EconoMonitor

Nouriel Roubini's Global EconoMonitor

It Is High Time for a Carbon Tax

As the U.S. Congress is now controlled by the Democrats and as calls for bipartisan policies are now rhetorically raised by all sides of the political spectrum, which would be a good first policy action that could have  broad bipartisan support and help to address many problems faced by the U.S. economy?
 

Think of a policy action that would:
 

  • Help reduce the large U.S. budget deficit and even make permanent some – but not all – of recent tax cuts
  • Reduce the unsustainable U.S. trade deficit
  • Reduce truly – not just rhetorically – the U.S. dependency on oil and energy imported from unstable regimes in the Middle East and other regions and would improve U.S. national security.
  • Start seriously dealing with the problem of climate warming induced by greenhouse emissions, a problem prominently addressed by the recent Stern Report.
  • Reduce the pre-tax equilibrium global dollar price of oil and thus improve the terms of trade of oil importers
  • Reduce the power of unstable “Petro-States” (to use the Tom Friedman expression)
  • Reduce road congestion and our demand for gas-guzzler vehicles
  • Have broad bipartisan support 

What is that policy? A “Carbon Tax”.  It is not just Democrats who support this idea that was, among others, proposed by Al Gore and President Clinton in the form of a BTU Tax. There is now an increasing number of Republicans who support this tax. These Republicans include Greg Mankiw – the former head of Bush’s Council of Economic Advisers – who recently proposed in the WSJ a $1 carbon tax to be phased in over ten years (10 cents per year); David Frum, former Bush speechwriter and now resident fellow at the conservative think tank American Enterprise Institute, who wrote today in the Wall Street Journal in support of such a carbon tax. Other supporters of the carbon tax include many distinguished and respected economists on both sides of a partisan spectrum including Bill Nordhaus and Ken Rogoff. Bipartisan supporters also include former Secretary of State George Shultz (a Republican) and former National Security Adviser Anthony Lake (a Democrat) who chaired the Princeton Project on National Security that called for a national gas tax that would start at 50 cents per gallon and increase by 20 cents each year for the next 10 years. A long list of other economists and policy makers on both sides of the political spectrum have come in support of the idea of an energy or carbon tax including Larry Summers, Alan Greenspan, Martin Feldstein, Paul Krugman and Gary Becker.

A tax that reduces the budget deficit, the trade deficit, helps to solve the global warming problem and cleans up the environment, reduces the power of unstable regimes that export oil, strengthens the U.S. national security, has broad bipartisan support. This is a place where the new Democratic Congress could start delivering on its promise of sounder economic and social policies for the United States.

111 Responses to “It Is High Time for a Carbon Tax”

GuestNovember 9th, 2006 at 11:12 am

A carbon tax is a regressive tax — why do you support this at a time when the real wages are only increasing to those in the upper income brackets. Those in the lower income brackets are seeing NO real wage increases. This carbon tax puts undue pressure on those least able to afford it…..furthermore, those in the lower income brackets are the ones least able to afford a new car in order to reduce there carbon tax burden. THIS IS AN UNFAIR TAX!

Mike MNovember 9th, 2006 at 11:32 am

I love your work, but please, no social engineering! My biggest pet peeve with economists… How about a free market in money: Gold standard, Oil that is traded in mutliple currencies. This would naturally raise the price of carbons, which would reduce consumption and incent entrepeneurs to develop alternatives. A truly free market will fix the problem, not more political meddling.

wetzelNovember 9th, 2006 at 11:35 am

Nouriel, I am a devoted reader, but let me make an alternative suggestion.  Why don’t you just propose that every Democratic politician in the country drop a giant lead balloon on their own heads? I don’t propose that would solve any problems, but the end result would be the same.  How about we tax millionares and use that loot to give big credits on the purchase of efficient cars.   A gas tax would be great in a perfect world, but higher gas tax and continuing Democratic electoral success do not exist in the same potential future.

londonchronicles.blogspot.comNovember 9th, 2006 at 12:08 pm

Re: regressive tax. To offset the regressive nature of a carbon tax the tax revenue gained from the tax could be put in an expanded Earned Income Tax Credit program.

Dave ChiangNovember 9th, 2006 at 12:18 pm

 What the US government should stop subsidizing is the construction of these wasteful McMansions by eliminating the absurd mortgage interest tax deduction. I personally own my house with a 15 year mortgage that I plan to pay off in 5 years, but the current federal tax structure subsidizes the operating cost for these McMansion owners. At the very least, these obscene and grotesque McMansions that represent an incredible waste of resources should not receive a larger interest tax deduction subsidy than the median priced home in the US. Despite a personal tax deduction loss to my finances, the mortgage interest tax deduction should be eliminated. 

Mike MNovember 9th, 2006 at 12:19 pm

londonchronicles: How about this? Let’s tax all smokers, drinkers, fat people, those over 50, small children, pet owners, automobile owners, and Keynesians… send the money to you, and you can decide who to distribue it to?

Oil ShockNovember 9th, 2006 at 12:41 pm

A progressive Fat Tax needs to be introduced. 10 calories of fossil fuel is spent in producing 1 calory of food. People who consume more than their fair share of caloric resources, needs to be progressively taxed.  Also 1 pound of meat consumes many times more fossil fuel energy compared to a vegetable, also water requirements for producing this is multiple times that lettuce. So meat needs to be taxed at a higher rate than vegetables.  Kidding of course. But on a serious note, how about eliminating the dark entity known as IRS ? How about saying no to confiscation of people’s hard earned money ?

GuestNovember 9th, 2006 at 1:10 pm

Nouriel,  It must be a bit embarrassing for you to read comments on your blog and realize the profound ignorance of your audience. Your readership seems to be dominated by clueless folk who have no idea of the overwhelming scientific consensus on global warming. Others recognize the problem but whine about the regressive nature of the tax. The good people of Poland, Hungary, the Czech Republic, Slovakia, Slovenia, and other Central Europeans with annual incomes per capita of about $10,000 to $15,000 manage to pay $5 a gallon for gas. Richer West Europeans pay a similar price. Surprise, surprise! Europeans drive more fuel efficient cars than Americans do (they also live in more fuel efficient houses). But liberal folk in the US think it is social travesty to propose a regressive carbon tax.   Please continue to use your influence (along with Mankiw, Rogoff, Stern, Stiglitz and the majority of prominent economists) to educate your ignorant readers on the benefits of a carbon tax. It’s a noble cause. Good luck.

GuestNovember 9th, 2006 at 1:10 pm

Nouriel,  It must be a bit embarrassing for you to read comments on your blog and realize the profound ignorance of your audience. Your readership seems to be dominated by clueless folk who have no idea of the overwhelming scientific consensus on global warming. Others recognize the problem but whine about the regressive nature of the tax. The good people of Poland, Hungary, the Czech Republic, Slovakia, Slovenia, and other Central Europeans with annual incomes per capita of about $10,000 to $15,000 manage to pay $5 a gallon for gas. Richer West Europeans pay a similar price. Surprise, surprise! Europeans drive more fuel efficient cars than Americans do (they also live in more fuel efficient houses). But liberal folk in the US think it is social travesty to propose a regressive carbon tax.   Please continue to use your influence (along with Mankiw, Rogoff, Stern, Stiglitz and the majority of prominent economists) to educate your ignorant readers on the benefits of a carbon tax. It’s a noble cause. Good luck.

GuestNovember 9th, 2006 at 1:11 pm

Mr. Chiang is on the right track concerning the mortgage interest tax deduction.  I would not eliminate this incentive to home ownership. However, I would eliminate the ability to deduct interest owned on home equity lines of credit. The use of the home as an ATM to fuel consumption of luxury automobilies, TVs, and countless other junk needs to be restrained. Removing the tax deduction on home equity loan interest would be a good step forward in getting Americans to reassess their spending priorities and inclination to pile up massive debt to amass material wealth.

GuestNovember 9th, 2006 at 1:19 pm

I for one think a carbon tax (and/or higher gasoline tax) is a good idea, especially if used in conjunction with expanding the EITC to address regressivity issues. I wonder about the extent of bipartisan support for it though, given that the returning congressional Republicans are likely to be more conservative (due to the defeat of several moderate R’s), and therefore (?) more likely to oppose any new taxes.  Any thoughts about that?  PS

GuestNovember 9th, 2006 at 1:20 pm

Dave: Mortgage interest on principal over $1M and home equity interest on loan over $100K is not deductible. (Mc)mansion owners are probably not subsidized by taxpayers anyway.

Mike MNovember 9th, 2006 at 1:25 pm

Guest: It must be a bit embarrassing for you to read comments on your blog and realize the profound ignorance of your audience. Your readership seems to be dominated by clueless folk who have no idea of the overwhelming scientific consensus on global warming. Others recognize the problem but whine about the regressive nature of the tax. The good people of Poland, Hungary, the Czech Republic, Slovakia, Slovenia, and other Central Europeans with annual incomes per capita of about $10,000 to $15,000 manage to pay $5 a gallon for gas. Richer West Europeans pay a similar price. Surprise, surprise! Europeans drive more fuel efficient cars than Americans do (they also live in more fuel efficient houses). But liberal folk in the US think it is social travesty to propose a regressive carbon tax.    Please continue to use your influence (along with Mankiw, Rogoff, Stern, Stiglitz and the majority of prominent economists) to educate your ignorant readers on the benefits of a carbon tax. It’s a noble cause. Good luck.  Thank you for the education!! Other noble causes include: War on Poverty, War on Drugs, War on Terror. Now it is War on Carbons! But this one should work!   You might want to check you premises, friend.   

GuestNovember 9th, 2006 at 1:26 pm

Getting rid of the mortgage interest tax deduction is probably a good idea, but I would phase it out. Less and less % of the interest deductible each year for, say, five years, until you get to 0.

andy hNovember 9th, 2006 at 1:30 pm

Excellent suggestion – Americans pay far too little for their gasoline, and the result has been a surge in the sale of vastly inefficient SUVs and the like (that is until the recent spike in oil scuppered GM and Ford). It is a good idea from both the global warming AND the peak oil perspective. Mind you peak oil is going to be forcing the price of gasoline up anyway in the next few years – but think of the gains to be made in terms of vehicle efficiency design etc if folk were forced to confront the pricing issue now with a carbon tax. Some of the replies above seem to be of the ‘let her rip and lets burn the H’carbs as fast as we want’ variety. Ain’t you folk been reading the papers recently?

