31 comments on “Quite

  1. Hah! I had to think for a few seconds to work out why I am in the intersection, along with Paul Krugman.

    I think at least part of the answer is that carbon cannot adjust its own marginal product, whereas labour has agency over its value.

    Owen

  2. Labour doesn’t have any agency over the need for labour though, not when you’re talking about people down at the minimum wage point.

  3. The propositions are not really inconsistent. Both measures will reduce the numbers of people in employment and make life more difficult for everybody else.

  4. “. raising the price of carbon…”
    Who buys soot? (or does he mean graphite/diamonds/buckminsterfullerine/graphene ?)

  5. … The general equilibrium effects of price changes differ across goods? And does Krug really believe zero effect on employment or just small

  6. People on the right believe that carbon taxes will reduce fossil fuel use – at a massive cost in human welfare.

    Fuel poverty, old folks freezing to death, energy-intensive businesses shutting down or moving abroad, poor nations being unable to develop, that sort of thing… Isn’t that the point?

  7. @ NiV
    Some people on what we consider to be the moderate right consider that carbon taxes will reduce fossil fuel consumption at very modest cost in human welfare. British cars have, for as long as I can remember, been more fuel-efficient than American ones, primarily because the UK imposes heavy taxes on petrol.
    Reducing waste is the first aim – and there is ample evidence of massive waste, such as lights left on all night in empty offices or empty motorways, heating turned up so high that those less able to tolerate tropical climates have to open the windows, air-conditioning turned up so high that other people wear sweaters …

  8. “Some people on what we consider to be the moderate right consider that carbon taxes will reduce fossil fuel consumption at very modest cost in human welfare.”

    Sure, if what you’re aiming for is a “very modest” reduction in FF use, that can be done at a very modest cost in human welfare. But according to the green catechism, modest reductions won’t accomplish anything. Zero emissions, or something very close to it, is required to keep the planet from going up in smoke.

    That is why the greens are so dead set against fracking for natural gas, even though it would immediately reduce carbon emissions. They want a zero-emissions naturalistic utopia, not the same old modern society with 15% less CO2 emitted.

  9. “Some people on what we consider to be the moderate right consider that carbon taxes will reduce fossil fuel consumption at very modest cost in human welfare. British cars have, for as long as I can remember, been more fuel-efficient than American ones, primarily because the UK imposes heavy taxes on petrol.”

    Is that a “modest cost”? Taxes on fuel increase the costs of transporting goods and hence the costs of stuff in shops. It increases the cost of commuting, driving property price differentials around cities. It increases public transport prices. It raises the costs of living for everyone. It makes marginal business opportunities dependent on transport unviable, with a knock-on cost on employment, other businesses that could use their services, and the availability of goods in the shops. It puts pressure on transport businesses, to the point where a few years ago they had to blockade the petrol stations as a protest against the government’s endless price hikes.

    All of this imposes costs on human welfare. It’s only because they’re not quantified and accounted for in one place we tend not to notice. We tend to accept it as just the way things are. We tend to assume that because life is tolerable with the fuel duties, that it’s not a major cost, and that life wouldn’t be hugely better without them.

    So who says they’re “modest”?

    “Reducing waste is the first aim”

    Sure. If it really is “waste”, when you take the costs on *both* sides of the balance sheet into account. What’s the human cost of pitch-black unlit motorways?

    And what price do you set on freedom?

  10. The price of freedom is eternal vigilance.
    However it is not freedom but licentiousness when someone demands the “right” to drive a gas-guzzler 4WD for short commutes in an inner city with narrow streets so that he/she ends up driving on the pavement when passing a bus or lorry.
    *I* say that driving a fuel-efficient family saloon instead of a Bentley or Range Rover is a modest cost. So would any sensible person (maybe Donald Trump wouldn’t but …).
    Either you believe in the Balls/Miliband magic money tree or you are just not thinking clearly. The addition to the cost is the total tax take, not one part of it: iwithout the taxes on petrol (and most of the transport for goods in the shop use diesel) then the government would have had to raise taxes from other sources and the amount of goods that people can buy with their net wages would, overall, actually been lower. Some OPEC governments volubly protested when the UK government’s response to a doubling in the price of oil was to raise the tax because it reduced their income to the benefit of British consumers.
    Tax on petrol has minimal impact on the cost of commuting by train; most of us use the train even though the marginal cost of driving into London by car would be lower.

  11. “And does Krug really believe zero effect on employment or just small?”: he believes in zero effect on employment of Krug. Which is all that really, really matters.

