Thursday, November 15, 2012

Will he or won't he, Part II: Obama speaks

The President gave a press conference yesterday, promising to take charge of the climate agenda, but also connecting climate change and economic growth. As predicted (two posts back in this blog), he's looking for an economic model for climate change that permits growth.

This is not rocket science. It's basic Keynesianism, with a green tinge. You don't want to slow the overall flow of exchange in the circular flow model (above). And all exchanges will at some point come with some environmental harm, including climate emissions. What you must do instead is replace flows of exchange that produce more harm than good, with flows that produce more good than harm.

One basic approach is an internalizing tax. If oil and coal companies had to bear the full cost of climate change, policing the middle east, and health problems caused by burning oil and coal, fuel would be a good deal more expensive than it is. All companies will externalize their costs if we let them. The solution is a tax that reduces the externality, such as a carbon tax, preferably at the mine gate or wellhead to reduce the possibility of market distortion.

To maintain the overall level of flow, if you increase tax on carbon, taxation should be reduced elsewhere in the system, preferably on cleaner forms of energy. Eventually the system adjusts, and the consumption of carbon is reduced, while the consumption of non-carbon based energy, which is made relatively cheaper, is much increased. If those cleaner forms of energy are domestically produced, then a further benefit is found in reducing the foreign balance of payments deficit, further stimulating the domestic economy.

The difficulty with this thinking for a lot of people is that is seems too bureaucratic and, well, un-revolutionary, and so a lot of climate activists simply don't "get it." This is at some level at least understandable, but it's more to do with personality weaknesses than it is anything to do with actually reducing climate emissions.

Think about it:  If what you really would like to do is storm the barriers with your comrades and tear the whole corrupt system down, burning or shooting as you go, well this carbon tax (blah, blah, blah) seems a little, shall we say, bourgeois.

But revolution is over-rated too, tovarisch. Read your Orwell. Remember, he wasn't just a novelist -- he actually participated in revolution, in Spain during the Civil War. He watched the failure of the revolutionary process in real time, watched the revolutionary leaders become corrupt, non-democratic elites, watched them begin, on Stalin's orders, to murder the democratic revolutionaries to get rid of them.

He then came back to Britain, thought about it, wrote about it, thought about it some more, and then wrote Animal Farm and Nineteen Eighty-four. Required reading for would-be revolutionaries and trainee climate scientists. (Along with John Maynard Keynes' The General Theory of Employment, Interest and Money.)

The last thing we need is a climate change revolution.

We have enough problems just with climate change.

President Obama is not a revolutionary, so if he's serious about a climate measure, we're going to see a carbon tax.

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