If You Call a Calf’s Tail a Leg

How many legs would a calf have?  This was a rhetorical question put to his cabinet by Abraham Lincoln during a discussion that seemed to be running in circles.  They all answered, “Five,” at which point Lincoln corrected them.  Calling a tail a leg doesn’t make it a leg.

Nor can you credibly claim that fossil fuels are being “subsidized” by re-defining “subsidy” into meaninglessness, as a several authors affiliated with the International Monetary Fund seems to have done.  According to those sages, world-wide energy costs — by which they overwhelmingly mean fossil fuel energy costs — are being “subsidized” to the tune of $5.3 trillion annually.  The Frankfurter Allgemeine Zeitung has the articleHere’s the blog post.  The blog post relies heavily on an IMF working paper, “How Large are Global Energy Subsidies?,” available in .pdf here. The reader doesn’t get past the headline without tripping across the writers’ leftist bias splashed across the screen:  “Act Local, Solve Global: The $5.3 Trillion Energy Subsidy Problem”.  Isn’t $5.3 trillion a rather large number?  How did they get there?  Did they add up governmental hand-outs, direct or indirect, to energy producers or consumers?  Well no, no they didn’t.  What they did was define a calf’s tail so that now it’s a leg:

“We define energy subsidies as the difference between what consumers pay for energy and its ‘true costs,’ plus a country’s normal value added or sales  tax rate. These ‘true costs’ of energy consumption include its supply costs and the damage that energy consumption inflicts on people and the environment. These damages, in turn, come from carbon emissions and hence global warming; the health effects of air pollution; and the effects on traffic congestion, traffic accidents, and road damage. Most of these externalities are borne by local populations, with the global warming component of energy subsidies  only a fourth of the total.”

“Externalities.”  “True costs.”  And of course, “global warming.” The latter of which hasn’t been occurring for the past 15-plus years, and the extent to which it is anthropogenic is the subject of massive debate, despite what the acolytes of The Economist, The New York Times, The Washington Post, the television talking heads, and the rest of the left-extremist media repeatedly assure us is “consensus” scientific opinion.  Even on the assumption that, long-term, the earth overall is in fact warming up, as of right now there is little robust (in other words, non-manipulated) data to indicate that human activity is the dominant cause of it.  Looked at slightly differently, for the past 15 years, during which time everyone now agrees there has been a “hiatus” in warming, the amount of carbon dioxide in the atmosphere has been steadily climbing.  By every one of the climate alarmists’ models the world should be cooking.  But it’s not.  Why not?  Well, there are a bunch of theories out there, all of which — hardly surprisingly — rely on naturally-occurring phenomena to explain “where the heat is being hidden.”  But what does that tell us?  What it tells us is that naturally-occurring phenomena can very easily overwhelm the anthropogenic component of warming trends, and that assumes that the computer models which are the source of our estimates of the magnitude of that component are accurate in the first place.  Which may or may not be the case.

These IMF writers are perfectly comfortable not only assuming that the world is warming and will continue to warm, but that it’s human carbon emissions that are the cause of it.  And then they pull a number out of thin air to slap a price tag on it, and call it an “externality” which must be accounted for in calculating the “true” cost of energy.

The health effects of air pollution are a genuine external cost of the use of fossil fuels.  And it’s not hard to put some pretty robust numbers on that cost.  Most countries keep pretty good track of mortality and morbidity, and the range of illnesses and diseases reliably connected to ambient air pollution is pretty well-settled.  So when they authors write, “In China alone, the World Health Organization estimates there are over one million premature deaths per year due to outdoor air pollution, caused by the burning of polluting fuels, particularly coal, and other sources,” that’s a number I can take at close to face value (ignoring the extent to which international NGOs have joyfully prostituted themselves to various left-extremist causes).

That million-premature-deaths-per-year data point really doesn’t take full account to the full consequences of China’s fuel consumption, does it?  Let’s look back a few decades to see what life in Red China was like before its economy took off.  China was a land of — in many provinces still is — dirt-poor peasants, without clean drinking water, transportation to keep the villages fed, reliable modern or semi-modern healthcare, or most of the other advantages of modern economies.  They died like flies.  What has happened to overall life expectancy in China as a result of its economic modernization?  Here are the charts: overall life expectancy went from 68.31 years in 1985 to 73.27 years in 2010.  These IMF folks are counting only one side of the equation.  If I increase life expectancy across several hundred million people by five years through generalized, wide-spread economic development — a development which would be utterly impossible without cheap, for which read “fossil” energy — but out of those hundreds of millions, 1 million annually die prematurely, then I’m not only still to the good, I’m massively to the good.  In India, one of the other major “sinners” in fossil fuel consumption, the increase is even more stark.  We see life expectancy going from 62.5 to 67.14 years between 2000 and 2012, five years’ increase over just twelve years.

