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Source link: http://archive.mises.org/9326/false-hopes-for-tax-relief-and-fiscal-stimulus/

False Hopes for Tax Relief and Fiscal Stimulus

January 28, 2009 by

Obama’s tax cut does not shift resources into the private sector, as a true tax cut would. What Obama is proposing is deferred taxation. He wants to spend now and tax later. The Obama deficits will increase the interest payments by the federal government, draw money in capital markets away from private investment, and ultimately result in higher future tax rates. FULL ARTICLE

{ 40 comments }

ktibuk January 28, 2009 at 7:22 am

I think, people behind this “tax cuts” mostly know that it is a tax deferrement.

Since they are parasites they think like parasites. Smart parasites. They think if they stop sucking blood for just a while the host organism can grow and there would be more blood to suck in the future.

The problem with this is they ignore the malinvestment that was caused by the previous inflation. Which is like a virus that also harms the parasite.

Since they don’t let the liquidation take place (get rid of the virus) the host organism will not grow enough in the future to compensate for further tax revenues.

greg January 28, 2009 at 7:38 am

Yes, we need tax cuts. But more important, we need spending cuts more.

We need to look within to solve our problems than to look to the government. There are failures in our market that need to be corrected to allow the markets to repair themselves.

- Eliminate mark to market
- Create an open market to trade toxic assets
- Write down loans to borrowers
- Adjust interest rates down to borrowers

We just need to stabilize housing to get the public feeling good again and the markets will follow.

Rhys Swanberg January 28, 2009 at 9:32 am

At what point will this Ponzi scheme finally crash? You can’t keep increasing spending through borrowing, especially when your current income (taxes) are falling. At what point does the whole thing come tumbling down? The only thing the government can do in the future is either raise taxes, significantly, or devalue the dollar, significantly. Either way, we are all going to pay through the teeth.

Eric H January 28, 2009 at 10:02 am

Who does the illustrations and graphics for the daily articles? They are doing a really great job; I just wanted to voice recognition and appreciation for that. The images tend to be real eye-catchers, and I love how they look when I post links on social networking sites that pull in the images. It’s my opinion that these help draw attention to the posted links when they show up to friends, and we all know how important it is to get people to view the content from this site.

Ned Netterville January 28, 2009 at 10:40 am

Definitely! But as a devotee of tax elimination, I need reminding now and then that deficit spending is taxation on the credit card or installment plan, and thus considerably more expensive than current taxation because of the interest charges. It is also more immoral than the outright theft that is current taxation because it takes some of the cost from vote-less and thereby defenseless future taxpayers who are currently too young to be at all responsible for today’s deficit spending, yet who will nevertheless be made to pay the cost–with interest.

Obama’s stimulus-schmimulus (that’s Yiddish for dumb) plan is pure Keynesian, which, although Keynes would have denied it, is the slow road to the utopia Marx envisioned meant to avoid the necessity of a bloody revolution. Krugman, an unrepentant Keynesian, is all for Obama’s plan even though he knows it will fail its purpose of economic recovery because he knows that when it fails the next likely step by Obama will require measures that take us further along the road to perdition (aka, socialism). Many Keynesians are already recommending the nationalization (socialization) of banking and financial institutions.

I have an article on Barack and Keynes and Krugman on my website entitled “Barack Almighty,” which enlarges on this theme. It can be found at: http://www.jesus-on-taxes.com/BARACK_ALMIGHTY.html

Mike Tabony January 28, 2009 at 10:47 am

The Federal Income Tax should be replaced by a fossilized carbon tax phased in over three years. After three years the tax rate should be $.20 per pound of fossilized CO2 released to the atmosphere from ANY end-user of fossilized carbon. Therefore, even the producers (i.e. refineries) would be taxed for the fossilized carbon they released in producing consumer petroleum products. At the consumer end this tax would increase the price of a gallon of most liquid fossil fuels around $2.20 and a kwh of coal generated electricity about $.20. This restructuring of the tax code would go a long way in encouraging the transitition from a fossil fuel based economy to a sustainable economy based on renewable energy sources.

In addition, any other greenhouse gas (i.e. methane) containing fossilized carbon should also be taxed if released to the atmosphere.

Until humanity conquerors its dependence on fossil fuels, it can never hope to be sustaining over the long term.

geoih January 28, 2009 at 10:52 am

Quote from Mike Tabony: “After three years the tax rate should be $.20 per pound of fossilized CO2 released to the atmosphere from ANY end-user of fossilized carbon.”

Why $0.20 per pound? Why carbon? What is a “sustainable economy based on renewable energy sources”?

LightOfLiberty January 28, 2009 at 11:03 am

Yet another great article about the folly known as the economic stimulus plan. Spend first, pay (tax) later. It’s analogous to taking out a huge mortgage on a fixer-upper on swamp land. There is NO good ending. Isn’t this the kind of thinking that got us into this mess? If the DC wizards think that using poison as an antidote to poison works, then if for rougher waters ahead.

So, the citizenry who supported the tax-mongers shouldn’t react with shock and disbelief when their tax-deferred or tax-free retirement accounts are subject to even higher confiscatory rates. I PREDICT that the tax-deferred/tax-free private retirement accounts will be abolished within the next 20 years…just in time for another generation (Gen-X) to clean up the mess caused by the so-called patriots of the USA (Useless Socialism of America).