Dave ChiangNovember 9th, 2006 at 1:43 pm

“Mortgage interest on principal over $1M and home equity interest on loan over $100K is not deductible” – Guest  That’s still way too high of a threshold for tax deduction. Americans need to face reality that you cannot spend your way to prosperity. The mortgage interest tax deduction needs to be terminated in order to force Americans to make a reassessment of their finances. – Dave C

GuestNovember 9th, 2006 at 1:50 pm

what’s with all the strange free market zealots out today? would you really like to get rid of all of our “social engineering”? maybe we should start with criminal law and other “government tinkering.” see how the free market handles overfishing and other resource exploitation problems. face it, we live together, and we have to change our behaviour together to keep doing it.  the carbon tax is an essential idea and if we reduce income tax by the same amount, it’s revenue neutral and (probably) not too regressive

GuestNovember 9th, 2006 at 1:50 pm

what’s with all the strange free market zealots out today? would you really like to get rid of all of our “social engineering”? maybe we should start with criminal law and other “government tinkering.” see how the free market handles overfishing and other resource exploitation problems. face it, we live together, and we have to change our behaviour together to keep doing it.  the carbon tax is an essential idea and if we reduce income tax by the same amount, it’s revenue neutral and (probably) not too regressive

BupaNovember 9th, 2006 at 1:51 pm

Nouriel,  Keep up the good work. You’ll need all your charm and influence to get through the thick skulls of readers like Mike M.  Your link to Ken Rogoff takes the reader to an article on global macro imbalances. Rogoff does have a recent article supporting carbon taxes. http://commentisfree.guardian.co.uk/kenneth_rogoff/2006/11/americas_antienvironmentalists.html  It starts off like this: “As an American, I am appalled, ashamed, and embarrassed by my country’s lack of leadership in dealing with global warming.”  I can only imagine Ken banging his bald head against the wall reading the majority of comments from your blog.

RockRabbitNovember 9th, 2006 at 1:58 pm

What is a ‘free market’. They are a theoretical dream like communism. The best one can strive for is an efficient market which require a degree of Government regulation (and taxes).  The whole (economic) point about climate change is that it causes massive market inefficiencies. Because some activities have major externalties (eg using carbon based fuels) the market price is incorrect because it fails to take into account the true economic cost.   Anyway, I don’t understand why everyone is so afraid of carbon taxes. Thet will cause a technological boom in alternative energy.

GuestNovember 9th, 2006 at 2:08 pm

agreed, the countries that take the lead on alternative energy will dominate in the same way that the countries at the forefront of computers did. oh, and it also reduces the chance that our future existence will be a living hell or that our oil purchases will pay for the next installment of al qaeda flying lessons

NourielNovember 9th, 2006 at 2:37 pm

Bupa: thanks for noticing the wrong link; i will fix it. Also thanks to you and others for the thoughful comments. Some critiques of the carbon tax are sensible: for example the tax is potentially regressive but this problem, as suggested by some, can be easily fixed by providing extended tax credits – such as the EITC – to the poor. Other critiques – based on a generic support of “free markets” – are outright silly. As even a Republican like Mankiw agrees the carbon tax is a Pigouvian tax (http://gregmankiw.blogspot.com/2006/05/three-votes-for-carbon-tax.html), i.e. a tax that deals with market failures and negative externalities (pollution, global warming, congestion, reduced national security). So across-the-board arguments based on “free markets” are senseless when we speak of such market failures and externalities.   

GuestNovember 9th, 2006 at 2:58 pm

Let’s go one step further. I’m a Brit looking in as it were and I see a US engaged in a nonsensical farcical financial tango. That is , you buy too much with what you have not got to spend. What you have not got to spend is loaned to you by the Chinese who promptly use the vast surplus to do a global shopping trip buying up scarce resources which , oh yes, in the fullness of time will be even scarcer ,and thus will (you got it) cost the US even more of what it does not have to spend 😉 Wise up won’t you and get back to what you used to be ,. a self reliant , determined ,self disciplined country …you know you want to 😉

ProgressNovember 9th, 2006 at 3:01 pm

If the carbon tax is offset dollar for dollar by first eliminating taxes on savings and investment, and then is used to offset the income tax, then maybe I can go for it. But if man can affect the climate, why don’t we do something to cool it? We know particulate, blasted into the high atmosphere, that will have the effect of blocking the sun and reducing the temperature what if we can do that without affecting health? Why is every solution a tax, or de-industrialization? I think it’s because socialists are using the topic to advance a political agenda. It is an anti-progress agenda that results from narrow thinking.

AnonymousNovember 9th, 2006 at 3:08 pm

Hey, great idea! The US economy is going into a recession, let’s quickly enact a new and regressive tax, and tinker with the income tax structure as well! As much as I dislike the petrostates (great term) and would like to see the influence of our Saudi “allies” reduced considerably, I don’t see how this will do the job, especially phased in over 10 years. Seems to me that if Peak Oil is real, it’s due to kick in any week now & that’s supposed to jack oil back over $100/barrel forever, a much greater effect than any piddling carbon tax.   And speaking of carbon: I have one simple question: will this tax in any way affect China, which is now the #2 carbon emitter on the planet, and will become #1 in less than 5 years?   One more carbon point> You all are aware that China is putting more natural gas fired powerplants on line than exist in all of the United Kingdom in the next 3 years, and thus even if the Brits shut down all their gasfired plants, the global effect would be zero, nada, zilch…right? You are aware of what “industrialization” in China really means, surely?

GuestNovember 9th, 2006 at 3:31 pm

“The mortgage interest tax deduction needs to be terminated in order to force Americans to make a reassessment of their finances. – Dave C ”  Please be practical. Every congressman owns a home and possibly second home in DC. Your suggestion will not even be proposed.

RockRabbitNovember 9th, 2006 at 3:35 pm

Progress “I think it’s because socialists are using the topic to advance a political agenda. It is an anti-progress agenda that results from narrow thinking.”  What on earth are you talking about? Going from a high carbon to a low carbon economy IS progress. It is already leading a to a high tech revolution in energy production, storage and utilisation. Many alternative energy companies in the US and Europe are booming with order books full for 2-3 years ahead. A low carbon economy is also about increasing energy effiency and reducing waste. Doing nothing is, by definition, anti-progress.  Anonymous Agreed China/India etc are problems but that is no reason to do nothing. It is also in their interests to reduce carbon emissions as they are likely to suffer the most from any rise in temperature and carbon credit trading is an effective means to encourage them to adopt green technology. Furthermore many of the new technologies are ideal and cost effective for Asia. Incidently China is already one of the world’s largest manufacturers of wind turbines. Green Energy is an area the US could lead the world in, why not take the opportunity?

The HubeNovember 9th, 2006 at 3:42 pm

The only way this would work is if they linked it with a reduction in the payroll tax to make it revenue neutral.

koteliNovember 9th, 2006 at 3:44 pm

It’s funny to see that some readers of this blog think that all taxes should be removed, that governments should spend less that them in the bar and taxing is a sort of medieval thing.  I know that a gas tax is not a progressive tax, but americans are paying much more for bottled water than for gas in any convenience store.  Why is cheaper gas than water in USA?  Why is cheaper Coca-cola than water in Mexico?  Like an european like me was saying before (I’m from “Old Europe”, with better per-capita rent, but lower than USA’s), we are used to pay 5-7$ the gallon, and we manage with it, we drive and we travel. The inequalities here are not as big as in USA, but middle class is losing ground too.  We live more people in the EU than in USA, but we spend much less petrol than USA.  Do those people have any idea about public transportation and public railroads (a good way to spend the money of this tax)?  Or they live in a suburbia in nowhere at 90 minutes driving from their job place?  USA’s suburbia is compatible with expensive petrol?  They should start thinking the ways to remove the fat of petrol consumption, you who like so much cholesterol-free products that one gets lost in a supermarket finding something not fat-free.  In the end, you can see without too much effort why a man like G. W. Bush can become the president of a country where less than a half of the people go to vote.  Let’s not talk about democracy… We’d need a new blog!  Please, go on Mr. Roubini, with good ideas and criticism.   PS: As you changed from housing to carbon, for first time in quite a long time, I guess you are quite happy with the new government in USA, and you see some light in the end of the tunnel of bush-ship. I don’t expect much light, but a few interesting corrections, for the next two years. Go on!

Oil ShockNovember 9th, 2006 at 4:05 pm

koteli said….Why is cheaper gas than water in USA?   You are either paying too much for water or I want to know where you fill Gas. But I tellya, water going to become more expensive as water tables drop in under ground reservoirs. So will the gas prices as depletion will cause a decline in production.   USA industrialized and created a huge well to do middle class under a free market system. But creation of the federal reserve, introduction of income tax, slowly creeping influence of social engineering has set us back.   All the social engineering in the name of helping the poor and middle class has only made them poorer. Now take your brain back from pause and think about it. Track record of all the socialist programs since the 60s, is pathetic – given their much touted social goals.  Free market has a much better track record. By the way George Bush is far from a free marketer. He is a big goverment guy, outspent every president before him.

RockRabbitNovember 9th, 2006 at 4:22 pm

Oil Shock  Permanent income tax in the US started in 1913 – has it really been all downhill since then?  Agree with you re: Bush – will go down in history as a disaster for economy, Iraq and the Republican Party. I thought the prime philosophy behind the Reps was Small Government – low taxes, low expenditure.  

GuestNovember 9th, 2006 at 4:31 pm

What some posters don’t understand about economics results in Ad Hominem attacks against those who do understand. The point is that the US today is on thin ice caused by past government tinkering. The Fed (Fisher) admitted they created the bubble in housing. Fannie and Freddie helped as well as regulators who looked the other way.   The war on poverty created more poverty. The war on terror created more terror. The war on drugs created the “Gangsta” culture and turned Afganistan into the largest producer of opium, etc. Need I go on?   Instead of pointing to supposed market failure, the attention should be on government failure and the hope for us in truly free market solutions to our problems. 

GuestNovember 9th, 2006 at 4:31 pm

What some posters don’t understand about economics results in Ad Hominem attacks against those who do understand. The point is that the US today is on thin ice caused by past government tinkering. The Fed (Fisher) admitted they created the bubble in housing. Fannie and Freddie helped as well as regulators who looked the other way.   The war on poverty created more poverty. The war on terror created more terror. The war on drugs created the “Gangsta” culture and turned Afganistan into the largest producer of opium, etc. Need I go on?   Instead of pointing to supposed market failure, the attention should be on government failure and the hope for us in truly free market solutions to our problems. 

Oil ShockNovember 9th, 2006 at 4:37 pm

Yes 1913, fateful year when seeds of destruction were planted in the US economy. IRS and Federal reserve, can’t say which one is the lesser evil. Very difficult to accept that AMerica has been in decline for almost a century. But that is the truth. Imperial Cycles usually work over long periods of time. Sorta like the global warming thing, most people don’t feel the warming directly for the longest of time ( Question of whether it is human caused is debatable according to scientists )

MiddlemanNovember 9th, 2006 at 4:37 pm

I wholeheartedly agree that we should try to clean up the environment and become the leader in green energy. The sooner we can stop sending money to unstable Petro-States the better. But I just have a few concerns to say the least. Yes, temperatures are rising (except for this past October) and we could be in trouble IF temperatures don’t reverse at some stage. I’m worried about global warming but I also realize that meteorologists can’t predict weather one week out so why should I believe Al Gore’s predictions? There are scientists that dissent on the subject (yes, they do exist) and 30 years ago the big concern was the coming ice age. I’m not saying we’re not totally screwed but I just think it makes sense to not get hysterical since I have yet to see an analysis that says “man is causing X amount of global warming so if we do Y we can save things.” If we don’t know how much damage we’re doing, how do we know how much money we should spend to reverse the problem? I don’t think we should cripple our industries if we’re not sure it will reverse the problem. Heck, Europe hasn’t been able to do much good since it signed onto Kyoto. Plus, even if we get all green, will it do any good since China and India won’t follow suit and continue to pollute? Now don’t fly off the handle on me, I’m just trying to see both sides of the equation here. The US could make a killing being a leader in green technology, so lets push for that.  As for Europeans driving smaller more gas efficient cars, well I for one don’t want to drive a Fiat. It’s a coffin waiting to happen. I think Humvees are stupid but those people pay a high tax since they need an insane amount of gas to fill up their ugly truck. Maybe we should tax the purchases of said vehicles at a higher rate for starters. Of course, if we tax the hell out of SUV makers we’re going to have even more Americans out of jobs as SUV and pick-up truck purchases plummet. I wonder how the UAW and other unions would react given how much money they donate to the Democrats. Another random comment on Europe, those tiny cars aren’t suitable for having more than 1.5 kids and given birthrates at near irreversible levels in some countries over there, I don’t think I’m ready to give up my non-Fiat/Peugeot/Renault Ford Explorer just yet.  First things first, why doesn’t Congress under new management do what’s right and cut out the pork. The GOP was shameful/awful at this and I imagine this would go a log way to helping straighten out the budget. We could tax gasoline but this would slam consumers and we would speed even faster into a recession. We should slash many of the handouts we give to the world and maybe let the Europeans start to spend on their own military for a change. We can’t be the world’s Sugar Daddy anymore so let’s cut back our gift giving. I think the UN is a great place to start cutting back.  One final idea: we should tax the hell out of fuel used for all of these G4s and G5s. I’m tired of hearing about these “Green celebrities” flying private jets. I imagine it would help the environment if they flew commercial for a change and conserved fuel. Just a thought.  

