Why the Centre for Independent Studies should come clean on its support for the destructive carbon tax

Gerard Jackson
BrookesNews.Com
Monday 31 May 2009

Whether we call it cap and trade or an emissions trading scheme a carbon tax is still a carbon tax. And a carbon tax is a tax on capital which is just another way of saying that it is an attack on living standards. To put it very simply, the standard of living and the height of real wages are determined by the ratio of capital to labour. The more capital (the material means of production) the higher real wages will be and hence living standards. It is vitally important to stress this fact because advocates of the carbon tax are deliberately ignoring it. In some cases they actually go so far as to lie.

The Sydney-based Centre for Independent Studies has been pushing a carbon tax for sometime while ignoring its economic and social costs. Now I have been highly critical of this tax and the CIS for supporting it¹. In return the CIS has steadfastly refused to respond or make an open attempt to defend its position. Not only that, it recently hosted a "round table conference" the sole purpose of which was to discuss the 'best' method of implementing a carbon tax.

Not a word was spoken on the destructive consequences of this tax. It was made very clear from the beginning that as far as the CIS is concerned a genuine debate is out of the question. The whole thing reminded me of the Queen of Hearts when she haughtily declared: "Sentence first, verdict afterwards!" However, others have also objected to this autocratic approach, (The PRODOS blog), strongly criticising Greg Lindsay's round table discussion and the manner in which it was carried out.

A number of people have complained to me that by "attacking the CIS" I am "playing into the hands of the left". I put it to them that if anyone is aiding the left here it is the CIS. One person said that what Greg Lindsay does is his business. Not when he uses the authority of the CIS to influence public policy in a way that would savage living standards. When that happens it is everyone's business.

Greg Lindsay is more than just the head of the CIS — he is the CIS. For him to throw the weight of the CIS behind a carbon tax and then piously claim that he is an innocent bystander is both cowardly and brazenly dishonest. As a 'think tank' the role of the CIS should have been to openly debate the consequences of a carbon tax and not consecrate it. That the CIS has not published a bloody thing that exposes this pernicious tax as a direct attack on living standards proves beyond any reasonable doubt that Lindsay has no intention of promoting an honest debate on the subject. If this is not a calculated attempt to mislead the public I should like to know what is.

As Greg Lindsay has given the impression that he has been deeply influenced by Hayek and has also boasted of his think tank's links with him I think it only appropriate that I should use Hayek's work to once again expose the carbon tax as a capital-destroying monstrosity. Austrianism explains that the economy has a production structure consisting of numerous complex stages comprising heterogeneous capital goods. The structure has a time dimension meaning that the rate of interest determines the time pattern of investment. (Meddling with interest rates discoordinates the structure and triggers the boom bust cycle).

This is not a static approach. We can sum up its dynamics with the observation that entrepreneurship drives the economy, savings fuel it and the rate of interest coordinates the structure and determines its length by equating the supply of capital with the demand for capital. Hayek used triangles as a heuristic device to try and explain this process. The following figure is one such triangle. (See Hayek's Prices and Production, Augustus M. Kelley 1967, p. 138).

Before the carbon tax is levied the production structure corresponds to A, D and B'. After the economy adjusts to the tax the production structure now corresponds to A, C and B. The area above A, C and B represents the capital that the tax destroys, which is precisely what the tax is supposed to do. Therefore the effect of the tax is to cause the production structure to contract. It should go without saying that the consequences for real wages and living standards will be severe. (Any attempt to maintain real wages in such a situation would create widespread unemployment).

The CIS argues that this is wrong through and through because "if a carbon tax was linked to other tax cuts then the economic costs of one tax will be offset by the economic benefits from lower taxes elsewhere". It could also be "revenue-neutral". The CIS call this a "no regrets" policy. I beg to disagree. There will be plenty of regrets because there is absolutely no way on the face of this earth that their proposed tax cuts could offset the massive loss of capital that a carbon tax entails. How in heavens name can tax cuts replace destroyed capital? They cannot and the CIS damn well knows it and that is why Greg Lindsay will not allow any kind of debate on the subject.

At the end of the day the only ones who would benefit financially from a carbon tax are the climate-change profiteers. These are genuine robber barons, cynical rent-seeking opportunists who are ruthlessly using the power of the state to fatten their bank balances. And who are these phony businessmen who are assiduously promoting the benefits of a carbon tax? They are the ones who set up carbon trading corportions and who peddle so-called alternative energy as a substitute for centralised power generation².

What is truly disgusting about this sleazy affair is that self-styled conservative columnists like Andrew Bolt, Janet Albrechtsen, Miranda Devine, etc., refuse to hold Greg Lindsay accountable for his actions. Tim Blair — another member of the gang — wrote that Brookesnews should be closed down because he and his 'conservative' are doing a much better job. Yet Tim Blair — a columnist with the Daily Telegraph — is also covering for the CIS. So much for the public's right to know.