Mike Tabony January 28, 2009 at 11:39 am

#

Why $0.20 per pound? Why carbon? What is a “sustainable economy based on renewable energy sources”?

#1 Good round number.

#2 Not any carbon, fossilized carbon. Fossilized carbon is being removed from the Earth to fuel our machines. In doing that the fossilized carbon is being released to the atmosphere where it interfers with the infrared radiation being emitted by the Earth. The CO2 causes some of that emitted radiation to be absorbed by the atmosphere or reflected back to the Earth’s surface. Both of these processes cause the Earth to warm and this causing massive changes in the environment of the Earth. Since the Earth is a gigantic heat sink this change is taking a long time but the damage will also take a long time to undo. That’s why “fossilized carbon”.

#3 An economy which is based on an energy source that does not have a very limited period of use or does not do so much damage to the environment that its use must be curtailed in exchange for a habitable planet. Using fossil fuels as a primary energy source of the economy is not sustainable over any meaningful time period. They are both limited in scope and, as shown above, are the major driver of global warming.

Pop-Pop Kona January 28, 2009 at 11:59 am

This stimulas package is so full of crap it’s astonishing that the Dems in congress aren’t ashamed. They’re so blatant in their corruption because they think they’re untouchable. We need to have an investigation into what happened with the banking bust caused by the housing implosion. Chris Dodd and Barney Franks should only be the first to be taken out in handcuffs.
We need less government NOT MORE!!!

Mike Tabony January 28, 2009 at 12:10 pm

If you guys want to do some massive spending cuts why not chuck about 3/4 of the military budget. That’s where the real money is, forget those illegal aliens and welfare moms. When you count in the wars we’re easily over one trillion dollars a year and Obama hasn’t said a thing about lowering any of that. Presently the US spends about as much on weapons as the rest of the world combined. Why? Are we that paranoid or are we just the servants of the military-industrial complex that Eisenhower warned us about?

Enjoy Every Sandwich January 28, 2009 at 12:16 pm

If you guys want to do some massive spending cuts why not chuck about 3/4 of the military budget.

I think you will find that most of the “you guys” here would consider that a good start. Most of us would deep-six the government entirely, which includes the military-industrial complex. The “Department of Defense” is wrongly named since it is only used for immoral aggression.

Joshua Park January 28, 2009 at 12:21 pm

If Krugman claims that every dollar currently spent by the government would multiply by 1.5, then wouldn’t we increase GDP by 50% if the government were to take all of our money and then “stimulate” us with it? How is he measuring GDP, anyway? If based solely on numbers of dollar-units, then the “helicopter method” would be much easier to implement. All they’d need is a printing press to increase GDP.

As for the Income Tax being replaced with a Carbon Tax… I think we’ve had just about enough social engineering from the federal government, thank you. Look at our current tax schemes and you’ll find that individuals are treated differently based on not only what they do with the money they earn, but how they shuffle their current wealth, their marital status, if they’ve chosen to have children, if they used to be employed by the military, etc. I’m certainly not interested in the federal government telling individuals that they should drive Smart Cars rather than trucks, or raise Carrots rather than Cattle, or produce (without tractors) cotton over wool.

A more equitable plan would be for the federal government to not be allowed to tax individuals or corporations at all. Instead, each member State in our Union should pay dues to the feds. You know, like an HOA. They provide us with services like common (not “national”) defense and diplomacy, and whatever other services are outlined in the Constitution. Each State would then have to decide from among its people how they ought to raise the money to pay their dues. If a carbon tax makes sense, say, to the people of Maryland, then they can go forward with it. If Oregon wants strictly a State sales tax, then that’s fine for them. The point is that the federal government has no business telling individuals how they ought to live their lives. At least if we restore power back to the States, then the local legislatures would be held more accountable than they already are.

Furthermore, if someone believes that the morally upright thing to do is to limit CO2 emissions, then a government mandate is not they way to make it work. It’s the same thing as forcing someone into a Religion. You can set up these rules on how to act, what to do, and how to spend your money… but unless the individual chooses to have a relationship with God and follow Him because of gratitude and love, then you have a mere structure and semblance of goodness, without it truly being in a person’s heart. The more someone (say, government) tries to force morality on a people, the less inclined they are to search deeper and take the external rules and enact an internal change. So it is with the climate situation. If you aim to make people care about the planet, you have to convince them from the inside out.

I, personally, think that the current climate change scare presupposes that there is any one “good” equilibrium of temperature. Why, for example, ought Georgia have hot, muggy summers? Why should North Dakota be so cold? How can we say that we know what is an “ideal” temperature for the Earth? Perhaps these past few centuries have been colder than ideal. I suspect that those in academia that have been measuring temperature fluctuations have taken their initial readings as a sort of arbitrary baseline.

In any case, if fossil fuels run out or if a more “green” technology becomes the more profitable, we ought to have a system that can adapt to these economic changes. If our current machines are built upon technology (combustion of fuel) that is inefficient, then we don’t need government to tell us so. The most adaptable economic system is the free market. Elite central planners cannot calculate what is truly needed.

greg January 28, 2009 at 1:08 pm

Cut the military 75%?

Imagine yourself sitting in a house with a couple terrorist with AK 47′s ready to storm the house. You have a gun with 10 rounds and someone comes in and takes 8 of them away from you.

You better be a damn good shot!