By the way, despite the obviously Marxist leanings of these IMF wonks, general economic development and prosperity inures to everyone’s advantage.  Everyone’s.  If air pollution is an external cost, then general economic advancement is an external benefit, and it’s asinine — and dishonest — to include the one without accounting for the other.

“The effects on traffic congestion, traffic accidents, and road damage”:  These are likewise “external costs” that amount to “subsidies” of energy.    I’d love to see someone demonstrate that “too-cheap” energy prices result in traffic congestion and accidents.  What produces traffic congestion and road accidents are too many people trying to fit their vehicles onto a given surface of road at the same time.  And what produces that is geographically concentrated economic opportunity that grows faster than government’s ability to respond to it.  Unemployed people don’t drive to work, to put it bluntly.  Businesses that go out of business don’t run their trucks.  So if we just tamped down productive economic activity our roads would be safer and less congested.  Which appears to be the objective of these authors.

The kind of economic advancement which produces crowded (and dangerous) traffic condition arises from, and only from, relatively inexpensive transportation, and that requires relatively inexpensive energy.  By “relatively,” I mean, incidentally, relative to other mechanized and non-mechanized forms of transportation.  When you had to own and maintain a horse and wagon in order to “drive” anywhere, that was both highly inefficient and very restrictive.  As Paul Johnson describes travel in pre-railroad England in The Birth of the Modern, the vast majority of people walked wherever they went, because they couldn’t afford to ride, not because they wanted to stop and smell the flowers.  That’s still true elsewhere in the world.  Despite all the picturesque photographs in The National Geographic of swarms of passengers so covering rail cars that you can’t see the rail car beneath them, most people in the less developed world walk, and not from choice.

Non-mechanized travel is slow, it’s inefficient (how many horse-drawn wagons would it take to deliver the lumber and brick to build a single house? how many guys driving flat-bed trucks?), and it is, relative to fossil-fueled mechanized travel, horribly, horribly expensive.  Among forms of mechanized transportation, railroads are phenomenally inefficient in any sense of how much energy it takes to move X people or weight of objects Y distance, from any given Point A to Point B.  Those who extol the virtues of rail conveniently pay attention to the first component X over Y, forgetting that niggling little issue of where it’s being transported from and to: which Point A to which Point B.  There is not money enough in all the world to build and run railroads to everywhere that needs cheap transportation.  If I’m 30 miles from the nearest railroad point of embarkation (and many, many places, even in the Easter U.S., are), then it doesn’t really do me much good to ponder how much weight a train can pull per unit of energy, does it?

Once more, the “too-cheap energy” hand-wringers need to answer the question of precisely how they account for the overall benefit, in length and quality of life, provided by modern capitalistic economies operating through the inter-connectedness of inter-continental markets for everyday goods (and even services, although to a lesser extent).  These authors’ outlook assumes a pre-lapsarian paradise where an increasing population somehow has jobs that somehow enable its individuals to pay the bills and somehow live long, relatively-healthy lives, without a relatively inexpensive way to move people and goods, to heat, cool, and light houses and businesses, and to operate the machines which make the physical objects that make it all possible.

How do our authors propose to impose on consumers the “true cost” of energy?  Why, through taxation, of course.

“The fiscal gains from subsidy reform are sizeable and could be a game changer for fiscal policy in many countries.  This would give room, for example, for governments to reduce some types of taxes (such as those imposed on labor) that weigh down growth;  raise growth-enhancing public expenditure (e.g. for infrastructure, health  and education); and finance targeted cash transfers for the poor.  Furthermore, there would be appropriate incentives for investment in green technology because dirty energy would no longer be artificially cheap.”