Tom DC/VANovember 9th, 2006 at 4:38 pm

“Nouriel, I am a devoted reader, but let me make an alternative suggestion.    Why don’t you just propose that every Democratic politician in the country drop a giant lead balloon on their own heads? I don’t propose that would solve any problems, but the end result would be the same. ”  This, unfortunately, is correct. It would be nice if Dems could provide leadership on global warming, but there are more urgent issues like the war in Iraq to deal with first. Proposing a carbon tax or gas tax or anything like that right now will doom their chances of winning the presidency in 2008, which is an absolute precondition to implementing a carbon tax!

antiroubiniNovember 9th, 2006 at 4:40 pm

On this issue, I can only agree with Roubini. And I don’t think it’s a regressive tax. On the contrary, it’s quite progressive in both meanings of the word. 

GuestNovember 9th, 2006 at 5:15 pm

“And I don’t think it’s a regressive tax.”  Then you clearly don’t have a clue what a regressive tax means.  

GuestNovember 9th, 2006 at 5:28 pm

Nouriel:  A carbon tax might have been a very good idea back in 2003. That’s when the US economy was rising, interest rates from the Fed were cheap (so $ were available for innovative ideas for US businesses) and time was available to develop real energy alternatives. BUT the Bush Administration was in denial about global warming, and Big Oil wanted no part of a penalty on greenhouse emissions.  Now, we’re headed rapidly into a recession. U.S. business is struggling to stay globally competitive. The US consumer cannot manage to make any significant savings, and most of our current consumer demand seems to be financed by on-going mortgage refinancing (still!!).   NOW … the U.S Govt. needs to CUT spending. Period.  A “carbon tax” is already here in the form of rising oil prices (again), and it’s going to get worse as the dollar drops. This will be a difficult time for the USA to make major changes in the way it uses energy. Things are not hopeless, but they are now a lot tougher.  Pete, California.

antiroubiniNovember 9th, 2006 at 5:47 pm

“Then you clearly don’t have a clue what a regressive tax means.”  Yes, I have a clue. A regressive tax is when people with low income have to pay for the war in Irak so there would be enough extra gas to drive all these SUVs.

antiroubiniNovember 9th, 2006 at 5:47 pm

“Then you clearly don’t have a clue what a regressive tax means.”  Yes, I have a clue. A regressive tax is when people with low income have to pay for the war in Irak so there would be enough extra gas to drive all those SUVs.

RockRabbitNovember 9th, 2006 at 5:55 pm

“Instead of pointing to supposed market failure, the attention should be on government failure and the hope for us in truly free market solutions to our problems”  These are not mutually exclusive. I agree that there is massive Govt failure and the Fed has been a disaster. But ther is no such thing as a “truly free market”. Markets require the rule of law (regulation) to operate and they do need intervention to prevent market failure (eg monopolies, externalities). I believe in small Govt. but Govt. must intervene in some circumstances.   If you want to see how an economy operates with no effective Govt., I suggest you visit Iraq.

RockRabbitNovember 9th, 2006 at 6:05 pm

There appears to be an unsaid assumption among some posters that maintaining energy usage at current levels is a “good thing”. Why?? The bulk of US energy comes from abroad, much of it from despot states in the middle East. Why do you want to make these people rich when you can reduce your energy needs by greater efficiency and create your own secure energy supplies by wind/solar/wave/heat exchange etc? Why do you want to throw money away?  What are you afraid of? Someone mentioned that they didn’t want European cars. I think you need to get out more – Mercedes, BMW, Volvo, Porsche, VW etc are amongst the best cars in the world and are safer than their US equivalents and generally far more efficient.

XanirNovember 9th, 2006 at 6:37 pm

Next post, next post. (no time now). Just this: There is no overwhelming scientific consensus on global warming and the poles on Mars melt even faster than on Earth, while the Americans drive electric on Mars :-).  Does anybody know, besides the debt bubble, the Local Fluff bubble [1]? Anyone? It protects us but is under increasing pressure for the past 2000 years. Our Sun seems to be in overdrive mode for the past 50 years and still speeding up.  And who remembers the Medieval Warm Period when Greenland was a land of milk and vineyards. Greenland exported wine… When the climate changed the economy of Greenland collapsed.  Its not about CO2. It is about Climate Change(!). Not ‘warming’ but Change. Its about what happened 300 million years ago. We shall need much more energy to be prepared for what is coming. It is an interstellar thing.  Will we learn? With Fusion Energy? Harnessing the power of stars…  X.   P.S. There is a relationship with finance (Derivatives), climatologists and the big bang… Next post more (The hockey stick chart is a fraught).  P.P.S. For the investor. The only coin which is shepherded wisely is the Euro (get some Gold and Silver as well). All the other Central Banks ignore money creation. I quote Jean-Claude Trichet who starts with the 16th century. When Greenland was covered with ice ones more. Maybe we shall buy Greenland’s wine with Euros in the near future.  “I have always been impressed by the contribution of my compatriot, Jean Bodin, to our understanding of monetary economics. Drawing on his experience of the inflationary consequences of the influx of precious metals from the Americas into 16th-century Europe, Bodin postulated a direct relationship between the quantity of monetary gold and silver in circulation and the general price level. Thus was born the quantity theory of money, which has survived to this day.  Or has it? Over the next two days, the European Central Bank will host a conference to discuss the role of money in monetary policymaking. At present, the dominant academic view seems to be that monetary aggregates should have no part in monetary policy decisions. From this perspective, money does not deserve to be central to one of the two “pillars” of the ECB’s monetary policy strategy. I do not share this view. In this I follow Friedrich Hayek, who wrote in The Pure Theory of Capital: “It is self-contradictory to discuss a process [inflation] which could not take place without money and at the same time to assume that money is absent or has no effect.”  Do not mistake me for a monetary Luddite: I have immense appreciation for the intellectual elegance and sophistication of modern monetary policy models that leave no room for money. In many respects, I fully agree with their implications regarding the benefits of price stability, the crucial importance of central bank credibility, the advantages of pursuing a clear and predictable policy and the centrality of private inflation expectations. Such considerations have governed my own thoughts on monetary policy since I was appointed governor of the Banque de France 13 years ago. These same considerations have also strongly influenced the design of the ECB’s policy framework. Yet, I cannot dispel my doubts that a model of monetary policy that includes no role for money is incomplete in some important respects. — Jean-Claude Trichet, Money’s vital role in monetary policy, November 8 2006 http://www.ft.com/cms/s/99fb6c6e-6f57-11db-ab7b-0000779e2340.html  It relates with:  …Ann Pettifor scrolled by in the ‘RGE in the News’ flash bar. Ann writes: “The economics profession, as a whole, has a blind spot for finance. Economists conduct their analyzes without reference to the creation of credit and debt.” [2]. Like the Bank of Engeland… :  “So the Bank of England’s model of the UK has no debt components.” — Ann Pettifor.   Notes  [1] http://arxiv.org/abs/astro-ph/9710141  Dr. Priscilla C. Frisch: http://astro.uchicago.edu/~frisch/  “The Sun, with a few other stars, is embedded in a denser cloud of ISM known as the Local Fluff which formed where the Local Bubble and the Loop I Bubble met. The gas in the Local Fluff has a density of approximately 0.1 atoms per cubic centimeter.” http://en.wikipedia.org/wiki/Local_Bubble   [[2] Ann Pettifor, Economists have a blind spot for finance, October 10, 2006 http://commentisfree.guardian.co.uk/ann_pettifor/2006/10/economists_have_a_blind_spot_f.html Written by Xanir

Mr. Anonymous, in Saint Louis,November 9th, 2006 at 7:02 pm

Read my lips… no new taxes! Now as much as I love all ideas and this blog of Nouriel Roubini, and NYU, and NYC for that matter, and even sometimes the USA…. I can not believe that such a tax on carbon, as suggested would do everything promised here- reducing the trade deficit, reducing emissions/pollution, decreasing the power of OPEC, etc. I think the biggest impact it would have would be on everyone’s wallets and monthly bills, and increasing inflation rates as prices rise (taxes are a component of the CPI-U and other inflation measures)! Taxes inhibit economic growth and so it would be a drag for the economy. Why would anyone suggest anything like the Kyoto Protocol, clearly there has been opposition to this proposal and for good reason. Who wants rolling blackouts to conserve electricity, and have less pollution. People will just get generators or electricity hording machines that will power their homes during the blackouts, and consumption will not change at all. If we tax anything that pollutes we will be taxing ourselves back to the stone age (think recession here). People and harmony with environment DO NOT go hand in hand. And for that matter the concept that somehow GM, GE, BA, UE, and others are “green” is crazyness to me, they are polluters, and they service the people who are polluters. Taxes on anything that pollutes will cause a recession. This is why the Kyoto Protocol has never been taken seriously. We will be walking ourselves into a nasty depression if we prohibit all emissions be it powerplants, car emissions, airports, electricity, water cleaning, paper mills, etc. The best we can all do is try our best to lower our own personal consumption of things that are created via pollution emiting sources, or anything we do that is associated with pollution, meaning we shold all drive cars with HIGHER MPG ratings (and cars that weigh less, are smaller, with tiny engines, and thus get better gas mileage…maybe we need regulation here, meaning the vehicle manufacturers, and not of the oil companies!), drive less or carpool, walk/bike more, and use less electricity, less paper, etc. Bottem line… the Kyoto Protocol and this carbon tax will never work! Conservation and increased efficiency should be the biggest priority of everyone.