I Hate Taxes January 28, 2009 at 1:15 pm

Greg,

What the PHUCK are you talking about ?
The biggest threat to our country is not the terrorists, it’s CONGRESS !

Yeah, our liberal white house might just do that, take away all your guns and ammo and leave only with prayer and dialing 911 to defend yourself.

If we cut the military by 75% but let the people buy all the weapons they want, believe me, NO TERRORIST or foreign country will want to invade us with all the weapons lying around and a trigger-happy people willing to use them.

A Russian genral once said he would refuse to invade the USA just because of our 2nd amendment and all the guns lying around.

So yes, we can defend ourselves without the military.

Had passengers been allowed to carry guns in the 9/11 flights, the terrorists would have looked pretty stupid with their box-cutters.

And who would you rather fight, a couple of terrorists with AK-47′s or a complete swat team coming after your 10 rounds and shooting your dogs and your wife in the process ?

Ned Netterville January 28, 2009 at 1:32 pm

Hey Mike Tabony, welcome to Mises.org. You are obviously an environmentalist and rightfully concerned about the future of the planet. I think, however, you are going about looking out for Mother Earth’s welfare in the wrong way.

First, let me nod in agreement with Sandwich on the low regard for military expenditures among regular MIses visitors. We are way ahead of you on that one.

Second, on your suggestion of eliminating the income tax and replacing it with a carbon tax:I’m sure all Misians would concur with you on deepsixing the income tax, so we’re half with you, but we would not replace it with anything.

Mike, any tax proposal as a means of achieving any desirable objective is a mistake because it puts the solution in the hands of the government, which is the only entity that can enFORCE a tax.. Using environmental pollution as a good example, why would you even think to put clean up in the hands of the all-time worst planet trasher there ever was or will be. The United States government has certainly done more damage to the environment of the American continent than any entity not to mention what it has done elsewhere (Iraq, Hiroshima, etc.). Whoever is in second place behind the government is so far behind that neither you nor I can see who it might be. And the US government is probably less of a polluter than some other governments, as for example Russia’s or China’s. One would have to be insane to expect government to do anything positive for the environment or seek to clean up the planet through governmental regulations or taxation. Like the government’s current effort to fix the economy, anything government does to try to fix the Earth will only be counterproductive and end up doing far more harm than good. If you stick around here, and I hope you will, you’re sure to learn why.

Finally, I want to point out to you that every tax, on carbon or income or ice cream, ultimately relies on force for its collection. Now the use of force, which in the case of a tax involves the initiation of force against people who have done nothing forcible to deserve it, is not without consequences, many of which are unpredictable. One thing I think is certain, however, and that is that the use of force and violence in the conduct of human affairs begets the further use of force and violence. Just look at the current situation in Israel and Palestine to see an example of what I am talking about. As I see it, when you propose a tax you propose to initiate violence, which can ultimately lead to all out war. Why not try peaceful means of saving Planet Earth, and let someone else start World War III, which would more quickly and certainly destroy the planet than the worst-case scenario predicated on global warming. In other words, why not do something constructive through the productive private sector to improve the environment rather than working through the government, which only does two thing more efficiently than private enterprise, to wit: collect taxes and conduct wars.

Inquisitor January 28, 2009 at 1:37 pm

“If you guys want to do some massive spending cuts why not chuck about 3/4 of the military budget.”

Agreed. I hope you don’t think we’re conservatives…

Francisco Torres January 28, 2009 at 1:43 pm

The Federal Income Tax should be replaced by a fossilized carbon tax phased in over three years. After three years the tax rate should be $.20 per pound of fossilized CO2 released to the atmosphere from ANY end-user of fossilized carbon.

How would you measure CO2 emissions? Would a person or company have to get a CO2 emissions meter, or would the government supply those? What would be the impact of allocating resources to the manufacture of CO2 emission meters, and also, the impact in the economy of the system that would have to be created in order to process the huge amounts of data these data collectors would supply? Would or would not that cost offset any revenue expected from the so-called carbon tax, and would not that entice the government to simply raise the carbon tax to pay for the data gathering system and to obtain the revenue it seeks? Wouldn’t this approach, obviously designed to change behavior, actually reduce the expected revenue, when and if people started lowering their emissions? Wouldn’t the government, instead of considering this a success, simply raise the tax rate on emissions, with the obvious consequence that lower returns will be received when people reduce their emissions even further (to then point of economic collapse)?

Have you thought this clearly?

Therefore, even the producers (i.e. refineries) would be taxed for the fossilized carbon they released in producing consumer petroleum products.

Wanna bet on that??

At the consumer end this tax would increase the price of a gallon of most liquid fossil fuels around $2.20 and a kwh of coal generated electricity about $.20. This restructuring of the tax code would go a long way in encouraging the transition from a fossil fuel based economy to a sustainable economy based on renewable energy sources.

Two mistakes: One, is thinking that the cost of a tax goes straight to cost for the consumer in one sole product – you cannot predict that, because the cost of energy impacts production of capital and consumer goods as well. Such a tax could actually reduce profit margins for producers, thereby having to compensate by other means such as not hiring more people, layoffs, or moving to other less costly states or even countries.

In addition, any other greenhouse gas (i.e. methane) containing fossilized carbon should also be taxed if released to the atmosphere.

