When it comes to inserting the bizarre into economics, there is simply no better expert than the writers on the New York Times Op-Ed page. Today's best effort goes to Tom Friedman (excuse me Thomas L. Friedman), or as he prefers to be called, the Guru of the Hudson. Friedman's subject today is the benefit of the imposition of a carbon tax. In other words, Friedman wants America to impose an extra cost on all energy created from fossil fuels. Gasoline would cost more at the pump. Electricity would cost more in our homes. Those who heat their homes with oil, natural gas or electricity would pay more. Industry that is energy intensive would get hit with major cost increases. And all of this, according to Friedman, would be great.
The worst part of Friedman's analysis is shown by his plan on how to use the revenues from this tax. He want 45% to be used for deficit reduction. Indeed, Friedman says that a $25 per ton tax on carbon dioxide emissions would raise $125 billion per year, and the 45% could make up for a big chunk of the cuts imposed by the sequester. Let's stop there. First of all, if the 45% gets used for deficit reduction in place of sequestration cuts, then there is no deficit reduction at all; spending cuts that were to come through sequestration get exchanged for tax increases from the carbon tax. All of the wasteful spending goes on and on and on. So there is no deficit reduction. Second, and more important, pulling $125 billion out of the economy each year by raising energy prices will be a hard blow to economic growth. The manufacturing plants that are returning to America may stay away in fear of ever rising energy costs due to taxation. Slowing the rate of growth of the economy by just 1% means that government revenues will take a major hit as well. Of course, it will also mean that the average American is not doing as well, but I doubt that Friedman concerns himself with the average American. Sticking with the federal government, however, that 1% per year means that at the end of a decade the economy will be 10% smaller. On the current base that means an economy that is $1.6 trillion smaller. Since the federal government normally takes in about 19% of GDP in taxes, that smaller economy means $300 billion per year less in tax revenues, a number that would dwarf the extra revenue taken in by the carbon tax. Of course, in Friedman's world the answer surely will be to raise the carbon tax higher to bring in more revenue. That, in turn, will further hurt the economy and make things worse. To put it charitably, Friedman does not know what he is talking about.
Friedman tries to make up for the damage to be inflicted by the carbon tax when he suggests that the next 45% of revenue be used for corporate and income tax reductions. This will help without a doubt. The problem, however, is that Friedman want to pull out $125 billion in energy taxes that will hit the economy directly and then use the money to put back $55 billion through tax cuts that will only help the economy indirectly. It never helps the economy to take funds from businesses which would otherwise surely make use of them in order to give the money to individuals who may do nothing more with the extra funds than place them in a savings account. When the amount taken is more than twice the amount given back, the damage is clear. Here too, Friedman does not know what he is talking about.
Friedman's third use for the money is to "rebate" 10% to the poor so that they can afford the extra costs imposed by the tax. We all know what that means. The rebate will start at 10% until right before the following election when Congress will increase the payments in an effort to win votes. Before long, we will have another entitlement program draining funds from the Treasury in amounts far in excess of what the tax takes in.
Of course, Friedman's biggest folly and mistake is to propose a tax designed to help in the battle against man made global warming. Anyone who reads the news knows by now that since 1997, the average global temperature has not risen. There have been areas that have been warmer during that time, but these have been balanced by areas that were colder. The world wide average atmospheric temperature taken at spots all around the world, however, is unchanged. It appears that there may not even be global warming, let alone man made global warming. Since the actual facts contradict the tenets of the global warming faith, Friedman probably refuses even to consider them; they are just heresy to him. The problem, however, is that our economy cannot proceed on the basis of Friedman's cultish beliefs. Who knows what he will want next? Maybe his next column will be about the benefits of using leeches as a medical device; after all if they are so considered, the new 2.3% excise tax could be applied to them.
The worst part of Friedman's analysis is shown by his plan on how to use the revenues from this tax. He want 45% to be used for deficit reduction. Indeed, Friedman says that a $25 per ton tax on carbon dioxide emissions would raise $125 billion per year, and the 45% could make up for a big chunk of the cuts imposed by the sequester. Let's stop there. First of all, if the 45% gets used for deficit reduction in place of sequestration cuts, then there is no deficit reduction at all; spending cuts that were to come through sequestration get exchanged for tax increases from the carbon tax. All of the wasteful spending goes on and on and on. So there is no deficit reduction. Second, and more important, pulling $125 billion out of the economy each year by raising energy prices will be a hard blow to economic growth. The manufacturing plants that are returning to America may stay away in fear of ever rising energy costs due to taxation. Slowing the rate of growth of the economy by just 1% means that government revenues will take a major hit as well. Of course, it will also mean that the average American is not doing as well, but I doubt that Friedman concerns himself with the average American. Sticking with the federal government, however, that 1% per year means that at the end of a decade the economy will be 10% smaller. On the current base that means an economy that is $1.6 trillion smaller. Since the federal government normally takes in about 19% of GDP in taxes, that smaller economy means $300 billion per year less in tax revenues, a number that would dwarf the extra revenue taken in by the carbon tax. Of course, in Friedman's world the answer surely will be to raise the carbon tax higher to bring in more revenue. That, in turn, will further hurt the economy and make things worse. To put it charitably, Friedman does not know what he is talking about.
Friedman tries to make up for the damage to be inflicted by the carbon tax when he suggests that the next 45% of revenue be used for corporate and income tax reductions. This will help without a doubt. The problem, however, is that Friedman want to pull out $125 billion in energy taxes that will hit the economy directly and then use the money to put back $55 billion through tax cuts that will only help the economy indirectly. It never helps the economy to take funds from businesses which would otherwise surely make use of them in order to give the money to individuals who may do nothing more with the extra funds than place them in a savings account. When the amount taken is more than twice the amount given back, the damage is clear. Here too, Friedman does not know what he is talking about.
Friedman's third use for the money is to "rebate" 10% to the poor so that they can afford the extra costs imposed by the tax. We all know what that means. The rebate will start at 10% until right before the following election when Congress will increase the payments in an effort to win votes. Before long, we will have another entitlement program draining funds from the Treasury in amounts far in excess of what the tax takes in.
Of course, Friedman's biggest folly and mistake is to propose a tax designed to help in the battle against man made global warming. Anyone who reads the news knows by now that since 1997, the average global temperature has not risen. There have been areas that have been warmer during that time, but these have been balanced by areas that were colder. The world wide average atmospheric temperature taken at spots all around the world, however, is unchanged. It appears that there may not even be global warming, let alone man made global warming. Since the actual facts contradict the tenets of the global warming faith, Friedman probably refuses even to consider them; they are just heresy to him. The problem, however, is that our economy cannot proceed on the basis of Friedman's cultish beliefs. Who knows what he will want next? Maybe his next column will be about the benefits of using leeches as a medical device; after all if they are so considered, the new 2.3% excise tax could be applied to them.
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