GheorghiusNovember 9th, 2006 at 7:04 pm

I AM SHOCKED BY THE COMMENTS  How many replies: it’s a surprisingly HOT issue.  How reactive people are: in the US you first shout “no!!!!”, then you think. Basic instincts involved?  You forgot to add that a carbon tax will stimulate new energy-saving technologies (but you implied it).   “Regressive tax”? Huh?!! There are many alternative transportation & heating means if you give the system enough time to adjust. The mkt is NOT pricing correctly (if at all) pollution and congestion, free marketers should take note and accept the correction: current low taxes amount to an actual implicit SUBSIDY. +And any indirect (VAT) tax is “regressive”, so what? There are many other ways to redistribute, but negative externalities have to be corrected. And oil negative externalities are HUGE.   “Social engineering” what??? You wanna abolish the Gov.? Let’s anyone have their own nukes, and let the free market regulate everything? Tell it to cancer and asthma affected people in our cities! I’m a fee market-er, but not a stupid (should I say “blind”?) free marketer: I know the limits of the (market)system I love … What a messy sad world you’d produce, guys, if you were in charge! Hum… But YOU ARE in charge! Maybe that’s why the world is such a mess…  Will the NEW AMERICA – that just a few days ago said:  ° “Mr. President, we don’t want to be duped again into a needless war”; ° “Mr. President, we need a well conceived foreign policy, because iissues out there are getting serious” ° “Mr. President, don’t steal our liberty using “security” as an excuse”   – come to terms with the need of cooperating in a world that it cannot dominate? Will it start doing good to itself by/while doing good to others??  Or will it lead the world into more unilateralism, each one his own pollution – climate chaos – destruction of international law – wars of choice – torture of free innocents – end of civilisation?   An oil tax is related to all this. Those who don’t get it don’t see the connections, and will deny (with the Bushies) that Katrina and oil taxes are two sides of the same coin … while you can toss only one. Your choice, friends, but choose! 

Oil ShockNovember 9th, 2006 at 7:07 pm

And now, here is Donald Rumsfeld. He ‘doesn’t do quagmires,’ he once told us. But now, after getting the United States into the biggest foreign policy quagmire in history, he is off to a comfortable retirement…or maybe a multi-million dollar career – probably peddling arms, energy or state secrets.  Meanwhile, the Democrats are taking over both the House and the Senate. These are the same shirkers and hacks who breathed not a word of protest but went along every step of the way…never so much as raising a question…or lifting a phalange to protect America’s military from a foolish war and its finances from foolish waste.  The gallows are too good for all them. http://www.dailyreckoning.com/Issues/2006/DR110906.html

CassandraNovember 9th, 2006 at 8:57 pm

Reasonably significant carbon taxes (scaling up with KwH or BTU usage per household to address the valid concerns about regressivity) should be about as controversial as Clinton’s ban on Assault Rifles in Public Schools.

Aaron KrowneNovember 9th, 2006 at 9:28 pm

I haven’t seen a lot of mention above of what is surely the most unsettling aspect of a carbon tax: that it would grow government and make it more powerful in proportion to the size and therefore impact of the tax. In otherwords, it would create almost as much “bad” as “good” (perhaps more).  Pundits and policymakers should not be so naive — especially economic liberals. They should know enough history by now to realize that the carbon tax money won’t be “well spent” by the government. Even if every penny ostensibly goes towards repairing the damage done in terms of global warming and “blight” done to our country by cheap oil, it still wouldn’t be spent as efficiently as the private economy (almost by definition — but anyone who hasn’t worked with government grants or other forms of government spending has a weak basis from which to argue otherwise).  I think the aims of the carbon tax are noble, and the effects critically needed (in fact it is probably already too late). But the fault lies with the government for years of subsidizing oil (including middle east meddling) and sprawl (most prominently, the mortgage interest deduction).  Let’s do this in a way that doesn’t grow the government: abolish the mortgage interest exemption, and simply adjust the existing fuel economy standards higher.

AZ_CowboyNovember 9th, 2006 at 9:50 pm

Only 50 cents a gallon? Why not $1/gallon? Heck, we should direct deposit all Americans paychecks directly to the US Treasury. Then the government can decide what should and should not be purchased.   The market is far more effective at guiding behavior. When gas went up to $3/gallon, amazingly enough people started looking for fuel efficient cars.   If you really what to change our country’s energy demand, go buy a bicycle and live in a tent.

AZ_CowboyNovember 9th, 2006 at 9:50 pm

Only 50 cents a gallon? Why not $1/gallon? Heck, we should direct deposit all Americans paychecks directly to the US Treasury. Then the government can decide what should and should not be purchased.   The market is far more effective at guiding behavior. When gas went up to $3/gallon, amazingly enough people started looking for fuel efficient cars.   If you really what to change our country’s energy demand, go buy a bicycle and live in a tent.

FuturistNovember 9th, 2006 at 10:27 pm

Nouriel suggested that a carbon tax may be useful for the following reasons:  * Helping to balance the budget and trade deficits * Securing energy independence for the US, and limiting petro-state power * Helping to combat global warming (and presumably ocean acidification) * Helping to reducing urban automobile congestion * Helping reduce the pre-tax equilibrium oil price  These are all legitimate concerns, but strong arguments can be made that a carbon tax is not the best solution for any of these concerns. In addition strong arguments can be made that a carbon tax big enough to help any of these issues would have a ruinous impact on the economy, and would in particular undercut one of the few competitive advantages upholding US employment (and hence US wages.). Since the ruinous impact of a carbon tax has been argued ad nauseam in other venues, I will address the superior alternatives to such in this post.  In regard to reducing US energy independence, limiting petro-state power, reducing the trade deficit, and reducing the equilibrium oil price: I posit that the single best solution for all of these would be an oil import tax supporting a domestic oil price floor. This would shift the pre-import equilibrium oil price, and increase both recoverable US oil reserves and the feasibility of synthetic fuel production (two things that are extremely dependent on the actual price of oil in the US).  Beyond this, we could remove some of the ridiculous environmental restriction on oil drilling. An expected 10+ billion barrels of reserves was recently confirmed by deep water drilling in the gulf of Mexico, and another 10+ billion barrels of reserves are expected to be added from one small section of Utah alone. These are no small finds, and they are but a small portion of what could be found if vast areas were not off-limits to oil and gas drilling both offshore and onshore. And if they can drill for gas and oil in Louisiana wildlife reserves in a way that satisfies the environmental organizations that control these reserves, they can certainly do slant-drilling from a minuscule percentage of the ANWR (a piece of desolate tundra far North of the tree line), and likewise in other off-limits areas. It is true that we don’t want oil spills and other forms of ecological degradation, but this is best handled by punitive policies for offenders, not by the kind of lumpen drilling bans that now exist.  In regard to urban automobile congestion: I posit that railroads and mass-transit are legitimate and potentially efficient government investments for the common good, and that these investments will be far more beneficial to the poor and middle class than sledge-hamming them with a carbon tax.  In regard to helping to balance the US budget deficit: The single most important approach has to be “CUT THE PORK.” Beyond that the oil import tax would help, and if that is not enough, a flat property tax with single large exemption for the low and middle-class would be far more suited to the economy as it exists today.   All we are left with are the issues or global warming and ocean acidification. Even if we ignore the few (but highly qualified) people who deny the reality of global warming, there are still big disputes in regard to: a) whether or not it is “bad,” and b) what the best solution will be if it is both real and bad. Greenland is not called green because of the way it is today, and there are strong arguments (with historical confirmation) that the externalities of global warming may be of net benefit, and far stronger arguments that the current, increased CO2 levels are of net benefit.   Indeed, very strong arguments can be made that increased CO2 levels are highly beneficial aside from the global warming issue, so lets assume a worst case global warming scenario and consider what the best solution will be. Progress, commented that “…particulate, blasted into the high atmosphere, that will have the effect of blocking the sun and reducing the temperature.” To this I would add that mid-ocean fog banks are an equally effective form of reflectivity control (with the benefit of having a better aesthetic elsewhere). I would also note that both forms of reflectivity control are expected to have negligible impact on the global food chain for the simple fact that sunlight is not the limiting factor for biological productivity in most parts of the Earth, and that the biological effect of a minor sunlight reduction is likely to be offset by increased CO2 levels.  Beyond this we should note that carbon controls would force tremendous amounts of money to be spent on a phenomena that affects the Earth’s energy-balance by a mere 2.5 Watts/meter^2 (i.e. the human contribution to greenhouse forcing not counting secondary effects from water vapor), whereas reflectivity control is dirt cheap, and in the case of mid-ocean fog banks would affect the Earth’s energy-balance by approximately 500 Watts/meter^2. Indeed, either form of reflectivity control is likely to be at least 1000 times cheaper in any honest appraisal.  All that’s left to consider is the much longer-te