Methane does not contain fossilized carbon, only atomic carbon. You probably mean methane generated from mineral carbon, which is not the same thing. Also, methane is generated all the time by biological process and agriculture – would you suggest taxing food generation, as well?

Until humanity conquer[s] its dependence on fossil fuels, it can never hope to be sustaining over the long term.

This statement can only mean you do not understand economics. If and when fossil fuels become more difficult to obtain, then alternative fuel sources will become more attractive in the market. Why would you then be worried about “sustainability” is beyond me. However, it is clear the sustainability rhetoric is no more than a red herring; what is being advocated is simply to control people’s behavior in a coercive way.

Matt R. January 28, 2009 at 1:57 pm

There’s a good Op-Ed piece about the stimulus in today’s WSJ.

http://online.wsj.com/article_email/SB123310466514522309-lMyQjAxMDI5MzIzODEyMDg0Wj.html

It’s also nice to see a large number of economists banning together to voice their opposition to it.

http://www.cato.org/special/stimulus09/cato_stimulus.pdf

Joshua Park January 28, 2009 at 2:03 pm

Also, methane is generated all the time by biological process and agriculture – would you suggest taxing food generation, as well?

Uhh… Google “fart tax”. It’s scary real.

Francisco Torres January 28, 2009 at 2:12 pm

Not any carbon, fossilized carbon. Fossilized carbon is being removed from the Earth to fuel our machines. In doing that the fossilized carbon is being released to the atmosphere where it [interferes] with the infrared radiation being emitted by the Earth. The CO2 causes some of that emitted radiation to be absorbed by the atmosphere or reflected back to the Earth’s surface.

So does water vapor.

Both of these processes cause the Earth to warm and this causing massive changes in the environment of the Earth.

What “massive” changes? You mean Earth is like Venus now?

[Sustainable is] an economy which is based on an energy source that does not have a very limited period of use or does not do so much damage to the environment that its use must be curtailed in exchange for a habitable planet.

Why is sustainability important? If the fuel source is limited, why would that matter? In ancient times, olive oil was used to light lamps, now we use petroleum or natural gas, and when these become more expensive to exploit, other alternative energy sources will be more attractive, like nuclear fission energy.

Using fossil fuels as a primary energy source of the economy is not sustainable over any meaningful time period. They are both limited in scope and, as shown above, are the major driver of global warming.

You beg the question on both counts. First, if usage of fossil fuels is not “sustainable”, what do you have to worry about? Fossil fuels will become too scarce to compete with other alternatives. You assume that sustainability is an objective economic outcome, when in fact the concept is a red herring – what’s “sustainability”, what does it mean? Saying that it “damages the environment” becomes nothing more than rhetoric, since you cannot define the damage or the scope (the concept being too general); you just use it as an emotional recourse.

Second, the problem is not Global Warming per se (the globe WILL warm as it WILL cool, and warm, and cool, and so on), but so-called Anthropogenic Global Warming, which is in dispute, so much so that politicians have resorted to shift the focus by calling it “climate change” (another red herring), in order to make people believe that normal climatic phenomena are indicative of a man-made calamity. You beg the question by asserting that fossil fuels must not be used by assuming that usage of fossil fuels leads to Global Warming – you cannot argue that.

Mark January 28, 2009 at 2:13 pm

Why not realize the fraudulent nature of our current monetary system and work to start a new world without money at all? How about a resource economy as presented in Zeitgeist Addendum – http://video.google.com/videoplay?docid=7065205277695921912 – Is it time to understand that we have enough abundance for all people to live in and that our need for a monetary system is outdated?

In our current system does it really matter in which direction we go if in the end we have a forgone conclusion that we will be forever in debt in this global Ponzi scheme of interest that can never be paid back?

Francisco Torres January 28, 2009 at 3:01 pm

Mark,

The reasons for the existence of the current monetary system are two: Making fractional bankers rich, and taxation.

Leaving people alone to pursue their own interests, bankers would have to maintain full reserves of whatever people choose to trade with, be it gold, silver, cocoa beans, cigarettes or canned mackerel . . .

Mark January 28, 2009 at 3:16 pm

Francisco,

So are we not in fact spinning our wheels regardless of which economic side of the fence we are on?

How does the Austrian model make a difference if it does not purport a systematic change? It seems that most of the articles here are in reaction to what is going on rather than pointing the way to a entirely new system. Is a revolutionary thought needed or do we just argue from whichever side we sit?

Mike Tabony January 28, 2009 at 3:40 pm

Ned,

Have been an environmentalist for many years and was a Libertarian from around 1979 till 2003 when I had an John Nash moment, see “A Wonderful Mind”, and determined that the group’s best interest is not necessarily realized by each individual acting in his own best interest. I didn’t go home and study game theory but I did come up with my own set of political requirements, one of which was “I will treat others as I would like to be treated.” Yes, the Golden Rule but not part of the Libertarian Creed. So I moved on. All the rules are:
1)I will take responsibility for my life.
2)I will treat others as I would like to be treated.
and finally,
3)I will allow my elected representatives to do nothing for me that would conflict with 1 or 2.

I call it “The Responsible Party”

Francisco,

First question. Tax the fossilized carbon as it is being produced and let the producer pay the tax and pass on that expense to the customer. No emission meter necessary just a production meter which all of the producers already have.

Second point. What the producer uses to refine the product he’s already paid the tax on because it’s paid on production at the wellhead or coal mine gate.

