David R. Henderson  

Murphy on Frum and Global Warming

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Earlier this week, Robert Murphy, a frequent writer of Econlib Feature Articles, had an excellent critique of a piece on global warming by David Frum. Were I to quote all the good parts, I would end up quoting almost the whole thing. I highly recommend it. Still, I'll quote a few parts and register one small criticism.

Yet Frum's misleading statement about temperature trends is just a warm-up for his central argument, which he gets to later in the article:

Take three worrying long-term challenges: climate change, the weak economic recovery, and America's chronic budget deficits. Combine them into one. And suddenly three tough problems become one attractive solution.Tax carbon.

A tax of $20 a ton, rising at a rate of 4% per year, would over the next decade raise $1.5 trillion, according to an important new study from the Massachusetts Institute of Technology. That $1.5 trillion is almost twice as much as would be recouped to the Treasury by allowing the expiration of all Bush-era tax cuts for upper-income taxpayers.

The revenues from a carbon tax could be used to reduce the deficit while also extending new forms of payroll tax relief to middle-class families, thus supporting middle-class family incomes.

Meanwhile, the shock of slowly but steadily rising prices for fuel and electricity would drive economic changes that would accelerate U.S. economic growth. [The four previous paragraphs are his quote from Frum.]

Now at this point the reader might be confused. How in the world would a $1.5 trillion tax on energy--which Frum himself describes as "shock" that would raise fuel and electricity prices--be construed as "attractive" with respect to the "weak economic recovery"?

This claim illustrates the new rhetorical ploy of proponents of a carbon tax. They know full well that Americans would not support a massive new tax on energy if it were sold merely as a way to avert global climate change--especially if Americans found out (not that Frum knows or would ever tell them) that most economic studies show climate change will shower net benefits on humanity for the next several decades.

Consequently, the advocates of a carbon tax have tried to have their cake and eat it too. They tout the ability of a carbon tax to bring in more revenues (thus reducing the budget deficit) and provide pro-growth tax cuts elsewhere in the federal tax code. Thus it seems like a win-win-win: We save the planet, cut the budget deficit, and make everybody wealthier in after-tax terms.

There's just one problem with this convenient narrative: It totally ignores what the actual peer-reviewed research says. A standard result in the environmental economics literature is the "tax interaction effect," which I summarize in this article. In a nutshell, what happens is that even an "optimal" tax on an alleged negative externality such as carbon dioxide emissions can end up causing more economic damage than its environmental benefits, because of the prior existence of distortionary taxes. In other words, a pre-existing, inefficient tax code is a reason not to impose a new carbon tax.

There's more good content also, especially on Frum's misleading section on global warming itself and his implicit assumption that people can't rationally choose where to live without government input.

One criticism: Bob Murphy writes:

The damage to the economy would be even greater if, as Frum suggests, some of the new carbon tax is not revenue-neutral but instead is spent (i.e. used to reduce the deficit).

I'm not clear why Bob sees reducing the deficit as spending.

Comments and Sharing

COMMENTS (16 to date)
Krishnan writes:

I am not sure why Frum wants to stop at $20 ... and get 1.5 trillion ... He can propose say $100 a ton and increase the benefits to 7.5 trillion (and so on and so on ...)

What is amazing is that Frum (and others like that) write such nonsense with a "straight" face - to them, there are indeed no consequences for any tax they may want to impose - and the only consequence they see are when taxes/tax rates are reduced - and when the private sector gets to spend that money.

This is almost like what Nancy Pelosi maintains - that supporting people who do not work with unemployment checks will help grow the economy - and so unemployment benefits/funds to pay for such are a net positive on the economy - hence (reductio ad absurdum) - more unemployment leads to more employment.

Mark V Anderson writes:

I was not at all impressed by Murphy's article. Sure, Frum writes like a politician, implying that what he favors has no downsides. But his basic theme that a carbon tax would discourage pollution and also increase government funds is absolutely correct.

I am completely confused as to why libertarians seem to be so opposed to carbon taxes. It seems to me to be by far the most market friendly approach to reducing pollution. Pollution is an obvious externality, and the market needs to have mechanisms to discourage the dirtying of our air. If we put a tax on pollution, it will decrease the amount of pollution created, and the market will be free to come up with the most cost effective way to do this. This is so much better than the usual government solutions of subsidizing particular "clean" energy solutions, as if politicians know the best way reduce pollution, and as if political considerations won't be the most important factor in choosing what to subsidize.