In the working paper linked above you get a better idea of just how purely theoretical all these wonderful “savings” actually are.  Reducing a tax on labor sounds nice, but it really doesn’t answer the question where you are going to replace the money from all the income tax revenue lost from jobs destroyed or more importantly jobs never created.  Moreover, if you just read the above paragraph you’ll notice a curious contradiction:  Increasing energy costs will reduce energy consumption, and we’re going to use all that money flowing in to . . . build and repair more roads and bridges for all the cars and trucks that aren’t being driven any more.  It also assumes an infinitely linear relationship between economic growth and government expenditure on “education” (no such relationship has ever been shown above a certain level; if that were the case the United States would be a nation of Einsteins) or “health” (ditto).  And finally we get to the nub:  more money to hand out to our pet constituencies and “green energy” cronies.

On a more practical level, when has there even been a sustained pattern of government taking one tax revenue source and using it to reduce another?  That is a supposition that defies uniform experience of government since the days of the pharaohs.  For that matter, it seems to me that if most of the externalities of energy consumption are experienced locally, then paying a whacking great chunk of money to a centralized bureaucracy to siphon 40-80% of it off the top in “administration” costs and then dole the balance out to its favored constituents is precisely the wrong way to match externalities with those who must experience them in the actual lives.  I’ll give you a hint:  There aren’t a whole lot of “green energy” mooches in Atlanta, and yet there’s a boat-load of externalities to experience there (as anyone who’s tried to drive further than three blocks around there can tell you).  So the solution is to impose a tax on all those who live and work in Atlanta, so some firm in Silicon Valley can be handed $535 million in taxpayers’ money to get behind the major-political-donors’ equity position when the firm, which was already irretrievably broke when the money was paid, files its bankruptcy petition?  Color me uninterested.

Finally, other than using less energy, what do the authors’ suggested uses of this tax revenue actually do to reduce the externalities of energy consumption?  China could burn 17% less coal and it would still have lousy air quality in its large cities.  New Yorkers could burn 17% less automotive fuels and mid-town would still be a parking lot for most of the day.  Where the change would occur would be at the margin and in truth would largely occur in the form of lack of economic activity.  In any single year that might not be a terribly large number, but once you slice 0.5% off your annual rate of growth over several decades because energy is now so damned expensive, and suddenly the difference in overall societal condition is the difference between the American Midwest and rural India.

Also noteworthy is the authors’ pointing out that the “externalities” of “too-cheap” energy are very predominantly local.  Even assuming all the climate alarmist chatter to be true in every detail [It’s not; all these models and projections trace themselves to data held by the University of East Anglia, data so thoroughly corrupted by manipulation that the man they hired to recreate their original measurements gave up after about three years of trying; the source data has been so monkeyed with that it is unusable for any other than propaganda purposes . . . which coincidentally is what it’s being used for; useful entry points to understand what’s been going on here, here, and especially here.], something like half the total is accounted for by local air pollution.  Local.  All of which is to say that there are enormous swathes of every country on the face of the earth where the air simply isn’t all that bad.  Yet the taxes proposed will hit everyone in the country.  Seems like what they’re proposing is to shift the externalities from one subset of people (residents of dense urban pockets) to another subset (everyone else).  I’d also note that non-residents of dense urban areas tend to use — at least in their personal existence — more energy for things like transportation than their urban cousins.  Ditto businesses.  If you live or work out in the sticks, you’ve got further to move yourself and your stuff than if your customer base all lives within 25 miles of you or your business.

In fairness to the authors of the linked paper, they do come right out and admit that their conclusions rely on enormous assumptions that may or may not be true, especially on the benefit end of things.  This is significant, because we do know a great deal about the cost of suppressing growth.  Take a look at the life expectancies as of 1960 in — China: 43.47 years; India:  41.38 years; Brazil: 54.69 years.  Those truncated lives are the “externality” of allowing a bunch of coastal elites to feel good about themselves by taxing the rest of us into oblivion so they can have more of our money to play with.

I humbly suggest that willfully knocking the creation and aggregation of wealth back to an era when we didn’t have a million Chinese dying “prematurely” each year, but rather hundreds of millions of Chinese with over 20 years’ less life expectancy at birth, all based on pie-in-the-sky assumptions about all this magical government revenue that will roll in from a shrunken economy, is a suggestion that does not deserve to be taken seriously.

And those assumptions sure as hell are no basis to claim that energy is being sold at $5.3 trillion below its “true cost” annually.

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