Third point. You’ve made my point. I do want to reduce the use of fossil fuels and I use the elimination of the income tax to get us along that road. Since we are fans of non-human energy doing our jobs I’m sure this tax substitution will be a great stimulus to alternate energy.

Fourth point. Methane (CH4) may well contain fossilized carbon if it is in natural gas. It is carbon that has been buried in the Earth for millions of years and is now being pumped into the atmosphere that is the big concern, not cow farts. Cow farts and wood fires release carbon that has been in the atmosphere or biosphere within the last century unless you’re burning thousand year old redwoods or Joshua trees.

Fifth point and last I’m going to address here. I’d love to wait till the fossil fuels run out to make the switch to alternative forms of energy but by the time we burn all the petroleum and coal we’ll have an atmosphere that is so warm that that other greenhouse gas, water vapor, will become the most dangerous one and Earth will take on many of the characteristics of Venus. And the biosphere will be toast.

Ned and Francisco,

I’ll take a tax change over a toasted biosphere any day.

Francisco Torres January 28, 2009 at 3:54 pm

How does the Austrian model make a difference if it does not purport a systematic change? It seems that most of the articles here are in reaction to what is going on rather than pointing the way to a entirely new system. Is a revolutionary thought needed or do we just argue from whichever side we sit?

There are many Austrian arguments against the current fiat monetary system, Mark, and the solution proposed has been mentioned and espoused innumerable times, which is: Let people decide what currency they accept and want to use, even if it is no currency at all.

Chris J January 28, 2009 at 3:55 pm

Mark,
I think Francisco answered your questions with “…would have to maintain full reserves of whatever…”

Money should be treated as something scarce and real that can’t be created out of thin air. If the abolition of fractional reserve lending is not a systemic change I don’t know what is.

Start a world without money at all? How can I express my preferences without some representation of value? Scarcity is real and really unfair. How about a world without government monopoly money?

Mike Tabony January 28, 2009 at 4:52 pm

Error in my movie title that I referenced a couple of entries back. It was not “A Wonderful Mind” but the movie title is “A Beautiful Mind”. Sorry about that.

Francisco Torres January 28, 2009 at 5:34 pm

Mike Tabony,
First question. Tax the fossilized carbon as it is being produced and let the producer pay the tax and pass on that expense to the customer. No emission meter necessary just a production meter which all of the producers already have.

Mike, you need to be aware that there is a structure for productive endeavors in an economy. The producers of petroleum based products do not simply pass costs directly to consumers since consumers would not be the end users always. Most of petroleum based products are used by producers themselves, and such artificial hikes in the cost of energy affects producers first before they affect consumers. You may find it lovely and cuddly to tax carbon, but you do not realize the ripple effect of this intervention, which could become evident in the form of unemployment and higher costs of other seemingly unrelated goods. Also, it would certainly NOT reduce the demand for petroleum based goods as long as the market (that is, everybody) knows the extra cost is NOT a reflection of scarcity. For instance, the extra taxes on cigarettes have not slowed down the demand for cigarettes because people know they are still abundant – smokers simply allocate more of their resources to pay for their habit. The price system is also a knowledge system.

Second point. What the producer uses to refine the product he’s already paid the tax on because it’s paid on production at the wellhead or coal mine gate.

In my experience, such transferable taxes do not stay “transferable” for long, giving place to double taxation. Since there is nothing noble or moral about taking people’s money away, whoever taxes knows he can get away with taking more without remorse.

Third point. You’ve made my point. I do want to reduce the use of fossil fuels and I use the elimination of the income tax to get us along that road. Since we are fans of non-human energy doing our jobs I’m sure this tax substitution will be a great stimulus to alternate energy.

First, whatever you want is not going nor has to be the prerogative of others. Second, I do not understand why you brought up that humans are fans of non-human energy – do I sense some sort of pro-backbreaking effort chauvinism from your part? Third, the tax will not stimulate other alternative energy sources, it will simply make them less affordable. Let me explain why:

The economy is driven by savings and investment. In order for investment to exist, there must be savings. In order to be savings, people need to consume less. People normally save by not consuming things that are less valuable for them than more valuable, i.e. they forgo luxuries and keep necessities. This is true even in a credit-oriented culture, since debts must be repaid.

If by artificial means you raise the cost of energy by taxing fuels, people will have to shift resources from other expenditures they were planning or from their savings, in order to compensate. This will diminish overall savings. The reason for this is because people are already committed to a certain standard of living and living quarter location (i.e. their HOME). They require fuel to move to their destinations or to heat or cool their homes. Since people value this standard of living, they will simply shift their resources (foregoing savings, for instance) to keep their standard of living in the same level. This will mean they will keep driving to work in their cars and heat their homes, just paying more for it. It will also mean that people will not have surplus resources to allocate to savings, or will have less savings. Without savings, people will not be able to invest in new and more efficient cars or heating/cooling systems, and will have to forgo such expenditures.

Savings are important for investment because capital creation relies on the availability of savings, that is, capital creation requires the pooling of savings from individuals in order to apply them to productive projects. Let us say that with the new incentive for alternative energy available, a company wants to place a windmill farm. If savings have been lowered thanks to the cuddly carbon tax that everybody has to pay (petroleum or carbon based fuels being so ubiquitous), where will the company obtain the necessary capital to do this?