I think most people realize that human induced global warming is a real event. Some pretend there is nothing there by pointing to some clearly local or temporary phenomenon, as if any climatic event will ever have ALL the evidence in one direction. As always, Leftists way overstate the damage caused by global warming, and way understate the cost of mitigation. Perhaps Frum can be accused of this. But global warming does exist, and the government should discourage the spewing of CO2 and other pollutants into the air.

Ken B writes:

Mark, Bob M destroys Frum's facile weak arguments. His article is explicitly not about other better ones he agrees exist. Separating wheat from chaff is always worthwhile .

magilson writes:

Mark V Anderson, you would do well to read the latest IPCC report yourself from cover to cover. Not only do they admit the weakness of their models over the years which has led to their complete inability to have made even one prediction that showed true but it also outlines growing research that shows that while there is no doubt CO2 is a warming gas that the feed forward effect of water vapor is not as strong as believed and that outside factors previously unknown (and not human induced) are playing a factor.

Until global-warmists come to grips with having blindly followed people with the best of intentions but the worst of knowledge we're all going to be subject to these awful ideas you don't seem to be worried about.

Mark V Anderson writes:

@Ken B. I totally disagree that Bob destroys Frum's arguments.

1) Bob's first point is that Frum says the earth continues to warm and warm fast. Bob refutes this by linking to a graph that shows the temp down in 2011, but clearly up over the longer term. Frum didn't say warming was up in 2011. The graph proves Frum is right that there is warming.

2) Bob says that Frum's comment that a carbon tax would help the economy was dumb. Bob was correct this time.

3) Bob asks why people wouldn't live in big cities now if it made them happier. Frum's main point was that a carbon tax would encourage less use of fuels, such as living closer to big cities and driving less. This is Econ 101; of course people would use less CO2 creating fuels if there was a tax on them. Frum wins this one.

Frum was right 2 out of 3. This is less than destroying him.

@magilson. This is the kind of thing I was referring to when I talked about folks using a temporary or local discrepancy to deny global warming exists at all.

But I don't think you are denying global warming altogether, are you, just that it isn't as bad as many have stated? If so, we are in agreement, and I don't know why we are arguing. I said above the leftists always overstate environment problems.

egd writes:

For the record, I am a firm believer in anthropomorphic global warming. (possibly my favorite typo ever in a serious publication, although I've since forgotten the publication)

Why should we limit tax increases to carbon emissions to control global warming and create more growth?

How about a calorie tax to encourage alternative food production?

A water tax to encourage alternative beverage consumption?

A land tax to encourage extraterrestrial development?

The opportunities are limitless!

Eric Evans writes:

Mark, your interpretations of this article are quite bizarre...

"1) Bob's first point is that Frum says the earth continues to warm and warm fast. Bob refutes this by linking to a graph that shows the temp down in 2011..."
Bob's point is that Frum is correlating higher temperatures with carbon dioxide emissions, and if 2011 was the highest for carbon dioxide emissions ever then temperatures should've followed suit. But they didn't.

"3) Bob asks why people wouldn't live in big cities now if it made them happier. Frum's main point was that a carbon tax would encourage less use of fuels, such as living closer to big cities and driving less. This is Econ 101; of course people would use less CO2 creating fuels if there was a tax on them. Frum wins this one."

And Frum said that enacting the carbon tax might actually make people happier for the reason that Bob countered.

Mark V Anderson writes:

Eric, my interpretations were not at all bizarre.

1) Frum's point was that warming and CO2 were both increasing. He specifically said that CO2 was a record high in 2011. Bob refuted by saying warming wasn't up in 2011. A non-sequitor. Sure they are both increasing, but in real life the world doesn't provide evidence in a way that makes it easy for humans to figure out is happening. There is no reason to believe that warming and CO2 will rise in exact sync with each other. It is bad science to refute a case because the evidence doesn't line up perfectly, since it will never happen.

3) Frum said that the carbon tax would encourage people to do what would make them happier anyway. In his counter-thesis Bob emphasized whether it would make them happier, instead of the more important issue of whether the tax would change lifestyles resulting in lower pollution. Maybe Bob was correct in his refutation of Frum's passing comment that it would make people happier, but I grade it for Frum because it wasn't the important issue.

David R. Henderson writes:

@Mark V Anderson,

I think your comment above is a classic case of defending the person arguing badly because he is arguing for bottom lines that you agree with. Ken B, in a comment above, said it well.

