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Facts are facts

24 Mar 2021 | News Roundup

Ideally in public policy, as in life, one would first determine whether a claim was correct and only then ponder its implications. But far too many people, and not just ones we disagree with, have Soren Kierkegaard’s “covetous eye on the outcome” and reject an inconvenient fact in anticipation of disliking the conclusion. For instance a major new study on the economic impact of a $170/tonne carbon tax in Canada said it would lower our incomes and destroy lots of jobs. In response to which our Minister of Environment & Climate Change dismissed the findings via Twitter saying “Climate action is good for the ?, for jobs & the right thing to do as human beings.” You’d hope the Minister’s sanguine judgment was at least based on detailed analysis by his own government. But one of the points made in the study he hadn’t read is that either the federal government hasn’t done one, or if it has, it won’t release it. No need, apparently, when climate action is the right thing to do.

In fact the study, by University of Guelph economist and long-time climate change skeptic Ross McKitrick and Fraser Institute Associate Director of Natural Resource Studies Elmira Aliakbari, says if the federal carbon tax is raised from $30 to $170/tonne over the next nine years “we find that the federal carbon tax will cause a 1.8% drop in Gross Domestic Product (GDP), which works out to about $1,500 in current dollars per employed person, and the loss of over 184,000 jobs nationwide.”

As always we are wary of that decimal place. Unless you know to a decimal place what is going to happen in the Canadian economy between now and 2030 if the carbon tax does not change and what is going to happen if it does change, also to a decimal place, you cannot tell what difference changing the tax would make to a decimal place. And the problem here is not just the possibility of a major dislocation like, who knows, a worldwide viral pandemic, or a war, or some massive technological breakthrough following which flying cars or hydrogen fusion power let us at last begin to live.

The problem is that an economy is, very like a climate, a transcomputably complex agglomeration of unpredictable processes with immensely complicated self-crossing feedback loops that is sensitively dependent on initial conditions. Macroeconomic models are exercises in simplification whose characteristic results, like their design, do not inspire confidence. (Indeed we don’t actually know how much the economy did grow in the last nine years to a decimal place and the past is easier to predict than the future.)

Having dropped that big wet caveat onto the study, we note that it prefaces its own conclusion with a justified poke at the absurd one advanced by the federal government. You see, while that entity “claims to have done a comprehensive macroeconomic analysis of the effects, no information has been released to the public about the economic impacts, except for the claim that there will be no effect on Gross Domestic Product.”

Never mind their failure to release the details. That conclusion is laugh-out-loud ridiculous, because it depends on the notion that all the benefits individual Canadians think we gain from gasoline and natural gas, and oil and coal, are trivial or even imaginary, and that we’re only buying these products because we’re too dumb to notice they’re not worth the money we spend on them.

The alternative is that being pressured to give them up must necessarily leave us worse off. And this position is actually held by senior politicians in Canada, a disquieting reflection on their grasp of economics. Including our “Minister of Environment & Climate Change”, a job title implying no rush to judgement whatsoever, whose entire tweet said “Good to have studies on climate but hard to take a study very seriously that effectively suggests there’s no economic cost to climate change, or opportunity in addressing it. Climate action is good for the ?, for jobs & the right thing to do as human beings.”

As Henry Hazlitt observed of the desire to create jobs, long before there was climate change, or personal computers, “Why should freight be carried from Chicago to New York by railroad when we could employ enormously more men, for example, to carry it all on their backs?” Answer: because we would forego the benefits of machine transportation and produce far less output for the same effort, which ends up giving us far less income. Any fool can waste time and effort. The trick is to save labour so we get more per ounce of sweat.

For that reason if, instead of burning oil we obliged people to burn wood, it would certainly create jobs, since it takes much more effort to get a certain amount of heat from a tree than from a barrel of oil. That you cannot run a car on wood, of course, would destroy human well-being massively. Though in Wilkinson’s world, there’s presumably some “opportunity” there. For instance to create jobs carrying goods by hand between buildings and as Hazlitt noted cities as well.

It gets worse. Because in the Fraser study, there’s no suggestion that there’s no economic cost to climate change. Wilkinson hallucinated it. The study is an examination of what happens in the next nine years if you change the carbon tax while everything else stays the same. And of course according to the climate alarmists and their models, no reduction in Canadian GHGs between now and 2030, or indeed of total global person-made GHGs, is going to affect temperature by even that pesky 0.1, and therefore whatever the “economic cost to climate change” might be, it will be identical in the scenario where the carbon tax rises to $170 per tonne in 2030 and the one where it does not, so it cancels out for the purposes of that analysis.

The same is true of these vaunted opportunities. They are just as significant in either case. Politicians often seem to feel that they have a special magic power to foster entrepreneurial innovation despite never having engaged in it personally. But if so, they are going to cast whatever such spells they possess between now and 2030 regardless of what happens to Canada’s carbon tax. And the actual entrepreneurial or technological discoveries that are going to be made in Canada over the next 9 years, in this area as in others, will be affected only very trivially by the carbon tax. Even if higher gas prices do make people wish they had a cheaper fuel for their car, most of the energy and creativity going into alternative fuels if carbon taxes here rise to $170 a tonne will go into it anyway because business persons and inventors believe, rightly or wrongly, that it will be a bonanza and a boon to humanity, indeed a bonanza because it is a boon to humanity, if they can create something clever in this regard.

One does not have to love econometric models to grasp such basic features of them. But one does have to grasp those features to utter a sensible comment, assuming one has that goal. If on the other hand one simply assumes that if one does not like the implications of a fact, it cannot be true, well, close both eyes and open your mouth.

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