  12. “*I* say that driving a fuel-efficient family saloon instead of a Bentley or Range Rover is a modest cost.”

    And you have a perfect right to do so, and to drive the car you think best. I cannot tell you otherwise – that you *must* for example, drive a big heavy 4×4.

    But how come *your* opinion about what’s “modest” gets to decide what *I* am allowed to drive? Why not mine? Should people of my opinion gain power, should I be able to tax you into compliance with *my* views on what’s a right and proper lifestyle? My views differ. Would that be OK with you?

    Nobody of that ilk ever thinks there’s any harm to regulations when they’re being used to make other people do what they would want them to. There’s a word for it.

    Anyway, I wasn’t talking about the sort of person who can afford a Bentley, and only drives something smaller out of conviction. I was talking about the sort of person for who even the modest family saloon is still priced out of their range by fuel costs.

    “without the taxes on petrol (and most of the transport for goods in the shop use diesel) then the government would have had to raise taxes from other sources”

    … or lower spending.

    Why does nobody ever think of that one?

    “Tax on petrol has minimal impact on the cost of commuting by train”

    Tax on diesel, on the other hand…

    I know a fair number of people who have been offered good jobs, but have found that they cannot afford the rents near where they would work, and when you add in fuel costs to get to work from where they can afford to live it’s not worth doing. And there are no trains going where they want to go – if there were, the rents go up. London isn’t the only city, you know.

  13. @ NiV
    If you have to lie about what I said, that means that you believe that you have lost the argument.
    You asked “So who says they’re “modest”?”. I answered.
    I did *not* say that my opinion gets to say what *you* can drive. I can tell you that it is is utterly stupid to drive a big 4×4 in a city centre but that does not stop you from being stupid and doing so.
    “Anyway, I wasn’t talking about the sort of person who can afford a Bentley, and only drives something smaller out of conviction. I was talking about the sort of person for who even the modest family saloon is still priced out of their range by fuel costs” Pull the other one – it has got bells on! You were responding to my comment that higher petrol taxes were a reason for Britons driving more fuel-efficient cars – those who cannot afford cars are not part of the argument, but if they were the lower overall costs (initial capital cost, maintenance, petrol, and insurance) of British cars would refute your claim.

  14. @Owen

    “Hah! I had to think for a few seconds to work out why I am in the intersection, along with Paul Krugman.”

    I just had to read the ‘About me’ section on your website.

  15. “You were responding to my comment that higher petrol taxes were a reason for Britons driving more fuel-efficient cars”

    I was responding to your response to my point that higher fuel taxes cause non-trivial hardship.

    I’m not arguing that higher petrol prices aren’t a reason for Britons driving more fuel-efficient cars – clearly they are – I’m saying that higher fuel prices cause problems for people trying to get stuff and do stuff and finding they can’t because they can’t afford the fuel. High fuel duties have a serious impact on human welfare – and middle-class eco-warriors are casually sacrificing other people’s economic interests to assuage their own delusional eco-guilt.

    It’s like me saying that if you raise food prices through the roof, everybody suffers, and the poorest starve. Your reply is like saying that it leads people to find ways to survive on smaller rations, and to eat efficiently. It’s pure licentiousness that big fat lardy people can just take an extra slice of chocolate gateau, and high food taxes are a modest price for stopping that. It’s true that shortages motivate greater efficiency, but unless you meant that as a justification for creating the high prices by setting taxes sky-high, or for you interfering in what other people can consume, it doesn’t answer the point.

    How does your desire for people to drive fuel-efficient cars justify imposing high fuel taxes on everyone else? What about *our* desire for cheap petrol? Or big cars? (Or to eat chocolate gateau unmolested by healthy-eating prodnoses if we want?)

    And if your argument *wasn’t* meant as a justification, what was you trying to say?

    There are a bunch of people in London who seem to think the issue is about whether you ought to drive a big car or take the train – they don’t like it when people do drive big cars (or in many cases, when hordes of poor people do and get in the way of their own) and would like to stop them. But they’re not allowed to ban it outright, so instead they try to tax them off the roads.

    But the rest of the country doesn’t have a super train network like London. In most places out in the country, you either drive or you’re stuck where you are. Everything is miles away, and the buses are expensive and offer a poor service. And those high fuel taxes imposed by the Londoners bite deep.

    Those who cannot afford to run cars, because of the high fuel costs, *are* the argument.

  16. Who cares about the richy rich with their chelsea tractors – in economics, the interesting things happen at the margins. The “lives out in the provinces and can no longer afford to get to work so go on the dole” margins. Which is miles away from someone using the Range Rover to take Priscilla to ballet 2 miles away across Lahndon.

