Unilateral carbon emissions as an international public good explained

Unilateral carbon emissions as an international public good explained


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NZ top 1% should be drummed out of the international ruling class? @EricCrampton

What a poor effort! The US top 1% is going from strength to strength by whatever explanation or conspiracy theory is your poison. The NZ top 1% is failing completely on its job as the ruling class extracting the labour surplus without mercy or pity to immiserise the proletariat just because it thinks that is a viable long-term strategy for its class.

Source: The material wellbeing of NZ households: Overview and Key Findings from the 2017 Household Incomes Report and the companion report using non-income measures (the 2017 NIMs Report) prepared by Bryan Perry, Ministry of Social Development, Wellington, July 2017.

The income share of the New Zealand top 1% has been falling and falling for a long time now. The class struggle has been cancelled in New Zealand. What is a point of the class war if the ruling classe is losing and the proletariat winning. Marxist would have nothing to whine about.

NZ more homeless than Mexico? @MaxRashbrooke @EricCrampton @tslumley

Source: OECD Affordable Housing Database – http://oe.cd/ahd OECD – Social Policy Division – Directorate of Employment, Labour and Social Affairs Last updated on 21/02/2017 HC3.1 HOMELESS POPULATION via http://www.oecd.org/social/affordable-housing-database.htm

Debt repayment does not rule out tax cuts

The case for a tax cut is a distinct issue from repaying the recent large budget deficits and balancing the budget over the business cycle.

Ministers of Finance should pay more attention to the concept of tax smoothing. Unless something special is happening, income tax rates should be similar from one year to another. We should keep tax rates fairly smooth by borrowing during recessions and emergencies.

Instead, the Government not indexing the income tax thresholds for inflation collected $2.1 billion in extra revenue since 2008 according to Parliamentary Library calculations. Raising the income tax rate thresholds is becoming more pressing. Income growth is starting to push many ordinary taxpayers uncomfortably close to the next threshold and a much higher marginal tax rate. For example, 30% rather than the 17.5% income tax rate many taxpayers face.

New Zealand is already left behind on company tax rates; ours is currently 28%. The Australian company tax rate may drop to 25%; the British company tax rate is going down to 17% by 2020.

Large public deficits have their place

Prudent public debt management dictates that governments run temporary budget deficits in recessions and other emergencies such as the Canterbury earthquake and repay that debt as better times return. Recessions and natural disasters are infrequent so this extra debt should be paid down at a measured speed, not a frantic pace at the expense of other tax policy goals.

An increase in the budget deficit smooths over these bad times and avoids taxes going up and down like a Jack-in-the-Box over the business cycle. Who raises taxes in a recession?

Beware of foul-weather fiscal conservatives

After the start of the recession in 2009, foul weather fiscal conservatives wanted to do just that. The same usual suspects who always advocate bigger government argued for higher taxes rather than running a larger budget deficit, which New Zealand did. Imagine the massive income tax rises required every recession and in the last recession in particular if the large budget deficits were not run?

The large public debt from the temporary budget deficits that smoothed over the last recession is no special or additional reason to postpone income tax cuts. A sound long-term fiscal strategy has tax rates at levels that make up on the deficits in bad times with surpluses in the good times. Slowly repaying debts accumulated in a recession is a routine part of prudent public debt management.

There is room for tax cuts

Every budget allocates about $1.5 billion for new policy proposals that can be adopted without the Treasury thinking that they might harm long-term fiscal stability.

New Zealand budget allows for up to $1.5 billion on new policies every year. If this new spending was justified despite the large public debt from the recent recession, some tax cuts are too. They could start with raising the income tax rate thresholds to make up for past inflation.

Badge of honour: blocked by Morgan on Twitter and now Facebook @top_nz

Cannot comment on Gareth Morgan’s Facebook page anymore. Can’t handle the truth. I wrote an extensive critique of his universal basic income but he does not want to discuss the evidence or the logical flaws of his policy proposal. The only people who lose out from his universal basic income are those for whom the modern welfare state was founded to protect.

