JOHN HUMPHREYS AS THE TRIANGULATER FROM HELL.
So here is Humphreys trying to argue, unsuccessfully, that the carbon tax will not do much harm since he now says it will be ineffectual. His argument that it would be ineffectual is idiotic and wrong. Its a static argument as usual. Humphreys makes static arguments that don’t include time and capital spending in their reckoning.
But he makes the argument that a carbon tax will be ineffectual here. No doubt he will tell the alarmists that the carbon tax would be powerfully effective. Which of course it will be. Its powerful effectiveness will come from misdirecting investment funds and from destroying wealth and energy production.
But Humphreys will have it that it will be powerfully effective at reducing CO2 AND!!!!!!! that it will be a marvellous revenue raiser allowing substitution away from other taxes.
BUT IT CANNOT DO BOTH OF THESE THINGS AT THE SAME TIME.
As the malinvestment and the wealth destruction continues, the effectiveness of this tax as a revenue raiser must reduce. Hence as time goes on we get more and more economic damage proportionally and in comparison with less and less government revenue. Until such time as the level of damage as a numerator over the amount of revenue as a denominator leads to an awesomely high figure of economic wreckage as compared to revenue raising.
So we see that John fucked up incredibly in his analysis. Since he only thinks static-equilibrium and final goods output.
He never thinks of TIME and the flow of CAPITAL GOODS SPENDING.
I really must labour this point. Carbon tax will be a massive wealth destroyer immediately. But you can expect it to raise some revenue at first this is true. As the destruction of wealth and the malinvestment continues the carbon-taxes effectiveness as a revenue raiser reduces.
Here are other bits and pieces I’ve written on this one point and it will be repetitive but its most important that people absorb the reality of this. John makes foolish assumptions every step of the way. But even assuming that carbon tax revenue will lead to income tax reductions (which it won’t) his argument is STILL totally flawed:
Carbon tax starts off even worse than a tax on retained earning right from day one FOR REASONS EXPLAINED CAREFULLY (YOU PATHETIC LIAR) but it just gets worse dollar for dollar. Since as the carbon tax does more cumulative harm it raises less and less revenue.
You have placed yourself in the same ignorant camp as Nick Gruen falling for his own computer model on the alleged benefits of tariffs.
If we put a tariff specifically on Chinese consumer goods only, and substituted that tax by cutting a tax on retained earnings at first we would have a net gain (from a likely capital accumulation response point of view) so long as the Chinese didn’t retaliate. I would never make naieve assumptions like this but you seem to love naieve assumptions.
Since the one tax is less bad at first then the other, for wealth creation purposes, we would likely have a gain in growth. But here is the thing. The longer the tariff was left on (elasticities must relate to a time period DUMMY. In the long run all virtually all demand curves are elastic) the less revenue it would raise and the more investment distortion it would create. Hence in the long run we would get all the damage without the tax substitution (bear in mind there is no such thing as this tax substitution).
So what might seem like a good idea at first is a disaster and the fact is there is no getting away from the need for spending cuts. Spending cuts are what we need to use for revenue problems and not really bad new taxes.
So in the same way this carbon tax cannot be seen as a direct substitution tax raiser. In the final analysis you will have all of the damage and very little of the revenue. Massive amounts of punitive damage and no revenue raising. In fact a destruction in the revenue generation from other taxes because of general wealth destruction and malinvestment.
This is not a bare assertion. The reasons are explained carefully. DON’T LIE ABOUT THAT SORT OF THING AGAIN HUMPHREYS YOU ECONOMICS KNOW-NOTHING.
We go through this cycle where Humphreys argues for his carbon-tax, is proved wrong, and then when he’s proved wrong he tells lies and does a runner. Then once again, after a brief pause he starts promoting the carbon tax again. This has gone on for two years now and if anyone reads what happened this time and can show he understands the argument I can track down another thread where the exact same cycle was repeated.
He also went through this cycle with Gerry Jackson. To cheering crowds of ignorant economists he argued against Gerry Jackson, got whipped, while our know-nothing economists ludicrously had him down for the win.
I explain everything absolutely clearly and if you think that Humphreys wins the argument you need to simply re-read and re-read until you get it.
Here is the thread where Humphreys was proven wrong totally and then did a runner: