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How to do carbon tax tres mal

15 May 2019 | OP ED Watch

In the Financial Post Jean Michaud and Germain Belzile of the Montreal Economic Institute warn that the federal carbon tax imposed on provinces like Alberta will actually, at $30/tonne next year, work out to twice as costly as the shadow price of Quebec’s cap-and-trade scheme. Now it’s easy to see why certain types of politician would be more solicitous of Quebec’s economy than Alberta’s. But it’s a bit hard to figure out why gaz carbonique is less of a threat to le monde than carbon dioxide.

We have repeatedly taken issue in this newsletter with the computer models that predict future climate despite being unable to predict future weather. Or indeed to predict past climate when fed the starting conditions of, say, 1200 or 49 BC or 2000 or 2.5 mya or anything else. But it’s worth mentioning that lots of other computer models are just as bad. It’s not as though the climate ones are running outdated operating systems on failing hardware or something.

Among the computer models that should be relegated to the sideshow tent are those that predict the economy with the same precision we’ve learned to expect from a badly aligned Ouija board. And claim to be able to figure out exactly how much a tax will bring in, or how many jobs a deficit will create, or what the shadow price of some dopey regulation might be.

You can’t figure out the shadow price of a regulation without knowing what it will cause to happen to the entire economy over a long period which requires you to know exactly what would have happened without it and compare it to what happens with it which you can’t. For more see Leonard Read’s “I Pencil” and give up economic forecasting for common sense.

If you do rely on common sense, you can make a first-order approximation of how much something will cost. And while there are not a lot of politicometric models despite decades of political science, you don’t need a computer to figure out that to some politicians at least, the prospect of 9,000 jobs lost in Quebec outweighs that of 100,000 jobs lost in Alberta. Or that those same politicians will take a much more benign view of some anti-carbon schemes than others.

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