What set Gareth Morgan off on his Facebook page was when I commented pointing out that the optimal rate of tax on income from capital to zero. All I said was “optimal tax theory including that pioneered by Stiglitz and Merrlees, economists of impeccable left-wing credentials, show that taxes on the income from capital should be low because the deadweight social costs of taxes on capital are very high”. His response was anti-intellectualism.

Are unilateral carbon emission cuts the next best thing to an effective multilateral agreement?

Carbon emission reductions are an international public good which will always be undersupplied. The benefits of emission cuts are available to all irrespective of whether they cut emissions or not so there is always the temptation to not cut your own emissions unless your reduction is decisive. It is agreed in the recent court case that New Zealand’s carbon emissions are trivial on the global scale.

Free riding is much more likely for international public goods because there is no effective mechanism for compelling nations to cut their carbon emissions short of a green tariff war. Even a green tariff war fails unless it is most countries ganging up on a few recalcitrant carbon emitters.

Even if the major emitters cut back, the developing countries have made it clear that they will not sacrifice their development for global climate objectives. Many developed countries are dragging their feet on cutting emissions and that is before we mention the Trump administration withdrawing from the relatively modest targets in the Paris agreement of 2 years ago.

In the absence of the provision of an international public good to a sufficient level, which are emission cutbacks of about 10 times the Paris targets, unilateral contributions to the provision of that global public good make NZ poorer. Will making ourselves unilaterally poorer help us adapt to the runaway climate change that has been foretold by so many?

What is even worse is handcuffing relatively efficient agricultural industries with a high carbon price. This will provide a good incentive for the export of dirty production to less enlightened countries. Our dairy exporters would lose market share to higher carbon emitting countries.

It can be argued that unilateral reductions by NZ because of a higher than the international average carbon price could quicken global warming. The point of carbon taxes is to encourage industries to migrate to the most efficient places of production and therefore lowest carbon emissions. 

Making our dairy industry less efficient because of unilaterally higher carbon taxes means more dairy is produced in other countries that are not restraining their carbon emissions. In consequence, carbon emissions globally may increase but New Zealand is poorer for its unilateral restraint.

The carbon tax is supposed to give people the right incentives about what to buy and where to produce. Making the world’s most efficient dairy producer produce less does not sit well with that.

The whole point of putting a price on carbon emissions is to shift the economy out of high carbon emission activities into low carbon emission activities. The risk of a even higher price on carbon in New Zealand relative to the rest of the world is the reverse will happen.

The most likely international scenario is not much is done at all about cutting carbon emissions. Things will be done here and there but as soon as cutting emissions becomes costly, political support will fade. Tony Abbott will not be the only politician to describe a carbon tax as a great big new tax.

In such a world, is it in anyone’s interest for the most efficient agricultural producers to be shooting themselves in the foot. Should not they be taking on as much production as they can because their efficiency reduces total global emissions.

Given this gloomy outlook, Greenpeace and the Greens should be born-again supply-side economists pushing every Rogernomics reform they can find to increase economic growth. Richer is safer, wealthier is healthier. A richer New Zealand is more able to roll with the punches of their foretold runaway climate change and make the necessary adaptations.

Climate change activists must swallow two dead rats rather than one if they really want to deal with the runaway climate change they foretell so often. Not only must they embrace nuclear power, they must go a 2nd ideological bridge too far and embrace a competitive market economy with gusto.

If there is no effective multilateral agreement to cut emissions, do not assume unilateral cutbacks are the next best thing. The best solutions call for strange bedfellows if there is no planet B.

Was accused of mansplaining today so I looked up what it meant for the 1st time

To come out swinging against the motives of critics suggests you cannot handle criticism.

@NZGreens see a @geertwilderspvv fan as ready for office? #greenbaublesofoffice

Source: Rt Hon Winston Peters speech to Asia Plus Group of Wellington: Making Sense Of Political Change – New Zealand First.

Wouldn’t banning overseas landlords reduce the supply of rental housing?

Both the Labour Party and the Greens as well as the local Donald Trump want to ban foreigners from buying houses in New Zealand.

Seems to me that if you want to increase the supply of rental housing to reduced rents to poor families, you would want to encourage absentee landlords rather than first-time buyers. Is my logic wrong?



Wellywood is in an expensive global subsidy market

The $300 million in film subsidies in the coming budget is riding off the back of Sir Peter Jackson’s phenomenal success. Our politicians will not consider pulling out of this global subsidy market until they have backed a few box office bombs.

