18 Jan 2019

Murphy Twin Spin on Energy Topics

Energy 29 Comments

==> My Part 2 of my critique of the “Green New Deal.”

==> My response to the 45 economists who wrote an open letter to the Wall Street Journal calling for a carbon tax. My favorite part:

Before leaving this section, let me try one last attempt to get the reader to see the sleight-of-hand that these economists are pulling here. Suppose that President Trump had his protectionist economic adviser, Peter Navarro (who has a PhD in economics from Harvard, by the way), announce a new tariff of 100% on all Chinese imports, but that the proceeds from this new tax would be sent lump-sum to every American citizen. Would the economists who signed the WSJ letter then agree that “most American families” would benefit financially from the tariff? I mean after all, rich people tend to spend more dollars (in absolute terms) on imported goods than poor people do, so the statement would be correct. And yet, of course none of the WSJ letter signers would endorse such a plan. They would (rightly) warn Americans that such a large tariff would disrupt production decisions and lower just about everybody’s standard of living. The fact that these economists are adopting a completely novel talking point to sell a carbon tax should make Americans quite suspicious.

Incidentally, although Tyler Cowen supports a carbon tax, he also doesn’t like the dividend refund stuff: “I don’t believe in economists tricking people, even though I will admit tricking people can be useful.”

29 Responses to “Murphy Twin Spin on Energy Topics”

  1. Transformer says:

    I’m not sure I get the logic in your favorite bit (that you quote).

    It would be quite consistent to hold the views:

    – Only support taxes that address negative externalities
    – All taxes (irrespective if you view them as justified or not) should be revenue neutral (taken to mean all revenue is distributed back on a per capita basis)

    This would lead to the following consistent views:

    – I support the carbon tax and think it should be revenue neutral
    – I oppose a 100% import tariff but believe that if there is one it should be revenue neutral

    So I’m missing the “sleight-of-hand” you accuse them off.

    (Off topic but it just occurred to me that from the perspective of an open national economy subsides on manufacturing by foreign governments would be functionally the same as a negative externality – while I would be against it there would be some logic in a free-market argument for a import tax on imported subsidized goods )

    • Dan says:

      They claim it will financially benefit most American families.

      • Transformer says:

        yes, but as they think it will why does that make it a sleight of hand ?

        I sort of agree that introducing arguments about income redistribution into a discussion about carbon tax is a bit dodgy – but not a “sleight of hand” – that implies they are trying to make people see something that is not really there.

        • Bob Murphy says:

          Transformer, suppose Trump said, “We are going to institute a new tariff of $10,000 on any imported Chinese TV set. Our experts predict that this will not financially hurt most families, as 96% of the revenue collected will be from households earning above $300,000 per year.”

          Would you be fine with that statement? Do you think the economists who signed the WSJ letter would be fine with that statement?

          • Transformer says:

            I think I get what you are saying – such a tax may lead to most families getting more in tax redistribution than they pay in tax but would still leave most people worse off if they no longer could afford Chines TVs.

            So the sleight of hand there is to talk just of tax redistribution effects and ignore overall utility.

            But I don’t see how that applies to the 45 and the carbon tax as they are clearly saying ‘Not only will the carbon tax make most people better off (by addressing global warming) but it will reduce the tax burden of most as well’.

            • Harold says:

              It is incorrect to sell this as having advantages in the absence of a negative externality from carbon emissions. My interpretation of their comments is that they say will make most households better off without counting any benefits from reduced climate change. I agree this a political selling point and does not make much sense.

              If there were no concern about global warming it seems highly unlikely that any of these economists would be recommending taxing carbon and redistributing the revenue as a good idea. We don’t see similar calls to tax say building materials and redistribute the revenue.

              That is clear form this bit ” It will also accelerate the diffusion of carbon-efficient goods and services.”

              if we were not concerned about reducing carbon emissions why would this be considered a benefit?

              It only makes sense if we count reducing carbon emissions as a gain. What the redistribution does is make it less painful to most households that it might be and this should be made clear.

              • Transformer says:

                Yes, the whole, point of the carbon tax is to address global warming. If the science and economics behind that are wrong the whole thing falls apart.

                I think its pretty obvious to most people that the “carbon tax” will increase the price of goods that use carbon in manufacturing.

                I think the “neutral revenue” thing is useful to address the fact that many people will think its just another tax.

                I agree that emphasizing the re-distributional aspect is unnecessary as there are plenty of other ways of addressing that.

            • Tuppenceworth says:

              > ‘…but it will reduce the tax burden of most as well’.

              Yes, I think this is what they appear to say. The Tyler Cowen position linked to is that this is a political, not an economic, argument but Bob’s position goes further and says that it is not even true.