Ok, you would say: That’s what government is for. Except you have the same problem – government does not create wealth nor does it have wealth of its own. It takes wealth or capital from productive people and allocates it according to political needs. This means that government will raid people’s savings, leaving not enough capital for projects. This is regardless of the type of tax the government chooses to impose. If the government decided to subsidize alternative fuel projects, it would do so in detriment of other potentially profitable (i.e. economically sound) projects, and making people poorer to boot by taking their savings and by making them forgo other expenditures that raise their quality or standard of living. The end cost of the alternative energy project is being paid twice by people, in the form of higher prices and lower savings. Even if you have the first alternative energy system online, people would already be poorer for it, not being able then to afford it – they would STILL fuel their cars now that they cannot afford to change them to electrics (alternative energy not being as ubiquitous as carbon based energy and lack of savings create a credit crunch), and would still heat their homes with their older systems now that they cannot afford to change them. They would simply stop purchasing other necessities, stopped saving or both. The supposed advantage of alternative energy systems will not be evident, even if part of the consumers were convinced of its Earth-saving potential. In the end, most would not care, making it more difficult to sell them the idea of more of such systems.

In order for alternatives to be viable, they must come after people have had a chance to increase their savings and also giving the market a chance to make the offer of alternatives more affordable and attractive. If that means weaning out of fossil fuels due to their increased scarcity, so be it. Trying to make things happen fast would be counterproductive.

Fourth point. Methane (CH4) may well contain fossilized carbon if it is in natural gas.

Ok, first, CH4 IS natural gas. Again, you mean natural gas that came from carbon deposits or underground deposits, even though natural gas is also produced by biogenic decomposition at formidable rates, in nature. The point is that these gases represent such a tiny fraction of the atmosphere’s composition, that the worry about them as “greenhouse gases” seems like unwarranted exaggeration.

Fifth point and last I’m going to address here. I’d love to wait till the fossil fuels run out to make the switch to alternative forms of energy but by the time we burn all the petroleum and coal we’ll have an atmosphere that is so warm that that other greenhouse gas, water vapor, will become the most dangerous one and Earth will take on many of the characteristics of Venus.

You’re exaggerating. And, you’re wrong. Consider, the primitive Earth’s atmosphere contained much more methane and CO2 than today, yet life sprang, evolved and thrived. Also, you assume a rate of consumption of fossil fuels equal to today’s, without taking into account increased efficiency and cost lowering efforts by the market. This is the same problem with the much touted climate models: they assume a level of economic and technological advancement that’s similar to 10 years ago.

I’ll take a tax change over a toasted biosphere any day.

I prefer not to base my decisions on that false dilemma.

Pete January 28, 2009 at 8:36 pm

Very good article. I haven’t had time to look into this “stimulus” package, but when I heard about tax cuts…trust me…I almost already knew the Government wasn’t going to cut back on any spending habits. I’ll be looking back in a few years and laughing at all of the people that support this thing (although I’m laughing pretty hard right now).

I almost feel like we need a complete collapse for anyone to look our way and realize Government is NOT the answer to the economy.

Great post again…keep up the fight!

Mark January 28, 2009 at 8:43 pm

Francisco,

Thanks for the clarification.

Chris,

Yes how to start a world without money, a question worth the thought.

Ben January 28, 2009 at 9:03 pm

Is it possible a placebo effect could exist? If people think this is a good idea it could work.

Or am I hopelessly optimistic?

Mike Tabony January 28, 2009 at 10:38 pm

Francisco,

You stated, “Also, it would certainly NOT reduce the demand for petroleum based goods as long as the market (that is, everybody) knows the extra cost is NOT a reflection of scarcity.”

Are you saying here that cost does not affect demand? Because if you are, your economics does not fit the models I’m familiar with.

You stated, “the extra taxes on cigarettes have not slowed down the demand for cigarettes”

Do you have any information to back up this statement? And it’s interesting that you bring up cigarettes as they were another great market failure because like fossil fuels today, the cost of using them was thrown onto society as higher medical costs while the benefits went to the producers. Thanks.

You stated, “If by artificial means you raise the cost of energy by taxing fuels…”

Remember, I started this whole thing by saying the income tax should be replaced with the carbon tax. I, like you, do not want to place additional burdens on my fellow citizens. I, perhaps unlike you, do wish to provide an economic incentive to my fellow citizens to replace fossil fuels with other forms of energy because of the affects of using fossil fuels. I’m sure in a straight up vote many citizens would chose to substitute the carbon tax for the income tax.

You stated, “If savings have been lowered thanks to the cuddly carbon tax that everybody has to pay (petroleum or carbon based fuels being so ubiquitous), where will the company obtain the necessary capital to do this?”

From the income tax the investors didn’t have to pay. And they’d have the additional incentive to save even more for the windmill because it would lower their carbon tax even further in the future. Hell, they’d probably build an extra one and sell the power to their neighbors who would then, happily, not have to pay a carbon tax.

You stated, “They would simply stop purchasing other necessities, stopped saving or both.”

I believe I have a bit more faith in the ability of the citizenry than that. They would figure ways of making the income tax they didn’t have to pay lower their carbon tax even more. And in doing so, they would reduce (and finally eliminate) the carbonization of the atmosphere, saving the government (and thereby themselves) enormous amounts of money in the future when the effects of fossil fuel use become more prevalent in a warming world.