FuturistNovember 9th, 2006 at 10:27 pm

Nouriel suggested that a carbon tax may be useful for the following reasons:  * Helping to balance the budget and trade deficits * Securing energy independence for the US, and limiting petro-state power * Helping to combat global warming (and presumably ocean acidification) * Helping to reducing urban automobile congestion * Helping reduce the pre-tax equilibrium oil price  These are all legitimate concerns, but strong arguments can be made that a carbon tax is not the best solution for any of these concerns. In addition strong arguments can be made that a carbon tax big enough to help any of these issues would have a ruinous impact on the economy, and would in particular undercut one of the few competitive advantages upholding US employment (and hence US wages.). Since the ruinous impact of a carbon tax has been argued ad nauseam in other venues, I will address the superior alternatives to such in this post.  In regard to reducing US energy independence, limiting petro-state power, reducing the trade deficit, and reducing the equilibrium oil price: I posit that the single best solution for all of these would be an oil import tax supporting a domestic oil price floor. This would shift the pre-import equilibrium oil price, and increase both recoverable US oil reserves and the feasibility of synthetic fuel production (two things that are extremely dependent on the actual price of oil in the US).  Beyond this, we could remove some of the ridiculous environmental restriction on oil drilling. An expected 10+ billion barrels of reserves was recently confirmed by deep water drilling in the gulf of Mexico, and another 10+ billion barrels of reserves are expected to be added from one small section of Utah alone. These are no small finds, and they are but a small portion of what could be found if vast areas were not off-limits to oil and gas drilling both offshore and onshore. And if they can drill for gas and oil in Louisiana wildlife reserves in a way that satisfies the environmental organizations that control these reserves, they can certainly do slant-drilling from a minuscule percentage of the ANWR (a piece of desolate tundra far North of the tree line), and likewise in other off-limits areas. It is true that we don’t want oil spills and other forms of ecological degradation, but this is best handled by punitive policies for offenders, not by the kind of lumpen drilling bans that now exist.  In regard to urban automobile congestion: I posit that railroads and mass-transit are legitimate and potentially efficient government investments for the common good, and that these investments will be far more beneficial to the poor and middle class than sledge-hamming them with a carbon tax.  In regard to helping to balance the US budget deficit: The single most important approach has to be “CUT THE PORK.” Beyond that the oil import tax would help, and if that is not enough, a flat property tax with single large exemption for the low and middle-class would be far more suited to the economy as it exists today.   All we are left with are the issues or global warming and ocean acidification. Even if we ignore the few (but highly qualified) people who deny the reality of global warming, there are still big disputes in regard to: a) whether or not it is “bad,” and b) what the best solution will be if it is both real and bad. Greenland is not called green because of the way it is today, and there are strong arguments (with historical confirmation) that the externalities of global warming may be of net benefit, and far stronger arguments that the current, increased CO2 levels are of net benefit.   Indeed, very strong arguments can be made that increased CO2 levels are highly beneficial aside from the global warming issue, so lets assume a worst case global warming scenario and consider what the best solution will be. Progress, commented that “…particulate, blasted into the high atmosphere, that will have the effect of blocking the sun and reducing the temperature.” To this I would add that mid-ocean fog banks are an equally effective form of reflectivity control (with the benefit of having a better aesthetic elsewhere). I would also note that both forms of reflectivity control are expected to have negligible impact on the global food chain for the simple fact that sunlight is not the limiting factor for biological productivity in most parts of the Earth, and that the biological effect of a minor sunlight reduction is likely to be offset by increased CO2 levels.  Beyond this we should note that carbon controls would force tremendous amounts of money to be spent on a phenomena that affects the Earth’s energy-balance by a mere 2.5 Watts/meter^2 (i.e. the human contribution to greenhouse forcing not counting secondary effects from water vapor), whereas reflectivity control is dirt cheap, and in the case of mid-ocean fog banks would affect the Earth’s energy-balance by approximately 500 Watts/meter^2. Indeed, either form of reflectivity control is likely to be at least 1000 times cheaper in any honest appraisal.  All that’s left to consider is the much longer-term issue of ocean acidification. The solution to this is to close the industrial carbon cycle via large-scale ocean-algae farming (with minor pH adjustment being integral to this ocean-farming). It might take 20 years for the necessary technologies to full mature before we can produce bio- gasoline in gigaton quantities, but with reflectivity control, we have at least 50 years leeway — and given the reality of peak oil (and peak coal), we are going to have to do it anyway or face a major Malthusian crunch.  In the end, the idea of a carbon tax boils down to politics of the ugliest sort and stupidest sort as exemplified by the comments about $5/gallon gasoline in Europe, and the comment that RockRabbit made in regard to the post by Progress. In regard to the comments by these two:  Progress: “Why is every solution a tax, or de-industrialization?” [ or worse yet, a tax favoring de- industrialization. ] “I think it’s because socialists are using the topic to advance a political agenda. It is an anti- progress agenda that results from narrow thinking.”   RockRabbit (re Progress): “What on earth are you talking about? Going from a high carbon to a low carbon economy IS progress.”  I feel that Progress is right on target with what he says, for what I’ve seen more than anything is that humanity substitutes right-wing and left-wing fanaticism for real forward-looking vision. By contrast, RockRabbit perfectly exemplifies the large-scale trend to substitute reflexive eco-fanatic dogma for well thought out policies. And I mean this criticism in a very exact way, for one of the core fallacies of modern eco-fanaticism is to bemoan exponentially increasing industrial trends like C02 emission without also taking into account the exponentially increasing wisdom, intelligence, and technological power of the human race. In the end, the entire global warming issue is a result of people and “experts” looking for a problem rather than looking for a solution.   This is not to say that society does not face serious challenges, but these challenges arise by and large from lumpen political policies, and in this regard left-wing fanaticism is just as much of a problem as right-wing fanaticism. Indeed, I’ve found both forms of fanaticism to be highly symmetrical in nature, and found them to be the two of most destructive (and costly) cultural influences. In addition, I would note that bipartisan consensus proves nothing in light of the fact that political consensus has only the most tenuous connection to physical and economic reality in regard to this issue. Likewise, I would discount prominent ec
onomists, for aside from yourself, Nouriel, there are precious few that can even predict a recession, let alone offer informed opinion in this area. So with all due respect Nouriel, I would suggest that you are way out of your area of expertise with this post.  Lastly, I would like to dispense with the naive comment about Europe doing OK with $5 per gallon gasoline, and with the eco-fanatic ideas of “alternative energy.” In regard to $5/gallon gasoline in Europe, nobody but nobody should complain about low US energy prices until some other region of the world steps up to be the consumer of last resort. Granted that consumerism is not the best way of life, but until a more enlightened alternative emerges, we should not even begin to consider policies that would have a catastrophic effect on the US economy, for the shock waves of a global economic meltdown can easily cost millions of people their lives.  As far as the eco-fanatic ideas of alternative energy, I would like to note that the economy is in far more precarious shape than the environment, and that eco-fanatics routinely promote heavily subsidized alternative without the slightest regard to the overall economic impact of mis-allocated capital spending. In this regard, I rightfully and totally object to any kind of “alternative energy” unless the subsidies behind these alternatives are uniformly applicable across the entire breadth of the energy industry from wind, to solar, to nuclear, to coal- based synthetic fuels, to next-generation oil drilling. I agree that taxes on waste disposal and real honest to goodness pollution (i.e. not CO2) are entirely legitimate, but beyond that no alternative should even be considered until its capital cost is taken fully into account in an otherwise free, flat, and fair marketplace.  Someday when the human race is a whole lot wiser we might be able to consider to social engineering, but what I see in regard to global warming is ludicrous. The democrats have reaped a big windfall as a result of the poorly thought out and executed policies of the Bush administration. But if they institute a carbon tax (or ratify Kyoto), I can assure you that they will be accused of genocidal policies, and that by 2008 there will be sufficient people aware of the reality in this situation to make this accusation stick. Mark my words.

GuestNovember 9th, 2006 at 10:48 pm

Go ahead and add more taxes (in addition to income taxes, sales taxes, real estate taxes, death taxes, etc.) but I do not think that these new taxes will solve any problems. I do not like paying to America hating petro-states. As soon as hydrogen BMW becomes available in California I will switch to NO CARBONS hydrogen 7-Series (this way America hating Arabs will not get a penny of my money). http://wardsauto.com/ar/bmw_shows_hydrogen/  P.S. I like my new gas guzzling Escalade! (Hydrogen models will be available in the near future!) http://www.cadillac.com/cadillacjsp/model/gallery.jsp?model=escalade&year=2007 

antiroubiniNovember 9th, 2006 at 10:59 pm

Roubini could make his case even stronger. As a general rule, an exise tax on a vital resource is better than an income tax. For one, it’s easier to collect. Instead of the government going after an individual and asking him to pay such and such amount, here the individual himself drives to the gas station and makes his payment. Number two, it cannot be evaded: you can lie on your tax form, but you can’t lie to your car engine. Number three, the bookkeeping is easy: you don’t need a tax accountant to calculate it for you. Number four, the energy of individuals is channelled into finding ways to burn less oil, rather than finding creative ways to optimize taxes. Why not abolish the income tax whatsoever and replace it with excise tax or VAT on heating oil, gasoline, electricity, transportation, cell phones, broadband internet, etc? As it stands now, this income tax is progressive only in theory.

joanNovember 10th, 2006 at 1:32 am

Most people will in the long run change cars, not decrease driving when faced with higher gas prices. A tax on high mileage and subsidy on low mileage new cars based on expected gas usage for 100,000 miles instead of gas tax would be far less painful, because the buyer would have full knowlege of the tax implication at the time of purchase. The tax could be adjusted to be revenue neutral, so it need not be regressive. It would provide a powerful incentive for new gas savings technology to be adopted by new car buyers. Such a tax would be much more likely to gain public support. Thinking a gas tax will reduce congestion is a fantasy, just look at European cities.

ChrisboNovember 10th, 2006 at 6:41 am

Some old truths still apply. If you tax something, you get less of it. If you subsidize something you get more of it.  The US subsidizes the building of houses by allowing people to write-off interest payments on mortgages and, more recently, pocket, tax free, a good chunk of the capital gains they make on sales. As a result the average home size (and the energy requirements of each home) in the US has grown consistently over this time.   By building roads with money from both State and Federal general funds, we subsidize the use of the automobile as every citizen pays for the roads regardless of how much they use them. The result is we have sprawling suburbs with low population densities which tends to work against the success of public transportation.  The infrastructure that exists in the US today is a result of trillions of dollars of investment spent over the last 60 years that were guided by these government policies. If we want to achieve the goals Dr. Roubini has laid out, rolling back these subsidies and taxing the use of carbon will work. By steering the next 50 years of investment, the US will eventually establish a far more energy efficient economy.   It is unproductive to say the government has no role in solving these problems. Indeed, its role got us to where we are today. The era where the US can access cheap oil from nations friendly to our interests appears to be waning. Perhaps its time to seriously begin reducing our dependence on their continued “kindness”.   – Chrisbo 

GheorghiusNovember 10th, 2006 at 6:52 am

Aaron Krowne, Guest on 2006-11-09 22:48:16  you confuse the evaluation of pros and cons of a carbon tax with the issue of the general level of taxation. The issue here is not how the carbon tax money will be spent: money is money, money from carbon tax is not different from money coming from other taxes. You may use the money to reduce other more distorsive taxes, or to close the budget deficit, if you do not want to spend more, but its an etirely different issue. How the Gov uses money has nothing to do… A less ideological approach would help…

antiroubiniNovember 10th, 2006 at 7:17 am

“The US subsidizes the building of houses by allowing people to write-off interest payments on mortgages and, more recently, pocket, tax free, a good chunk of the capital gains they make on sales.” The truth is much worse. While creating incentives to buy houses, US also arranges for a land shortage in metropolis areas by prohibiting construction of high-rise buildings, so the only thing it “subsidizes” is the growth of land prices.

GuestNovember 10th, 2006 at 7:35 am

The Fed’s fear is that reduced consumer spending could guarantee a recession. Prior Fed thinking was to increase M3 during a recession and stimulate the economy back into action. Current thinking is “why wait, and why not increase M3 before a recession takes hold so we can by pass a recession?”  http://www.safehaven.com/article-6263.htm

GuestNovember 10th, 2006 at 7:37 am

I see inflation going up. Gold has anticipated inflation trend going up and did the break out. Well done, Bernanke!!!!

GuestNovember 10th, 2006 at 8:30 am

“The war on poverty created more poverty.”  This is objectively not true.  Look at the poverty rates from the 20’s to the 80s in the US. You will see a profound drop beginning with the enactment of Social security, and increasing with the great society programs. It levels off, but at a far, far lower level than previously.   

GuestNovember 10th, 2006 at 10:17 am

CARBON????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????? The crashing world economy will take care of your carbon tax. Let free markets do it’s work. I don’t agree that we should turn to socialism or become “France”. Take a look at that country’s problem. I bet in 10 years France won’t even exist.

I Am A GuestNovember 10th, 2006 at 11:05 am

Ah, yes, the glorious Kyoto treaty. I notice that Europe is not meeting any of the goals under Kyoto. Germany’s initial success was due to the closing of the horribly inefficient plants of the DDR, i.e. Socialist East Germany. Now it too cannot meet the Kyoto goals. If the Europeans cannnot meet them, in their tiny countries, then the United States will not do so either. Of course the dirty little secret of Kyoto is this: China and India are not included. They can do what they wish, and never violate it. So Kyoto is a meaningless gesture with no significance. No wonder so many Europeans like it, they are fond of the gesture but not of the doing. Strike all the poses that you like, Europe is not meeting Kyoto’s requrements, and so it is a dead treaty.  Europeans quack about wasteful Americans driving too far, but in the middle of the US it is common to drive for 150 kilometers without seeing any towns at all. States like Texas, Montana, New Mexico are bigger than most European countries, and the distances are great. No one is going to spend a million dollars a mile to build a tram from one town of 2,000 people on the high plains to a city 300 kilometers away! It will not happen! What will happen is this: people in the US will buy more cars that have better gas mileage. Those who live in cities will consider buying electric vehicles that can be charged at home, and hybrids, for use in urban driving. Toytota, Ford, Hyundai, all are working on improved hybrids. GM had an electric that now has spun off to form Tesla. GM continues to work on fuel cells. There are plenty of nongovernmental researchers striving in this area, although you would not know it from reading ordinary newspapers.   Finally, if the “green” alternatives are so superiour, then they do not need government backing. If they need government backing, then they are not as superiour as claimed.