The first law of Hollywood economics illustrates how fickle moviemaking is: “Nobody knows anything … Not one person in the entire motion picture field knows for a certainty what’s going to work. Every time out it’s a guess and, if you’re lucky, an educated one (Goldwin 1989).”

Big budgets, star power and large marketing budgets do not reduce ‘the terror of the box office’. Industry profits depend on the rare blockbuster; 78 percent of films are unprofitable (Walls 2005). Taxpayers cannot afford to pick winners in an industry of flops and the occasional blockbuster.

You do not have to be much of a film buff to remember box office flops with big names in them. Every Robert De Niro fan has been asking for a fair time now why did he agree to his latest film? Bruce Willis spent the middle part of his career recovering from a few box office bombs.

Many famous films and TV shows succeeded because the producers made something that audiences did not know they wanted to see until they saw it. Their success surprised everyone, including their producers. Star Wars, Rocky, The Rocky Horror Picture Show, One Flew over the Cuckoo’s Nest, My Big Fat Greek Wedding, The Godfather, Fawlty Towers and Seinfeld are all examples.

We watched the Seinfeld pilot last week. How did it ever get picked up (and initially only for four episodes)? George Clooney appeared in 23 failed pilots before hitting it big. These are the freaky odds taxpayers are playing when selecting which films to subsidise.

The most profitable movies of all time such as National Lampoon’s Animal House often had tiny budgets. Donald Sutherland is still kicking himself for insisting on a $50,000 cash rather than $35,000 plus 15% of the eventual $500 million gross (in present-day dollars). He thought he had made a nifty deal for one day’s work in a $2.5 million film, signing on only as a favour to his old baby sitter John Landis. You just never know when the biggest break in your life is passing you by in show business.

Sir Alec Guinness hated every day on the Star Wars set but made most of the money he ever made in his life from his 2 ¼%. It was supposed to be 2 ½% but did not think it important to get the increase from 2% in writing before the film’s first release in a mere 32 theatres.

George Lucas planned to be out of town to escape some of the backwash of failure at the box office. He was in LA through a mix-up in dates and only realised he was rich when he went out for a hamburger to be caught up in massive traffic jams around a theatre playing Star Wars.

Think of any successful film in the first half of the 1970s, Steve McQueen turn down it down; any successful film in the second half of the 70s including Star Wars, James Caan turned it down. Sean Connery turned down Lord of the Rings.

On Academy Awards night, the audience is full of stars showing surprising grace under pressure in an emotional profession. They show their true acting chops by jumping up, applauding and faking genuine smiles despite their having turned down the Oscar-winning role.

Many classics have modest initial reviews or weak box offices such as Blade Runner and Get Carter. Radical uncertainty about whether you will like what you see is part of the experience sought when going to the movies. My favourite movie is Casablanca the second time I saw it at Uni for $1.

Studios and investors cope with this extreme uncertainty through a portfolio approach. They invest in many films and in both established and new talent and hope to get lucky.

New Zealand taxpayers cannot diversify the risk of frequent flops with a global portfolio approach. We have only enough cash to spare to subsidise a few films. Many of these are now sequels or franchises that sooner or later will tire with their inherently fickle audiences.

Any industry which survives on the grace and favour of the subsidy granter is inherently vulnerable; doubly so when consumer tastes are so unpredictable. With 6000 or so employed in the NZ film industry, the danger is politicians will never turn the subsidy tap off because of job losses.

New Zealand is a bit player in a global subsidy market where national, state and city governments are all pitching big to attract a bit of glamour their way.

The poor returns on film subsidies are well-known. The Treasury estimated taxpayers spent $472 billion in seven years for net economic benefits of just $13.6 million from 2004 to 2011; an annual rate of return of less than one percent. Treasury found only limited evidence of spill-overs to tourism.

The infant industry argument for subsidies does not stand up if only because they never grow up. Perpetually subsidising the film industry as the basic business model makes no sense at all.

Looking past the tinsel town glamour, film subsidies are a race to the bottom for the taxpayer. That does not count for much when there are photo opportunities for politicians with movie stars.