    But the Left is so fixated on applying a trivial extra cost to Mr & Mrs Bentley-Driver that they don’t see the actual hardship they cause to the people they claim to represent and care about.

  17. heating turned up so high that those less able to tolerate tropical climates have to open the windows, air-conditioning turned up so high that other people wear sweaters …

    Aside from not believing that this happens often enough to worry about, it would appear that at least the property owner (or whoever has control of the thermostat) in your scenario was happy with their environment. And ain’t that the point?

    I would also point out that if two (or more) people forced into close contact are so unalike in their preferences for personal comfort, then some sort of “can you believe this?” story is bound to emerge. So what?

  18. @ Ted S
    I am *not* bossing people around: I am saying that high taxes on imported fuel (pre-North Sea Oil) or on the consumption of fuel that could be exported encouraged fuel-efficiency, most visibly in relatively fuel-efficient cars and so were, net, more beneficial to this country than alternative means of raising taxes. If NiV or you want to waste your money on gas guzzlers (or if my friend Roy wants, on sunny weekends, to drive a “clasic car” which consumes about 50% more fuel than one built forty years later) I am not stopping you.
    I am, however, dismissing as economically innumerate the claim that applying tax to fuel, rather than bread or housing or rail fares lowers the standard of living – in fact by diverting less of the national income to fuel consumption to the benefit of OPEC there is more to be consumed on other goods and services,some of which are produced in Britain, so there is knock-on effect as the producers will have more income and a better standard of living and some of their extra income will be spent on goods and services produced in Britain and so on.

  19. @ dcardno
    The “can you believe it ” bit was that the thermostat controlling the third floor was in the office of one of the company lawyers who didn’t like it that so had his window open – the central heating system tried to maintain his office at the temperature set by some minor bureaucrat so boosted its output and the rest of the third floor were sweltering (fortunately I was not on the third floor). Utter stupidity – all they had to do was move the thermostat but they never did.
    Some minor bureaucrat was happy but no-one else was. Ain’t *that* the point?

  20. @ NiV
    “But the rest of the country doesn’t have a super train network like London.”
    Over 80% of the UK population lives in towns and cities, all of which have public transport networks. There are commuter rail and/or tram networks in and around Belfast, Birmingham, Blackpool, Bristol, Cardiff, Edinburgh, Glasgow, Leeds, Liverpool, Manchester, Newcastle, Nottingham and Sheffield (according to Wikipedia). Some other cities, such as Cambridge, have commuter public transport but not enough to be called a network.
    The Department for Transport has formally designated 36 services, most of which are rural services and were jointly subsidised by £300m pa, as “Community Rail Services” to be developed and expanded.
    Most county councils subsidise bus services to virtually every village. “English non-metropolitan areas had the highest level of subsidy per passenger journey (13.2 pence in 2012/13), London had the lowest level of subsidy per passenger journey (3.8 pence in 2012/13), while English metropolitan areas were in-between (8.9 pence in 2012/13). Comparisons between London and the rest of the country should be made with care, see note in background information below.” (source DfT 24/9/13).
    Your post did *not* say “non-trivial” it said “massive” and referred to the made-up slogan of “fuel poverty” and the lefty scare of old people freezing to death, neither of which are connected with a tax on petrol, both of which are due to inadequate state pensions and the destruction of private pensions by Gordon Brown.
    I was moaning a dozen years ago about a high-quality high-tech energy-intensive industry having to close down its plant part of the time (and it was subsequently taken over by a foreign company and much of the production moved abroad) but that again was nothing to do with the price of petrol – it was the result of the Labour government forcing industry to pay higher prices for electricity to reduce consumer prices.
    Poor nations being unable to develop because we pay higher taxes on petrol and so consume less and their oil import bill is lower because our self-restraint has tipped the supply-demand balance fractionally in their favour? I don’t think that one will wash.
    I agree that there are a few – relatively very few – people who lose out from higher petrol prices. Farming families with school-age children – not many as the average of farmers is 60 – and other rural dwellers for whom the bus service is inadequate. BUT the gain to the country as a whole is sufficient for the government to compensate them – e.g. by abolishing rates (“community charge”) on rural dwellings other than second homes, and increase central government transfers to rural counties to compensate.
    If you can afford to buy and insure a gas-guzzler then I should regard the extra tax that you pay on petrol minus the tax that you would have paid on other things if we did not petrol as a trivial hardship.
    I am *not* interfering in what other people can consume – I am explaining *one* of the justifications for a policy of successive governments since before I was born (so don’t blame me).
    I have also given up eating chocolate gateau but I am not stopping you from eating it.