GeronimoNovember 10th, 2006 at 11:07 am

Merci, mon ami, mais ce n’est pas question de decider ici de l’éxistence de la Françe. La question ést de reconnaitre quand et ou un marché n’ést pas efficient, et de le corriger. If you connect to your brain a bit more often and let your aggressive frustrated feelings dominate you a bit less, you could decide to study the theory of externalities, then come back again to this discussion.  

RockRabbitNovember 10th, 2006 at 11:12 am

“I don’t agree that we should turn to socialism or become “France”. Take a look at that country’s problem. I bet in 10 years France won’t even exist.”  Yeah right, poor old France, a country which has higher worker productivity than the US (yes really), 6-10 weeks annual holidays for workers/staff and produces 90%+ of its electricity from secure energy sources.  And what does a carbon tax have to do with socialism? Do you know what socialism or carbon taxes are??

GeronimoNovember 10th, 2006 at 11:13 am

Kyoto treaty targets are not met, but Europeans are close to them, while the US are very far. That’s a big difference, the rest is blah blah. The dirty little secret of Kyoto is that India, China AND the US are not in. That’s another differecce, they cover each other and continue to pollute. US just doesn’t want to accept rules and laws, does not want to live in a civilised manner with other people. Arrogancy leads to disaster, and the surprise is that you still did not learn the lesson! How long will it take?

vorpalNovember 10th, 2006 at 12:17 pm

Yes.no social engineering. Take away mortgage deductions. Take away child deductions. Take away all funds for public roads.  Take away all of the above because they may assumptions about how people in the United States live. Not everybody should have a house, not everybody should have children. I see see no reason why we should subsidize the automobile as the preferred means of transportation either.  I don’t think the above suggestions would sit too well with the American people. I guess most Americans like social engineering. So your objections is not to ‘social engineering’, rather you object to paying for what you use/have. You have a house, you don’t want to pay. YOu have a child, you don’t want to pay. You have an automobile, you don’t want to pay for the carbon emitted.   In reality, not paying a carbon tax, in some form, is really stealing. You are stealing from posterity. You are using up the world’s ability to produce fossil fuels and using up it’s ability to absorb carbon dioxide. You are taking something, and not paying for it. In my world, that is called stealing.

GuestNovember 10th, 2006 at 12:32 pm

No Carbon Tax-the middle class is already hammered by businesses passing off increase medical cost. The US goverment should provide incentives for corporations to allow more telecommuting of employees. I work at an office where the majority of the employees drive on average comute 30 miles from home and I would conservatively estimate that 50% of the employees could telecomute at large portion of their working time. But I find bosses reluctant-they certainty want “job flexibility” when it comes to terminating employees at will but they are the most inflexible when letting employees design their own work schedules.

GuestNovember 10th, 2006 at 12:38 pm

OT: the spread between the 3 month note and the 10 year obligation is now such that the chance of recession are 52%. I would call this virtually certainty.

The SentimentalistNovember 10th, 2006 at 1:02 pm

wow why do half the posts above read like militia men pamphlets? the point of a carbon tax is that it prices in negative externalities so that the market can take its course more efficiently. yes, your precious free market! “let free markets do it’s work” exactly. let’s take a quick break from all the unthinking reflexive government and tax-hating, ok? government is not evil, it’s just a monopoly (and hence inefficient)  you want to get rid of social engineering? ok, let’s go for it. we can start with the law of incorporation and work our way through antitrust, patent, copyright, anti-discrimination etc . . . enjoy that society  also, maybe i’m just a sentimentalist but is there any room for biodiversity or other nonhuman life in The Futurist’s plans for us?

HUBRiniNovember 10th, 2006 at 2:11 pm

OT (sorry)…re: Nouriel’s recession call  Nouriel currently has two strikes against him  1) he called for a dollar crisis in 04  2) he called for an oil shock near 100 in 05 (can’t remember exactly)  will the recession call pan out, or will he strike out?  roubini is a serial alarmast…use caution with his writing

XanirNovember 10th, 2006 at 2:16 pm

“So with all due respect Nouriel, I would suggest that you are way out of your area of expertise with this post.” — Futurist, (2006-11-09 22:27:03)  Not at all Futurist. Not at all. Roubini isn’t way out of his expertise:  “Particularly in the 1960s there was a discussion of complexity in large human organizations – especially in connection with the development of management science and the features of various forms of hierarchy – and there emerged what was called systems theory, which in practice typically involved simulating networks of differential equations, often representing relationships in flowcharts. Attempts were for example made at worldwide models but by the 1970s their results – especially in economics – were being discredited. (Similar methods are nevertheless used today, especially in environmental modeling.)”  S. Wolfram, A New Kind of Science, 2002, p. 862. [1]   So the models based upon systems theory is debunked by economics but is still being used by the majority of climatologists with their computer models. They compare with the many spinners in the economic and financial arena.  Von Mises wrote:  “No scientist is entitled to assume beforehand that a disapprobation of his theories must be unfounded because his critics are imbued by passion and party bias. He is bound to reply to every censure without any regard to its underlying motives or its background. It is no less impermissible to keep silent in the face of the often asserted opinion that the theorems of economics are valid only under hypothetical assumptions never realized in life and that they are therefore useless for the mental grasp of reality. It is strange that some schools seem to approve of this opinion and nonetheless quietly proceed to draw their curves and to formulate their equations. They do not bother about the meaning of their reasoning and about its reference to the world of real life and action.” — Ludwig von Mises, Human Action, A Treatise on Economics, 4th Edition, 1963 – Page 6 (page 30 pdf version [2])  It is the last sentence. “They do not bother about the meaning of their reasoning and about its reference to the world of real life and action. Together with computer models has created a toxic cocktail. Computer models gyrating around and highlight one cause (like CO2) and effect (temperature change) only reinforce the delusional. It is overall encompassing within many fields. In the case of finance, where computer models drive (derivative) finance towards stratospheric levels. Without clear thought. Together with overall finance and particular interests, greased with money, is ‘not having a positive affect on’ science and the economy as a whole. On our real life.  “This fascination with computer models is something I understand very well. Richard Feynmann called it a disease. I fear he is right. Because only if you spend a lot of time looking at a computer screen can you arrive at the complex point where the global warming debate now stands.” — (A lecture by) Michael Crichton, California Institute of Technology, January 17, 2003 [3]  Economics is more than just about markets, money or investments. It is also about human action.   X   P.S. It is also about integrity (wawawa wrote it in an earlier post as well). Here the hockey stick chart…  “Beware of science popes”, science journalist Karel Knip of the Dutch newspaper NRC Handelsblad recently warned at the annual conference of the Vereniging van Onderzoeksjournalisten (Dutch Belgian Association of Investigative Journalists). Such a ‘pope’ can dominate an entire field, and prevent contrary views from entering the official literature. Far-fetched? In Utrecht, I talked to Tom van Hoof, a researcher who recently obtained his PhD. He produces CO2-reconstructions through research on leaf stomata. His results – even if indirectly – contradict Michael Mann’s climate reconstructions. Van Hoof knows the world of paleoclimatology by now and says: “Colleagues think my research is interesting enough to be published in Science or Nature, but for this I need to phrase it provocatively. I then run the risk, however, that I won’t get it past the referees and antagonise the ‘big shots’. I would like to continue as researcher in the field of paleoclimatology. So I prefer to let sleeping dogs lie.” Source: http://www.uoguelph.ca/%7Ermckitri/research/Pope_H.pdf   ***  Today’s temperatures are supposedly higher than at any time in the past thousand years. This claim is the central pillar of the Kyoto Protocol, which takes effect this month. It is largely based on the celebrated ‘hockey stick’ graph of temperature history since the year 1000, published by Michael Mann and colleagues in 1998 and 1999. However, according to Canadian researchers Stephen McIntyre and Ross McKitrick, Mann’s hockey stick is no more than a statistical artifact. Their quest to verify the accuracy of this pivotal study of global warming raises questions about the integrity of world climate research. Source: http://www.uoguelph.ca/%7Ermckitri/research/Climate_H.pdf   This could make you laugh or weep: “Imagine the irony of this discovery. After we published our findings in Energy and Environment, Mann accused us of selectively deleting North American proxy series. Now it appeared that he had results that were exactly the same as ours, stuffed away in a folder labeled CENSORED.” — Apparently, Mann did not like the results directory Backto_1400_Censored – Kyoto based flawed, 2005.   ***  And the lead editorial:   “We globally invest billions of euros and dollars in CO2 reduction, as there are strong indications that our industrial and consumptive CO2 emissions are causing rapid global warming. This implies risks for humanity: more precipitation, hurricanes, rising sea level. So the government tells us. International climate policies are largely shaped by the so called Kyoto Protocol, an agreement which is itself largely based on part of the report by the Intergovernmental Panel on Climate Change (IPCC). This part is called the ‘Summary for Policymakers’. Science determines climate policy here. This summary states that the past decade was the hottest in the previous thousand years. Conclusion: humans are responsible for this. This statement is supported by a graph produced by climate researcher Michael Mann et al, which gained him global fame. Nobody has ever investigated exactly how Mann produced this famous hockey stick graph.” http://www.uoguelph.ca/%7Ermckitri/research/Thesis_H.pdf   From the section: “Our research was profiled in the cover story of the Feb. 1, 2005 edition of Natuurwetenschap & Techniek (NWT), a prominent European science magazine. High-Res (3MB) version; Low-Res (0.9MB) version. It was also the subject of a commentary and a lead editorial. The articles were well-researched and clear. Source: http://www.uoguelph.ca/%7Ermckitri/research/trc.html    Notes   [1] Second paragraph: http://www.w
olframscience.com/nksonline/page-861c-text   [2] http://www.mises.org/humanaction/pdf/humanaction.pdf  http://www.mises.org/humanaction.asp   [3]  “…I want to discuss the history of several widely-publicized beliefs and to point to what I consider an emerging crisis in the whole enterprise of science-namely the increasingly uneasy relationship between hard science and public policy.   I have a special interest in this because of my own upbringing. I was born in the midst of World War II, and passed my formative years at the height of the Cold War. In school drills, I dutifully crawled under my desk in preparation for a nuclear attack.   It was a time of widespread fear and uncertainty, but even as a child I believed that science represented the best and greatest hope for mankind. Even to a child, the contrast was clear between the world of politics-a world of hate and danger, of irrational beliefs and fears, of mass manipulation and disgraceful blots on human history. In contrast, science held different values-international in scope, forging friendships and working relationships across national boundaries and political systems, encouraging a dispassionate habit of thought, and ultimately leading to fresh knowledge and technology that would benefit all mankind. The world might not be avery good place, but science would make it better. And it did. In my lifetime, science has largely fulfilled its promise. Science has been the great intellectual adventure of our age, and a great hope for our troubled and restless world. “ — A lecture by Michael Crichton, “Aliens Cause Global Warming”, January 17, 2003 http://www.crichton-official.com/speeches/speeches_quote04.html   Closing with:  Next, the UN abolished the medieval warm period (the global warming at the end of the First Millennium AD). In 1995, David Deming, a geoscientist at the University of Oklahoma, had written an article reconstructing 150 years of North American temperatures from borehole data. He later wrote: “With the publication of the article in Science, I gained significant credibility in the community of scientists working on climate change. They thought I was one of them, someone who would pervert science in the service of social and political causes. One of them let his guard down. A major person working in the area of climate change and global warming sent me an astonishing email that said: ‘We have to get rid of the Medieval Warm Period.’ ”  So they did… — Climate chaos? Don’t believe it. By Christopher Monckton, Sunday Telegraph – 05/11/2006 http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2006/11/05/nosplit/nwarm05.xml 

