energy.

But isn't there a danger in your analysis that "revenue-neutral" is not the same as "utility-neutral"?

Back when I taught Econ 101, we would present different approaches with dealing with externalities,
Shifting income until you can reach the original utility curve is the prefer approach in theory.

In practice, no one has perfect information about utility curved. As a result, you're forced to use a revenue neutral approach. Its not as good, but its easier to implement.

Either way, the important lesson is "Don't make the best the enemy of the good"

[WellSpyder]

 phil_20686, on 2012-August-02, 08:31, said:

If your point is that even a revenue neutral tax here would have a cost, then yes, that is correct.

No, that's not quite my point. It is presumably possible for a revenue neutral tax change to have a benefit, if the tax you are reducing to make the overall effect revenue-nuetral had a bigger negative impact that the new tax you are introducing. Indeed, one hopes this will often be the case if the new tax has been introduced to offset a negative externality while the tax being cut was there as a revenue-raising mechanism.

 hrothgar, on 2012-August-02, 08:38, said:

Back when I taught Econ 101, we would present different approaches with dealing with externalities,
Shifting income until you can reach the original utility curve is the prefer approach in theory.

What I was trying to get my head round was the issue of how you shift income. It is all very well to say that you shift incomes to offset the impact of the tax, but the income has to come from somewhere...
Is the argument simply that because you are reducing negative externalities there has to be enough spare utility somewhere in the system to enable you to achieve a Pareto improvment? (sorry if this is obvious, it's a long time since I did the equivalent of Econ 101)

Quote

Either way, the important lesson is "Don't make the best the enemy of the good"

Happy with that lesson, and with the general message that a tax on things that have a negative impact on others is a good thing in general - including a tax on carbon if that is having a harmful effect.

[hrothgar]

 WellSpyder, on 2012-August-02, 09:39, said:

What I was trying to get my head round was the issue of how you shift income. It is all very well to say that you shift incomes to offset the impact of the tax, but the income has to come from somewhere...
Is the argument simply that because you are reducing negative externalities there has to be enough spare utility somewhere in the system to enable you to achieve a Pareto improvment? (sorry if this is obvious, it's a long time since I did the equivalent of Econ 101)

"Shifting income" is easy. You use the proceeds to the tax to give money back to individuals.

Consider the following example:

Tristian and Isolde are a pair of happy consumers living in Peoria. A carbon tax gets enacted. The price of all the goods and services that Tristian and Isolde purchase increase. The price of the most carbon intensive products increase the most. Assume for the moment that the government has perfect information. The government knows exactly how much Tristian and Isolde spent on products before the tax and how much they spent after the tax. The government uses this information to give Tristian and Isolde a lump sum payment sufficient that they could buy exactly the same basket of goods after the tax as they did before the tax. Standard economic theory says that Tristian and Isolde will still change their purchasing power based on the change in relative prices. (They'll achieve a higher level of utility if they switch away from expensive carbon intensive products towards cheaper products).

In reality, the government doesn't have perfect information and it can't perfectly tweak all of the necessary transfer payments. However, it should be able to do better than the existing free market solution which doesn't factor any kind of price into carbon emissions and creates a significant deadweight loss.

[billw55]

 hrothgar, on 2012-August-02, 10:20, said:

"Shifting income" is easy. You use the proceeds to the tax to give money back to individuals.

Consider the following example:

Tristian and Isolde are a pair of happy consumers living in Peoria. A carbon tax gets enacted. The price of all the goods and services that Tristian and Isolde purchase increase. The price of the most carbon intensive products increase the most. Assume for the moment that the government has perfect information. The government knows exactly how much Tristian and Isolde spent on products before the tax and how much they spent after the tax. The government uses this information to give Tristian and Isolde a lump sum payment sufficient that they could buy exactly the same basket of goods after the tax as they did before the tax. Standard economic theory says that Tristian and Isolde will still change their purchasing power based on the change in relative prices. (They'll achieve a higher level of utility if they switch away from expensive carbon intensive products towards cheaper products).

In reality, the government doesn't have perfect information and it can't perfectly tweak all of the necessary transfer payments. However, it should be able to do better than the existing free market solution which doesn't factor any kind of price into carbon emissions and creates a significant deadweight loss.

Easy in theory only.

In reality, government promises these rebates to Tristian and Isolde in order to gain their support for the big new tax. Once the tax is passed, the revenues are routed to pet projects, pork for constituents and contributors, bloated government pensions, etc. The rebates never happen, or are a fraction of what they were promised to be.

I am strongly opposed to any new taxes until the government proves themselves responsible to handle the money honestly. I am not holding my breath waiting for this. Even for causes with almost universal support: example, more lotteries and casinos, funds go to education! Everybody loves education, right? But then the funds don't actually get there. I have seen this story enough, I won't be fooled by carbon taxes.

[luke warm]

 billw55, on 2012-August-02, 12:06, said:

I won't be fooled by carbon taxes.

i think you're missing the point... most people who favor carbon taxes do so *regardless* of what's done with the revenue... they are good, these folks say, in and of themselves... why? well i'm not quite sure... we for sure can't implement enough alternate forms of energy to do what needs doing in this country, at least not yet

[hrothgar]

 luke warm, on 2012-August-02, 15:27, said:

i think you're missing the point... most people who favor carbon taxes do so *regardless* of what's done with the revenue... they are good, these folks say, in and of themselves... why? well i'm not quite sure...

C02 production is an example of what's know as an externality.

Externalities occur when the private cost of production does not match the social cost of production. In this example, release carbon dioxide into the atmosphere imposes costs on society as a whole which are not reflected in private decisions regarding what quantity of good should be produced/consumed. As such, rational profit maximizing individuals will chose to produce/consume larger quantities of goods than is optimal from the perspective of society. The purpose of a carbon tax is to align the private costs and the social costs associated with carbon production.

As I said before, this is Econ 101 type stuff.

[luke warm]

 hrothgar, on 2012-August-02, 16:34, said:

As I said before, this is Econ 101 type stuff.

does econ 101 tell us how society is to function w/out carbon based fuels, or when they are so cost prohibitive that industry (and employment) shuts down?

on the bright side, the whole earth could be made up of vast areas of ocean front properties, even in antartica... from the dreaded fox.com

Quote

The surprising discovery came from a study of drill cores obtained from the seafloor near Antarctica. The results, published in the journal Nature, show that warm ocean currents and high carbon dioxide (CO2) levels in the air boosted temperatures, allowing tropical vegetation to grow where visitors today meet only icebergs and freezing cold.