You write, "Sure they are both increasing, but in real life the world doesn't provide evidence in a way that makes it easy for humans to figure out is happening."

Exactly! So if it's not easy for humans to figure out what is happening, that means it's hard for humans to figure out what is happening. Which means that Frum is claiming a false certainty.

You also almost admit another Murphy point, writing, "Maybe Bob was correct in his refutation of Frum's passing comment that it would make people happier, but I grade it for Frum because it wasn't the important issue."

It wasn't important to you. But it must have been important to Frum and to Frum's intended audience. Otherwise, why would he have said it?

Thomas DeMeo writes:

The tax interaction argument sounds pretty weak to me. There are a lot of other moving parts here that could change the net effect.

One thing that has always mystified me is why no one sees that there are two other huge factors in the fossil fuel debate that no one seems to care about.

First, fossil fuels, aside from global warming, pump massive amounts of toxins into our air and water. The effect on human health is enormous.

Second, fossil fuels cause horrendous geopolitical distortions. Almost any imaginable substitute technology would knock much of this down.

Joe Cushing writes:

The extra taxes would not reduce the deficit, they would increase spending. The idea that raising the cost of economic inputs would make the economy grow is preposterous which is to say Contrary to reason or common sense; utterly absurd or ridiculous.

Those who make the claim think that because it will drive people to invest in alternative energy that all this extra spending will boost the economy. This logic is related to the Keynesian broken window fallacy. The economy is going to invest tons and tons of money to bring us exactly the same thing that we already have (energy) instead of investing that money to bring us something new. It's going to bring us this energy at a higher cost and that by definition is a reduction in the standard of living. If renewables were economically sound, and one day they may be, they would be thriving in the free market. They would not require guns pointed at people who sell fossil fuel energy to force them to collect taxes.

Bob Murphy writes:

David, thanks for the kind words. On my blog I'll clarify what I was getting at with the "spending" comment.

As far as the temperature issue, which some of you are arguing: Frum said the earth continues to warm, and to warm fast. I didn't merely show that temperatures were down in 2011 (which by itself would show he was wrong). There are all kinds of ways to describe the recent temperature trends--one could even plausibly say, "Global warming has paused for the last five years"--but to say that the earth continues to warm, and to warm fast, is not one of them. I wasn't denying that there is any connection between human activities and the climate, rather I argued several points where I thought Frum said things that were false, and I explained why.

Bob Murphy writes:

Thomas DeMeo, if the tax interaction effect sounds weak to you, that is your prerogative, but it is the consensus among professional environmental economists. I am currently reviewing a graduate level textbook on the economic analysis of environmental policy. This stuff was established in the peer-reviewed literature, it's not something I invented.

What people tell the public is the "accepted scientific view" on global warming is very misleading when it strays into government policy.

Bob Murphy writes:

Thomas DeMeo a clarification on my last point: I'm not saying 100% of environmental economists think that the tax interaction effect is stronger than the "recycling effect" from using carbon (or other environmental) taxes to reduce other, conventional taxes. Some of them do indeed claim that a carbon tax could boost conventional GDP growth. I am saying though that this is not the standard result; the baseline is what I'm talking about. You have to come up with special reasons in your model to show why the tax interaction effect won't be stronger.

Mark V Anderson writes:

Isn't the point of this discussion to determine what is the best policy decision? And the policy decision is whether or not it makes sense to have carbon taxes. When you get into arguments about points made that bear little on the issue, one is arguing just for the sake of making points. This may gratify one's supporters, but convinces no one and informs no one.

Most of Bob's arguments were of this type. He talked about statements Frum made that were not particularly sensible, but had little to do with the issue of a carbon tax.

I am disappointed that everyone who has commented seems to favor this sort of preaching to the choir and making points arguments, and aren't really interested in actual discussion of the issues. I request that whenever someone decides to write an argument to simply make points to please label their argument as such up front, so I won't waste my time reading it.

Thomas DeMeo writes:

Bob Murphy- I didn't mean to be disrespectful. I'm sure you can make a technical case here. When I said the argument was weak, I didn't meant the tax interaction problem wasn't real, I meant that it didn't sound like a strong enough reason not to go forward with a carbon tax. Your own words acknowledge this may be true. And I did point out there are very likely to be some special effects here.

Also, isn't this a bit of a catch-22? Isn't this an argument against most options to improve the tax code?

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