GuestNovember 10th, 2006 at 3:38 pm

Adding on Xanir’s words, Professor Roubini maybe a pessimist, bearish, maybe even an “alarmast” (as pointed out by a respectable reader), but he certainly knows what he is talking about. He picks up the signals in the economy, analyzes them, and utter his analysis out loud. His wakeup calls are of utmost importance.   Even though imposing taxes at a time when the economy is about to enter a recession may not appeal to many, their benefits outweigh their costs in the long run. The least of it, as David Frum pointed out, is the move to “a post-petroleum economy”.   The Business Week had an article on global warming with the idea that Hurricane Katrina’s “fury was powered by unusually warm Gulf water… [and that] since such warmth could result from global warming, companies that have pumped the atmosphere full of greenhouse gases like carbon dioxide should be liable for damages”.   http://www.businessweek.com/magazine/content/06_44/b4007044.htm?chan=top+news_top+news+index_top+story   The truth is, companies will probably not pay this tax. But we live in this world, so we should share the burden. Katrina was like an alarm- a wake up call (like those of professor Roubini) that if no action was taken to reduce global warming, similar episodes may begin to occur.  One final note; one of the best things about this blog is the outrage that people have when they defend their viewpoint. Please, let’s be more civilized, and become outrageous in an objective way. 

GuestNovember 10th, 2006 at 3:38 pm

Adding on Xanir’s words, Professor Roubini maybe a pessimist, bearish, maybe even an “alarmast” (as pointed out by a respectable reader), but he certainly knows what he is talking about. He picks up the signals in the economy, analyzes them, and utter his analysis out loud. His wakeup calls are of utmost importance.   Even though imposing taxes at a time when the economy is about to enter a recession may not appeal to many, their benefits outweigh their costs in the long run. The least of it, as David Frum pointed out, is the move to “a post-petroleum economy”.   The Business Week had an article on global warming with the idea that Hurricane Katrina’s “fury was powered by unusually warm Gulf water… [and that] since such warmth could result from global warming, companies that have pumped the atmosphere full of greenhouse gases like carbon dioxide should be liable for damages”.   http://www.businessweek.com/magazine/content/06_44/b4007044.htm?chan=top+news_top+news+index_top+story   The truth is, companies will probably not pay this tax. But we live in this world, so we should share the burden. Katrina was like an alarm- a wake up call (like those of professor Roubini) that if no action was taken to reduce global warming, similar episodes may begin to occur.  One final note; one of the best things about this blog is the outrage that people have when they defend their viewpoint. Please, let’s be more civilized, and become outrageous in an objective way. 

GuestNovember 10th, 2006 at 5:36 pm

 THANKYOU AMERICA You put a stop to this drive to destroy much of what is best in our country  “Two years ago, people were talking about permanent right-wing dominance of American politics. But since then the American people have gotten a clearer sense of what rule by movement conservatives means. They’ve seen the movement take us into an unnecessary war, and botch every aspect of that war. They’ve seen a great American city left to drown; they’ve seen corruption reach deep into our political process; they’ve seen the hypocrisy of those who lecture us on morality.  And they just said no.”   PAUL KRUGMAN   Now comes the other half. And the carbon tax is a neat clean wwayto start!  Geronimo 

Oil ShockNovember 10th, 2006 at 5:54 pm

You need to privatize roads. Those who use it will pay for it. If competion comes, there will be choices as well as over all quality improvement.   BTW, not a penny of personal income tax collected goes towards any infrastructure, it all goes towards federal debt servicing.   Watch this : http://mises.org:88/Block-OurStory 

XanirNovember 10th, 2006 at 6:34 pm

So to balance Guests post and the url to the Bussiness Week article about global warming. I put this on the table:  Global Warming and Hurricanes: Still No Connection http://bazaarmodel.net/phorum/read.php?f=1&i=1429&t=1429#reply_1429  And some questions.  – What was the cause of the major Climate Change which happened 5,200 years ago:  “Something happened back at this time and it was monumental,” Thompson said. “But it didn’t seem monumental to humans then because there were only approximately 250 million people occupying the planet, compared to the 6.4 billion we now have. — Major Climate Change Occurred 5,200 Years Ago, December 16, 2004 [1] http://www.news-about-space.org/story/2409.html  It is 6.6 billion people today.   – Why do we build like this planet is a paradise (This is also true for Indonesia. They build in such a way that they were courting with disaster) while we know that she is able to wipe our ass. Here the US:  The expanding U.S. population “has migrated to hazard-prone areas — to Florida, the Atlantic and Gulf coasts, particularly barrier islands, to California,” noted retired U.S. government seismologist Robert M. Hamilton, a disaster-prevention specialist. “Several decades ago we didn’t have wall-to-wall houses down the coast as we do now.”  The way America builds too often invites disasters, experts say — by draining Florida swampland and bulldozing California hillsides, for example, disrupting natural runoff and magnifying flood hazards.  “We’re building our communities in ways that aren’t compatible with the natural perils we have,” Miletti said. — Too Many People in Nature’s Way, Sep. 04, 2005, AP http://www.wired.com/news/culture/0,1284,68756,00.html   The Ancients didn’t build like we do today. In Latin America, the original inhabitants still shake their heads in dismay at the way the cities are build in the most dangerous locations. For examples, see Venezuela.   – Do we blame global warming? Has “…behaving irrationally has become rational behavior.“? [2]   – What is happening to our sun and why do the models never really predict the new phenomena they observe at a later stage. Do the ignore or overlook something?  A New Kind of Solar Storm http://science.nasa.gov/headlines/y2005/10jun_newstorm.htm?list92134  – What are the cause of Climate Change on the other planets like Mars:  Many of the gully systems look extraordinarily recent — sharply carved and crossing older, wind-scoured features. Their appearance is so fresh, in fact, that it has excited planetary geologists such as MOC designer Mike Malin to think that Mars “may have experienced massive, short-term climate changes, where water could come and go in hundreds of years.” Indeed, Garvin said, scientists wonder whether liquid water might exist on Mars now, buried in some areas perhaps 500 meters underground, and that “there might be a dynamic cycling of the atmosphere going on even today.” Once Upon a Water Planet, NASA, March 12, 2002 http://science.nasa.gov/headlines/y2002/12mar_waterplanet.htm   – What is happening on Jupiter. While I’m at it. Why do all the planets seem te become more active? (Venus is the exception, she is cooling).  “Little is known about how storms form on the giant planet. They are often described as behaving similar to hurricanes on Earth. Some astronomers believe that the spots dredge up material deep below Jupiter’s clouds and lift it to where the Sun’s ultraviolet light chemically alters it to give it a red hue.” — New Storm on Jupiter Hints at Climate Change, 04 May 2006, By Sara Goudarzi http://www.space.com/scienceastronomy/060504_red_jr.html  – Why the fear when people try to question (a dogma?). To quote Prof. Lindzen ( Mr. Lindzen is Alfred P. Sloan Professor of Atmospheric Science at MIT.):  “And then there are the peculiar standards in place in scientific journals for articles submitted by those who raise questions about accepted climate wisdom. At Science and Nature, such papers are commonly refused without review as being without interest. However, even when such papers are published, standards shift. When I, with some colleagues at NASA, attempted to determine how clouds behave under varying temperatures, we discovered what we called an “Iris Effect,” wherein upper-level cirrus clouds contracted with increased temperature, providing a very strong negative climate feedback sufficient to greatly reduce the response to increasing CO2. Normally, criticism of papers appears in the form of letters to the journal to which the original authors can respond immediately. However, in this case (and others) a flurry of hastily prepared papers appeared, claiming errors in our study, with our responses delayed months and longer. The delay permitted our paper to be commonly referred to as “discredited.” Indeed, there is a strange reluctance to actually find out how climate really behaves. In 2003, when the draft of the U.S. National Climate Plan urged a high priority for improving our knowledge of climate sensitivity, the National Research Council instead urged support to look at the impacts of the warming–not whether it would actually happen.  Alarm rather than genuine scientific curiosity, it appears, is essential to maintaining funding. And only the most senior scientists today can stand up against this alarmist gale, and defy the iron triangle of climate scientists, advocates and policymakers. ” — RICHARD LINDZEN, Climate of Fear, April 12, 2006 http://www.opinionjournal.com/extra/?id=110008220   Question everything.   X.  P.S. Roubini, A small question. Has the BEA made an urgent and clear response to the public about how it estimated motor vehicle production? [2]. If not, it would only give more credence towards ‘Shadow Government Statistics’ [3].   Is it like, in the case of integrity. Like Dr. Richenbächer remarked:  “Something has happened to the integrity – and to the drive to know, to discuss – in the world…Today, serious economic analysis is almost absent. Everybody likes to be with the consensus, and that has diminished the discussion.” — Kurt Richebächer (2005)   ***  “..Mars is proving more enigmatic than ever at the moment. The latest images of the Martian surface taken by NASA’s orbiting Mars Global Surveyor (MGS) have revealed profoundly mysterious landforms that have left geologists scratching their heads. The features include a combination of surprisingly stable dunes, canyons without craters and rapidly eroding ice caps [1]. All point to amazingly fast processes taking place on the surface. Mars has changed considerably in the past few thousand years – in some places, even the past two years. Yet nob
ody knows why. Unraveling the mystery will require a radical leap in theoretical thinking, says Michael Malin, the geologist in charge of the MGS camera.”
 — David L. Chandler, “All eyes on Mars,” New Scientist of 23 August 2003, titled   Notes  [1] “The agency’s scientists also say that deposits of frozen carbon dioxide near the planet’s south pole have shrunk for three summers in a row.” — Mars ‘more active than suspected’, 21 September 2005, BBC News http://news.bbc.co.uk/2/hi/science/nature/4266474.stm   [2] — Gabor Steingart, America and the Dollar Illusion, October 25, 2006 http://www.spiegel.de/international/0,1518,440054,00.html   [3] Was Q3 GDP growth manipulated upwards because of the coming elections or is the US government clueless about measuring output? — Roubini, Oct 29, 2006 http://www.rgemonitor.com/blog/roubini/154588  [4] http://www.shadowstats.com