You stated, “You’re exaggerating. And, you’re wrong. Consider, the primitive Earth’s atmosphere contained much more methane and CO2 than today, yet life sprang, evolved and thrived.”

Am I wrong? Everyday, I hope I am. Are you ready to return to the Carboniferous Period with 6+ billion other human souls on the planet? Have you considered that those hundreds of millions of years ago the sun was a younger star and not as warm as it is today? Have you considered that the planet had thousands of years (not a very few hundered years) to adapt to the changes thrust upon it except in a few very dramatic instances when life here was almost extinquished? Then it took millions of years for life to again cover the Earth with its wonderful diversity. I suggest you study the probable affects of the present use of fossil fuels; there are plenty of excellent books and articles in the literature and more being added daily. I’m presently reading the EPA’s analysis of projected sea level rise on the Middle Atlantic States.

A final thought, the present economic straits we’re in was primarily caused by the loss of a few trillion dollars in real estate value. What will be the loss in real estate value when the populace realizes that most (all?) housing within a few feet of present sea level will be uninhabitable in a few years unless trillions more are invested in levees and other structures to keep the rising oceans away? Do I detect many more trillion dollars in real estate investment vanishing as citizens try to dump oceanside property for higher land? A “false dilemma”? You sure about that?

Dewaine January 28, 2009 at 11:01 pm

Avoid the necessity of those overgrown military establishments which, under any form of government, are inauspicious to liberty, and which are to be regarded as particularly hostile to republican liberty.

— George Washington, Farewell Address [September 26, 1796]

DS January 29, 2009 at 6:22 am

“….one of which was “I will treat others as I would like to be treated.” Yes, the Golden Rule but not part of the Libertarian Creed. So I moved on.”

What perverted reading of libertarian philosophy would lead you to such an odd conclusion? This is a distorted, cartoon version of libertarians created by those who don’t think man is worthy of freedom or those who just don’t understand libertarian philospophy.

” All the rules are:
1)I will take responsibility for my life.
2)I will treat others as I would like to be treated.
and finally,
3)I will allow my elected representatives to do nothing for me that would conflict with 1 or 2.”

Basically you want others to be coerced into behaving as you think they aught to behave. What makes you think others would like to be treated as you would? That’s quite presumptuous, don’t you think?

What on earth makes you think that your elected representative gives a crap about what you will “allow”? Because every 2 or 4 or 6 years you get to cast one vote in millions to decide whether he or some other like minded opponent, bought and kept by the same people, get to have the job of redistributing the productive output of the citizens and telling them what to do?

The naievete’ is breath taking.

What you are really trying to say is that you want an entity who has the power to legally commit violence to make people behave as you see fit. That doesn’t sound nearly so high-minded. But ultimately these elected representatives will choose how to use that violence as they please, not as you would wish anyway. So your not that dangerous to the rest of us after all.

Ned Netterville January 29, 2009 at 9:22 pm

Hey Mike Tabony, I too have been an environmentalist since I was a teenager in the 1950s, and I once was a Libertarian (viz., member of the LP) I remain a small l libertarian in the sense that I hold individual liberty in high regard, certainly higher than any expedient I can think of for sacrificing any part of it. But now I mostly call myself a voluntaryist, which is all about self-responsibility. If you want to know more about it: http://www.voluntaryist.com, and anything you can find written by Carl Watner, particularly the anthology he edited entitled I MUST SPEAK OUT. Other ways in which I describe myself are pacifist-anarchist, and disciple of Jesus of Nazareth, but don’t confuse that with membership in the Christian religion or any other sect or denomination.

Mike, you said these are your rules:
1)I will take responsibility for my life.
2)I will treat others as I would like to be treated.
and finally,
3)I will allow my elected representatives to do nothing for me that would conflict with 1 or 2.

I call it “The Responsible Party”

If you are serious about your rules, how can you propose a carbon tax or any other tax for that matter?
1. When you ask for a carbon tax, you are shifting your responsibility for the environment onto the government, and a very poor choice of agent you have chosen to carry out your duty, a heavy-duty polluter of the first order..
2. The Golden Rule as Jesus stated it precludes the use of taxation to accomplish your purposes, no matter how noble or base your purposes may be. I know that you don’t like paying taxes, so why would you tax others?
3. And how do you propose to control your elected representatives to that extent. In the United States as regards the federal government, it is likely that once you have elected a representative, you have by law surrendered control of him or her until the next election, and even then, you cannot in your own right even vote the bum out. The only way I believe you can live by your third rule is to become a voluntaryist. Don’t vote! Have nothing to do with the political process. Go to work in the one area where your work will definitely show results and where you will make a difference.

josh m January 29, 2009 at 9:41 pm

“…it would certainly NOT reduce the demand for petroleum based goods as long as the market (that is, everybody) knows the extra cost is NOT a reflection of scarcity. For instance, the extra taxes on cigarettes have not slowed down the demand for cigarettes because people know they are still abundant – smokers simply allocate more of their resources to pay for their habit.”–Francisco Torres

Francisco–I didn’t quite understand this either. Are you saying the shape of the demand curve for these products actually changes–becomes more inelastic– when the price is rise is due to artificially-imposed means as opposed purely market causes? From the consumer’s point of view, I don’t see what difference the cause of the price rise would make on one’s elasticity, thanks.