  21. John,

    We’re not talking about petrol, we’re talking about ‘carbon taxes’, of which fuel duty is only one example.

    Where my father lives, the nearest railway station is 7 miles away and the bus goes through about 4 times a day. Subsidies are irrelevant – what matters is whether you can get where you want to go when you want to go there.

    Poor nations have been refused loans to build power stations as a result of environmentalist campaigns, because they were to be fueled by coal.

    And I know retired people personally who obsessively turn the heating on and off at every opportunity because of the bills. I’m not making that up.

    But whatever. I didn’t really want an extended argument about it. As you say, it’s successive governments that have introduced the ‘green’ policies, and not by popular demand – although with a popular acquiescence that is almost as bad. All I’m saying is that we shouldn’t assume the cost in human welfare is minor just because we can afford to pay it, and have done.

    What you tax, you get less of. If you tax production and wealth creation, you get less of it, and everybody is poorer.

  22. Except we know, empirically, that while price rises in most goods reduce demand, price rises in some goods increase it. It’s been suggested that sometimes consumers see price as a proxy for quality (e.g. designer clothes or perfumes). Labour may be another special case, due to monopsony issues:

    In some local areas there are very few minimum wage employers, and they can keep wages low by employing fewer people, thus meaning there are more people fighting for each minimum wage job. This can’t occur if there are lots of minimum wage employers fighting over the same pool of workers, but if for a reasonable number of workers they have the choice of accepting it or being unemployed – a monopsony – then employers can keep numbers of jobs artificially low in order to keep wages artificially low. In this case a minimum wage stops the rationale for doing this: by raising the wage offered, there’s no reason to employ fewer people to keep wages down. This may all sound far fetched, but instances where there’s one minimum wage employer locally in that field are entirely plausible. In these cases minimum wage laws or other labour price rises have two effects: reducing demand through higher prices, and reducing monopsony power which raises demand. The question is which dominates, which is an empirical one.

    If minimum wage laws are set very high, say at €100 an hour, of course they’d reduce demand as the price rise would dominate. However the evidence when set at the levels of Clinton or Blair’s original minimum wage laws suggests they didn’t reduce employment.

    Whether carbon emissions are another special case, where there’s a mechanism through which price rises increase demand to similarly offset the obvious effect reducing it, is a different question. The evidence, as far as I know, suggests demand is pretty inelastic for fossil fuels so prices rises have a small (but still some) effect in reducing demand.

    Personally I think the bigger question here is why anyone things all goods in all markets behave the same way. It’s not inconsistent to suggest some markets work differently and so the same intervention can have a very different effect. In fact it’s so not inconsistent that it’s simple fact, with examples taught in every Econ 101 course around the world. We know of instances where deregulation has brought amazing benefits from competition and instances where it’s led to a monopolist raising prices and cutting quality. It’s always an empirical question: what works in this market, for this product. For all his faults this is something Krugman knows well. Hell it’s something his students know well. I just wonder how it managed to slip Tim by.

  23. “It’s been suggested that sometimes consumers see price as a proxy for quality (e.g. designer clothes or perfumes).”

    It can certainly happen with labour. But it only applies in cases where quality is required or advantageous, which doesn’t generally apply to unskilled labour. If you can persuade employers you’re higher quality, they’ll generally give you a higher-paid non-minimum-wage job.

    Or to put it another way, you don’t employ someone wearing an Armani suit to flip burgers. Perceived employee quality makes no difference to whether the burgers get flipped.

    “In some local areas there are very few minimum wage employers, and they can keep wages low by employing fewer people, thus meaning there are more people fighting for each minimum wage job.”

    Why would an employer want to keep wages low, if it meant employing fewer people than they’ve got a market for?

    Employers don’t want to keep wages low, they want to make more money. If you employ more people, even at a slightly higher wage, they do more work, and you make more money. That’s good – just what a businessman wants. He will keep employing more and more people until the gain in business from having more workers exactly balances the loss from the higher wages he has to pay. Or if he doesn’t, some rival will set up a business and will. It’s like free money, left lying around for the taking.

    It’s a standard rule of economics that if you fix prices below the market rate you’ll get a shortage, and if you fix prices above the market rate you’ll get a glut. By fixing the price of unskilled labour high, you get a glut of labour – too many people chasing too few jobs. Something has to give.