              After reading his response and a bit of thinking I see it like this (the numbers are unrealistic for simplicity and I assume biofuels are exempt):

              Suppose it is costing some ordinary person $100 per month to run a car on regular unleaded but it would cost $135 per month to run one on a renewable biofuel. When the carbon tax is phased in, it raises the cost of running the car on unleaded to $140 per month. One might say that the additional $40 a month will be more than repaid in the dividend because whatever happens, rich people’s living costs will always rise by even more. All the increases in living cost are simply due to the carbon tax being paid somewhere along the line and all the proceeds of the tax are shared out equally, socialising the cost, right? But this will be true only if no one changes their behaviour and this is obviously not the point of the policy!

              The person in our example might choose at this point to switch to biofuel to save himself $5 per month. But note that the cost of running a car is still $35 more per month than before the tax was introduced even though *zero tax is being paid now*. In isolation this might be fine but throughout the economy everyone would be influenced by the same incentives. So the total amount collected, and redistributed, through the carbon tax would actually be *less* than the total increase in the cost of living produced. The remaining additional cost – all those $35 and the like — would never be redistributed.

              If the tax was to be genuinely effective at single-handedly causing the economy to switch to (pre-tax) more expensive low-carbon alternatives it would, in this sense, come at a cost to the average person. I’m sure there are other nuances but it would not be win-win for most as portrayed: the social cost of carbon would have to be weighed against the social cost of the tax.

              That was my understanding.

              • Transformer says:


                To extend your example a bit, if the person stops using regular unleaded (so avoids the tax altogether) while rich people continue to use regular unleaded and pay the tax, and our person then gets a share of this tax (only paid by rich people) back as a rebate then he is now paying less tax overall.

                I think that Bob’s point is that this is not the right way to look at it since any tax rebate he gets back is likely less than his loss for having to pay $135 a month for biofuel.

                And my point is that if the case for the carbon tax is valid then paying $135 a month for biofuel in exchange for a future gains from less global warming is something that by itself increases his utility (if he is representative of society) and any tax rebate is an added bonus.

            • Tuppenceworth says:

              > To extend your example a bit… etc
              [The reply to my reply]

              That sounds okay, because you are acknowledging that there *are* increased energy cost effects for everyone but that’s certainly not how it’s being presented at all:

              > “The majority of American families, including the most vulnerable, will benefit financially by receiving more in “carbon dividends” than they pay in increased energy prices.”

              And this claim has nothing to do with the climate-related effects compensating everyone in the end, it purely considers the change in energy prices versus dividend payments. So I understood Bob to be calling out that this claim is false if the policy actually works as intended. The “most vulnerable” Americans would likely pay more as a result of increased prices than they receive in dividends. I think this is the sleight-of-hand but there’s a chance I have it all wrong :).

  2. Transformer says:

    ‘Right now, would you, the reader, agree to a deal that raised prices by the percentages I outlined above, even if you got an extra annual check for $550 to help compensate you?”

    Either the carbon tax appropriately addresses an externality and is a net benefit to society or it is not.

    If it is a net benefit then the way it works is that the carbon tax will lead the economy to produce (and price appropriately) a superior bundle of goods than with no tax. Some relative prices will increase (for those goods that use lots of carbon in manufacturing) and some relative prices will fall (those that us little carbon) but on balance the average person will be better off. This will be optimized if the tax is revenue neutral.

    To use an argument along the line of “wow – look at how much the price of coal would rise with a carbon tax – how could anyone support than!” seems a bit misleading to me.

    • Tel says:

      … but on balance the average person will be better off.

      The average person has one testicle and one tit.

      Obviously some people are better off and others are worse off and many people have no idea what effect CO2 will have in 50 years time. There’s a whole spectrum of possible gains and losses which we could average any way we like.

      • Matt M says:


        And if we do a quick thought experiment and form a mental picture of the sort of person who is made much worse off when the costs of motor fuel, electricity, and heating rise significantly, and compare it to a mental picture of the sort of person who is made much better off when the costs of everything “green” decline – which of those two people do we suspect more closely matches the working class family, and which matches the wealthy plutocrat?

  3. Tel says:

    Does anyone really believe that in this political climate, with a massive federal debt that is projected to grow by more than a trillion dollars next year, that the federal government will install a gigantic new tax and not touch any of the incoming receipts?

    No, there is not one single person who believes that … but very often politics operates by mutually consensual delusion. For example, the belief that Deferred Action on Childhood Arrivals ever represented some sort of action to happen in the future. The belief that if Congress does not authorize funding then no funding can happen (Obama proved that one wrong with his top-up payments into the Obamacare system).

    … a new tariff of 100% on all Chinese imports, but that the proceeds from this new tax would be sent lump-sum to every American citizen. Would the economists who signed the WSJ letter then agree that “most American families” would benefit financially from the tariff? …

    There would be no money to redistribute because no one would pay the tariff at 100%. This is Laffer Curve stuff (also any power transfer impedance matching equation you care to name).

  4. Andrew in MD says:

    Dozens of heavy-hitting economists have sent a letter to the WSJ, praising a bipartisan revenue-neutral carbon tax that halts climate change, eliminates inefficient government regulations, and makes most families richer. It would be more fitting for Nobel laureates in literature to pen such a plea, because it’s based entirely in fiction.

    Sick burn, Murphy.