SouthPoly CDT January 30, 2009 at 7:16 am

Please take a few minutes to read the following reasons to not support the passage of the Stimulus Bill. First, please note these meaningful and helpful comments by a couple of Congressional proponents of this bill:

A quote from Obama’s Chief Economic Advisor, Robert Reich, in an address to the House of Representatives supporting Obama’s Stimulus Bill: “I am concerned, as I’m sure many of you are, that these jobs not simply go to high-skilled people who are already professionals or to white male construction workers.”

Following and supporting Mr. Reich’s address was Mr. Charlie Rangel, Chairman of the Ways and Means Committee who had this to say: “And one thing you can depend on, you don’t have to be worried about what the middle-class is gonna do. Things are so bad: They have to put food on their tables. Clothes for their kids. Get them in school. I think this is a tremendous opportunity for a stronger America.”

I myself am a white male construction worker and have been practicing the trade for over 10 years now (I am currently 25 years old). Shouldn’t my efforts and expertise over this time period make me eligible to receive government contracts in conjunction with the requirements my company already meets for such contracts? Wouldn’t buildings and bridges being constructed for the public be the safest and most cost effective if built by “high-skilled people who are already professionals” such as myself?

Moreover, why is this racist slander permitted in the halls of Congress and on national television with not so much as a word of reprimand from anyone present? If one were to state the same thing but substituted the word “black” or “hispanic” instead of “white”, that politician would be impeached and chased off Capitol Hill; we’d have weeks of marches and demonstrations; violence and looting ensuing in every metro area. In addition, publicly announcing that the middle-class (i.e. my family) is too busy working to stay afloat in a sinking economy that such racist comments and fiscally insane bill proposals will go unnoticed is borderline scandalous, deeply offensive, and downright iniquitous.

These same ‘public service’ agents oversaw and advised the GSE programs that awarded mortgages to people without the means to repay them and then knowingly sold securities based on those bad investments, leading the world into the current economic black hole. Looking at it from completely outside the box – we have a group of powerful politicians whose legislation sponsored a worldwide economic meltdown resulting in massive and widespread unemployment. Now their plan is replace some of those laid off with unskilled labor of any ethnic group other than Caucasian. That does not sound like the Unites States of America that I studied in high school history books, but rather the subtle attempt of a power grab by a dictatorial coup in a third world country. Let us as patriots and protectors of freedom keep the former from slipping to the latter.

The fact is – this is a country of AMERICANS. Not a country of blacks or whites or purples. Let’s help the AMERICANS as a whole get back on their feet and not exclude any group from financial recovery based on the color of their skin. But this bill is not about stimulating the economy, increasing consumer spending or unfreezing bank credit for businesses. This bill is about the Democratic agenda and helping special interest groups. It is nothing more than a wasteful spending bill cloaked as a stimulus package by fiscally irresponsible policymakers. Recent history, such as the 10+ years of the Great Depression or Japan’s “Lost Decade,” has proven without a doubt that the provisions included will not only do nothing (especially for white males out of the gate apparently), but prolong economic stagnation and suffering.

Please do what you can to stop the passage of this bill. Write/Call/E-Mail your representatives. Thank you for taking the time to read my thoughts.

James R January 30, 2009 at 11:59 am

Mike Tabony,

And it’s interesting that you bring up cigarettes as they were another great market failure because like fossil fuels today, the cost of using them was thrown onto society as higher medical costs while the benefits went to the producers. Thanks.

You’re wrong about that.

On average, over the course of people’s lives, states spend more money to provide health care for non-smokers than they do for smokers.

This is because smokers are essentially committing an extended form of suicide. As a result, they die much sooner than do non-smokers. And although smokers often require short periods of intensive medical treatments towards the ends of their lives (e.g., chemotherapy), non-smokers require much long periods of ongoing medical care towards the ends of their lives (e.g., years or decades of nursing home care).

As it turns out, the cost of providing sustained care over a period of multiple years quickly dwarfs the cost of short periods of intensive medical treatment.

The “settlement” against the big tobacco companies was an attempt—a successful one—by the states to extort money from the market in order to solve an immediate problem (budgets shortfalls). Sure, they’ve actually increased the overall cost of providing medical care into the next years and decades, but what do they care? They’ll all be out of office by then; that’ll be someone else’s problem.

(And, for the record, the big tobacco companies weren’t all that opposed to the settlement, as it represents a huge barrier to entry for any new small tobacco companies that might attempt to enter the market and compete against the big established companies.)

Whenever the State attempts to solve a problem, the result is inevitably the same: the State only occludes the original problem instead of solving it, while at the same time it creates a related series of much bigger problems.

I share your concern that anthropogenic global warming might be causing changes that will have negative long-term effects on our species and other species. But if this is indeed the case, the solution will come from the free market, not the State.

DW MacKenzie January 30, 2009 at 1:16 pm

To quote Tabony

“cigarettes as they were another great market failure because like fossil fuels today, the cost of using them was thrown onto society as higher medical costs while the benefits went to the producers. Thanks”

Are hamburgers and fried chicken market failures too? The idea that uhealthy habits ‘market failures is misleading, as the costs of such things are borne most directly by those who themselves die younger, and the imposition of health costs are most effectively imposed on others through taxpayer financed health care. Ever hear of the term “government failure”?

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