    What usually gives is the other terms and conditions. Minimum wage jobs nowadays tend to involve unpaid overtime, longer and more unsocial hours, more pressure to perform, more bending of the rules. There are other ways to lower the effective wages to the market rate besides looking at the nominal figure, and employees conspire with employers to enable them to do so, in the competition to get and keep a job. And doing so lets them employ more people.

    It’s quite true that different products react differently to market forces, but they do so according to (mostly) understood principles.

  24. Some minor bureaucrat was happy but no-one else was. Ain’t *that* the point?

    Right – so the minor bureaucrat (who didn’t care that the office arrangement was effectively set up to heat the public square outside the office) will suddenly be motivated by an increase in the price of natural gas?

    Sorry – I don’t see it – unless the price increase is on the order of 5x or 6x the prior price. Let’s not think what that does to anyone who is trying to travel, or to move goods – let alone those having difficulty in keeping the heat on at current prices.

  25. If the minimum wage doesn’t affect unemployment, why don’t we just make it £50 per hour, then we’d all be rich, no?

    Let those who agree that it doesn’t, to work out the flaw in the argument. Unless their heads explode first.

  26. @ NiV
    I am discussing the only tax that we have had in the UK that might resemble a carbon tax. New Labour introduced a tax on nuclear power stations – no way a carbon tax – and massive handouts (not even subsidies) to rich peoples using solar PV or windmills but nothing for the proven technology for solar-powered water heating.
    One may speculate about the impact of a carbon dioxide tax but there is absolutely no data: as someone who would have been a scientist if I wasn’t so clumsy, I prefer to look at facts rather than imagination, so I exampled petrol duty where there are ample facts to analyse.
    The price of petrol is as irrelevant to your father as the level of bus subsidies – would he drive more if it was £1.30/gallon instead of £1.30/litre? If those living in rural areas are hard-hit that is a government decision (someone in DCLG in 1997 admitted that they tried out umpteen formulae for allocation of governments grants to local authorities until they found one that maximised benefits to Labour-supporting councils at the expense of Conservative councils).
    Environmentalists are not relevant to a carbon dioxide tax and why the hell is anyone trying to build coal-fired power stations instead of CC gas-fuelled ones? The answer in China is that they don’t want to wait for the LNG terminals to be built but in developing countries they could be built simultaneously with the power station.
    Separately “Minimum wage jobs nowadays tend to involve unpaid overtime, longer and more unsocial hours, more pressure to perform, more bending of the rules. ” No, no, no – jobs with an annual salary rather than an hourly wage tend to involve unpaid overtime. When I was a kid, we had to vacate the dining-room after supper so that Dad could spread the blueprints over the dining-room table; as a salaried worker my actual working hours were far in excess of my contract, my wife has lost count of the number of hours that her public sector employer says she should be entitled to take off in lieu of her unpaid overtime

  27. “I am discussing the only tax that we have had in the UK that might resemble a carbon tax.”

    There’s also the Climate Change Levy, although that doesn’t apply to domestic energy users. But there’s the Renewables Obligation, Feed In Tariffs, the Emissions Trading Scheme, the Carbon Price Floor, and so on. Not quite taxes but with much the same effect as one.

    “The price of petrol is as irrelevant to your father as the level of bus subsidies – would he drive more if it was £1.30/gallon instead of £1.30/litre?”

    Yes.

    Although more to the point, would he have more to spend on other things if he wasn’t paying so much tax on essential travel costs?

    “Environmentalists are not relevant to a carbon dioxide tax and why the hell is anyone trying to build coal-fired power stations instead of CC gas-fuelled ones?”

    Because they’ve got coal and it’s cheaper. Why the hell not?

    “No, no, no – jobs with an annual salary rather than an hourly wage tend to involve unpaid overtime.”

    That too. And it’s another good example of the same phenomenon. The salary is above the market rate for the official hours, so extra work is expected from the employee to fill the gap. In that case, it’s usually because they’re short of people with the required skills and dedication, so with the people they get they need to work them harder to get everything done. The higher salaries are at least partly in payment for the longer hours.

    In the past, this sort of thing wasn’t generally necessary for the minimum wage employees, who tended to work to the clock, or to be paid extra for overtime. There’s no shortage, so there’s no need to cheat. You only got into the unpaid overtime thing when you got above a certain grade. But things have changed.

    Whenever you introduce rules to try to prod the market in a certain direction, it shifts to compensate. The result is generally less efficient from the market’s point of view, and usually doesn’t achieve what the rule-makers intended. But people never learn.

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