  5. Andrew in MD says:

    “To reduce carbon emissions to the levels that we desire is going to be so burdensome and difficult that any talk about dividends or border adjustments is frivolous. You are going to feel the pain for decades. In truth, it will never go away until you resign yourself to the new normal, of washing your clothing by hand and eating raw potatoes for supper.”

    Hmm, you know Murphy, I don’t think that message would be as palatable to the masses.

    • Harold says:

      ” of washing your clothing by hand and eating raw potatoes for supper.”

      This shows us who the real alarmists are.

      • Andrew in MD says:

        Please tell me you’re trolling.

        • Harold says:

          No, raising a very important point. It is important to recognise who is being alarmist. No proposed change would prevent cooking.

          • Tel says:

            Cooking only for those who can afford the electricity.

            Denmark, Germany, Belgium with their renewables are more expensive than most African nations.

            • Harold says:

              Are you suggesting that children growing up in Germany won’t know what cooking is?

              • Tel says:

                You are exaggerating what I said … but basic laws of scarcity dictate that when there’s a shortage someone misses out.


                Yes, the Australian Energy Market Operator has officially declared us a third world nation with a semi-regular electricity rationing system in place. Without notice you can get switched off for several hours any time they decide they need to reduce load. It happened recently to the suburb down the road from myself. There’s quite a number of documented load shedding events during the last few years in NSW, South Australia and Victoria. You could be cooking, watching TV, playing your favourite video games, or just running the air-conditioner, but whatever you want to be doing you won’t be doing it with electricity once you are in turn for the rationing blackout.

                This is not a joke. This isn’t some fruit-loop conspiracy theory. This is a stone cold official statement, and the process is already underway.

                The South Australians dynamited Playfield power station at Port Augusta. The Victorians shut down Hazelwood power station. NSW has slowly allowed Liddell power station to age with minimal maintenance such that it cannot run all generators anymore and is scheduled for complete shutdown. The population of the major East Coast Australian cities is growing at approx 3% P/A (mostly growing due to immigration, because long-term Australian families cannot afford to have enough children to replace themselves). Despite the population increase, available electricity supply is going backwards. Get an economist to explain what gonna happen here.

          • Andrew in MD says:

            I expected as much; I’ve never taken you for a troll, Harold. It’s just that, to read your statement as earnest requires me to assume that you are impervious to humor, and exaggeration, and consequences. It fills me with dread just to imagine such a frame of reference.

            But since you are earnest, Harold, that there is not a single proposed change, or combination of changes, that would prevent humans from cooking, please enlighten us: What form of cooking is feasible on a mass scale, carbon-neutral, and non-nuclear?

            I can’t help but think that, if our ancestors had been as committed to carbon-neutrality as are modern leftists, we never would have adopted any method of cooking to begin with. Luckily for us, those ancient dwellers of caves weren’t so afflicted with anti-carbonism as are we.

            • Matt M says:

              Here’s CNN asking whether or not eating bugs is the solution to climate change.


              Although, in fairness, they do not go so far as to imply that the bugs may not be cooked!

            • Harold says:

              ” requires me to assume that you are impervious to humor,”

              I don’t know what is going on here. My post was intended to be humorous. I was making a serious point through the use of humour, which falls a bit flat when you have to explain.

              I find it amusing as well as informative that people that are up in arms accusing “alarmists” of exaggerating the ill effects of climate change are themselves guilty of exaggerating the ill effects of carbon reduction measures, thereby making themselves just as guilty of alarmism.

              Just as people rightly take the piss out of the one climate scientists who said children in the UK would not know what snow is, they should also rightly take the piss out of people who say carbon taxes will prevent cooking. However, I notice a leap to the defence of one and not the other. Why is that?

              On a small point of detail:
              ” we never would have adopted any method of cooking to begin with.”

              I am pretty sure cooking for almost all human history entailed the use of wood, which is carbon neutral.

              • Andrew in MD says:

                “My post was intended to be humorous.”

                So you were trolling!

                “. . . they should also rightly take the piss out of people who say carbon taxes will prevent cooking.”

                I haven’t heard of this man you describe. Did you check that he wasn’t made of straw? Am I correct to infer that you haven’t clicked through to read Bob’s article in response to the “Green New Deal”?

                “I am pretty sure cooking for almost all human history entailed the use of wood, which is carbon neutral.”

                That is quite a surprise. How have I never before heard the suggestion that we could greatly mitigate the climate crisis by converting all of our coal fired power plants to wood fired power plants? I have to admit, that sounds counter-intuitive to me.

              • Harold says:

                The cooking quote is in the comment I replied to. The new normal of eating raw potatoes for supper. Who said that? I could not find the quote.

                If you want to know about using wood for fuel check out Drax power station. It is UK s largest coal power station now using wood. There is controversy because the wood comes from the USA but the principle of wood being carbon neutral is sound.

              • Harold says:

                A link for you regarding carbon negative power.


                “So you were trolling!”
                Out of interest, what is your idea of what a troll is?

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