S. BerklandNovember 10th, 2006 at 8:57 pm

When are we ever going to face the long term needs of our nation and world? Social Security, Medicare, the deficit, alternative energy, oil reliance, and global warming are issues which we must address now, because they take decades to resolve. The droughts in the Midwest are among the most serious on record. Temperatures are heating up in the West, and the result is big economic devastation to farmers and higher food prices.  Boulder, CO voters just approved a carbon tax. “The Boulder tax will raise average home bills $1.33 per month and businesses will pay an extra $3.80 per month, according to the town. The tax will generate about $1 million for the city annually. Utility Xcel Energy (Charts) will collect the tax. The money will fund energy audits for homes and businesses and visits by energy experts to advise homeowners how to save energy through means such as energy efficient lighting and insulation.”  This is very cheap compared to the alternative: higher food prices as more crops are devastated, higher health care costs resulting from respiratory disease, etc. A small price paid now will yield big savings in the future.  Other long term expensive problems are SS and Medicare reform. We should repeal Bush’s Medicare drug benefit, the biggest entitlement program in our history, is it not? I didn’t know Bush is a closet Socialist.  Off topic – I am worried about the dollar each time I read another country is signaling its intention to diversify out of the dollar. The US $ lost 30% of its value from its mid-2001 high. Its temporary rally should not fool us. It will continue going down. I was interested in the comment from Michael Hampton on Brad Setser’s blog yesterday. Mr. Hampton wrote an article in Financial Sense, in which he gave us the likely thoughts of a Chinese central banker.   The Chinese central banker, trained in engineering and economics and with a long-term view of this job (unlike the short term view of politicians in the US), is well aware of the coming US housing-led recession. They are ready to diversify out of US dollars, and started negotiations with Africa to exchange trade and economic development for natural resources. China will substitute the Chinese consumer for the declining US consumer; the Chinese income is growing 30% or more a year, and they are becoming more consumption oriented.   We should be smart enough to not keep our money only in dollars. Has anyone checked out the Merk Hard Currency Fund, euro government bonds, or gold? I made the mistake of putting my money into 3 month CDs and Tbills, so I am stuck until later this year. Then I will diversify into the assets I just listed. I also have some money in inverse index funds, as I am waiting for the Dow and S&P500 and NASDAQ to crash.  

GuestNovember 11th, 2006 at 3:47 am

S. Berkland: You are are talking out of your cornhole here…  “(The Chinese) are ready to diversify out of US dollars, and started negotiations with Africa to exchange trade and economic development for natural resources. China will substitute the Chinese consumer for the declining US consumer; the Chinese income is growing 30% or more a year, and they are becoming more consumption oriented.”  Your Chinese consumption theory is a joke. Please come to China and take a look at how most people live. This harebrained theory of the strength of Chinese consumption was borne out of a few investment bank economists admiring the Ermenegildo Zegna and Prada store next to their 5 star Shanghai or Beijing hotel, while sipping lattes in the lobby. In the cities outside of Beijing and Shanghai, the only commercial zones in that are busy make 99 Cent stores look like Bloomingdales. Professionals (here) in China are lucky to make $5000 USD a year. Want an average job waiting tables? Say hello to 42000 a year. The Chinese consumer replacing the US (and Eurozone) consumer is so far reality it makes my sides hurt. Keep reciting what you read in the economist like a mindless monkey, sucker.

GuestNovember 11th, 2006 at 9:55 am

US oil is already “taxed”. What do you think our $500+ billion miltary budget is for-to insure cheap oil at the pumps.

Schahrzad BerklandNovember 11th, 2006 at 10:21 am

Guest, my comments come from the excellent Financial Sense article, written by Michael Hampton.  I don’t know much about China, since I’ve never been there. Your comments are noted, and I agree. Most of China is extremely poor, but nonetheless, we have to realize that it is changing. China cannot yet replace the US consumer, but the movement toward replacement has started. Maybe China can replace only 2% (?? or 10% ??) of the US consumer now, but that percentage will keep growing. Resource rich nations like Canada and Africa can also begin replacing the US consumer.   One of my Chinese friends, who was just back in China, corroborates what I read recently in a magazine about the big consumption of the younger generation. Young people with jobs are becoming consumers. They prefer to live at home and use their entire income to spend on status symbols that others can see. So for example, instead of buying a new washer/dryer for the house, they buy an expensive purse or a nice car that they can be seen driving.   My friend, an electronics engineer in San Diego, told me that Chinese wages are rising so much, that his company is reducing its outsourcing. Engineer salaries went from $10K to $40K. So wages are rising, consumption is increasing.   It’s puzzling that we think the Chinese need us. They are in essence not being paid for trading with us. They send us billions in goods every month, and in return they are paid in dollars which are reinvested in mortgage backed securities and Treasury bills. Since it is invested in US debt, it is not being used to grow their economy. I just don’t understand why they do this. Furthermore, when China wanted to use its dollars to buy a physical asset (UNOCAL), the US politicians blocked the deal. I think that was a mistake. The Dubai Ports blockage was a mistake too. Foreigners now got the message: we will sell you our debt but not our assets. I am sure the foreign central banks lost their taste for the US dollar after these smacks in the face!   The dollars that flow to Chinese companies are converted to yuan at the bank. But the Chinese bank doesn’t want the exchange rate to rise, so they have to print an equal amount of yuan for the dollars they just paid out.   So the Chinese are growing their economy without getting any money from us, or resources. So from where comes the money to create the infrastructure and all those fancy hotels and highrises? It’s not from US trade, since US trade money is reinvested in US debt. So why would China care if we stop buying anything? They are not getting paid anyway. They can keep producing the same amount of goods, give it away to the Chinese at a fraction of the price, and keep printing money.  Nouriel, can you shed some light on this?  

The BeaconNovember 11th, 2006 at 11:03 am

re: chinese wages  your friend from san deigo must be getting his engineers from the wrong places. there is no need to spend even 10K on an engineer in china.  there is always, always someone else in china willing to work for cheaper.  where are chinese companies getting money for the thailand-esque (97 crisis) high rises that are half empty and the big, beautiful shopping malls with no customers that are built next to smaller shopping malls that also have no customers? from investors. maybe private equity funds with money from pension funds and endowments and wealthy families i would guess. it’s a hype up. the are many malls filled with stores that don’t sell anything in a day. too bad for the investors.  this is how the gig works: china’s growth is at first real. make some top quality hotels, condos, and malls. they’re new, they’re popular, they satisfy demand, the builders and investors get rich. builders catch on, foreign investors hear china and see dollar signs. my guess is some of the development ccompanies may get a cut of the size of the deals no matter if they succeed or not, so there’s little risk for them if they fail. so now the developers are getting rich building grandiose developments that don’t have customers. i have walked through beautiful hotels that have no patrons, through malls that have maybe 5 customers an hour. the floor on my condo has no other people living in it. the other owners are merely investors praying for appreciation. my landlord is speculating that her 14 other condos will go up in value too. there are so many bad investments in hotels, malls and condos going on in china, it really boggles the mind. and the thing is, i doubt china is really going to get hurt that bad – i think the foreign investors are the ones that will get crushed.  the healthy chinese economy can be found in the local areas where no name shirts cost $1 USD and a dinner about the same. granted, there are swaths of beijing and shanghai that do well. but as consumer nation, china is light years away from the US, and much closer to an over-grown nigeria than any western nation. i don’t understand where the delusions about china are coming from. prolly goldman sachs trying to drum up business, lol.

Indian EngineerNovember 11th, 2006 at 1:23 pm

I can vouch for the salaries in India. When I was working in India as a Software Engineer back in mid-90s, I used to make about $2000-$2500 a year. Now a Junior Engineer Easily makes $8000-10000 a year. A junior sw engineer is sfbay might start around $55,000-$65000. India produces Engineers at a much faster clip than the U.S. Yet they are falling behind in terms of supply and demand. Many times young people working in young industries (young as far as India is concerned ) make multiples of what their parents make and they are spending it like their parents would ever do.

jjNovember 11th, 2006 at 4:16 pm

Nouriel,I agree totally with a carbon tax. If it hits Joe Blogs harder than James Rich then adjust the tax code to recompense- but it must be done. Introduce it at a low level with pre disclosed annual increases to a level that really hurts, so that people get time to decide if they want to replace their existing car with a gas guzzler or not.The squalkers are selfish polluters who believe in the free will idyll ( and God will sort it out) that got the US into Iraq and crap economic policies which will in due course surrender its global leadership to China. The world needs real leadership from the US and the first thing it should do is elect a President of intellect,free of vested interests,who not only has a vision for the future of humanity but can communicate it and take the people with it.

Latin & HellasNovember 12th, 2006 at 9:33 am

It sounds like a good idea on paper, but I don’t expect any serious changes in policy among the US ruling classes, heavily influenced, if not dominated, by big energy company business.   The most likely outcome, over the next two years the government – both executive and legislative branch – will muddle along at best, trying to maintain the illusion among the middle class that everything is status quo, that no significant change in lifestyle, and the economic structure that underlies it, is necessary for the foreseeable future. Most Europeans are in the same state of denial for the better part of 15 years now.   A G-20 energy summit is scheduled in Australia next week, might be worth keeping an eye on.    See http://www.latinandhellas.blogspot.com/ for comment, summary, and link to article.

XanirNovember 12th, 2006 at 3:03 pm

I agree with Latin & Hellas. I also hope that they, at the energy summit, will talk about the ticking time bombs in the former Soviet Union. Almost all of the nuclear reactors are in terrible shape. Here the Ukraine:  Nuclear Reactor Shut Down in Ukraine for Emergency Repairs (07.11.2006) http://www.mosnews.com/news/2006/11/07/ukrreactor.shtml  In Russia it is bad too. But the Kremlin tries to keep a lit on anything these days.  Back to the ‘most powerful country of the world’:  Indeed, Bush was barely able to string a sentence together. He avoided the questions he was asked, lost track of what he wanted to say and produced verbal monstrosities like this one: “And he (Donald Rumsfeld) and I are constantly assessing. And I’m assessing, as well, all the time, by myself, about, do we have the right people in the right place, or do we — got the right strategy? As you know, we’re constantly changing tactics. And that requires constant assessment.” Not much later, Bush said: “I think it sends a bad signal to our troops if they think the Commander-in-Chief is constantly adjusting tactics.”  None of this bodes well for the future. The midterm elections were a clear referendum against the war — but what will Bush and the newly empowered Democrats do with it? –America Looks for a Way Forward, Der Spiegel, November 9, 2006 http://www.spiegel.de/international/0,1518,447486,00.html  X

StormyNovember 12th, 2006 at 4:53 pm

Thanks, Nouriel.  I am happy to see that one of my favorite sites is addressing some very important issues.  Kudos.

GuestNovember 13th, 2006 at 12:46 am

Why, oh why are supposedly sensible people being conned by a massive political scam like CO2 and Global warming. The Stern report is one of the greatest loads of politically motivated BS of all time. Read any critique and you will find it so full of holes it should be labelled comical. CO2 is NOT increasing earths termperature. Some very poor science was applied to data which suited the purpose of the EcoMarxists. They took it up as a cudgel with which to beat the Western Industrialist Pigs over the head. However what has happened now is that tax hungry Governments, mainly EU members have taken it on board. They all face massive liabilities in regard to Defined Pensions and have grasped the opportunity for a Moral Tax to fund it. Check out the real scientists websites for scientific rebuttal of CO2 induced warming. The Russian Academy has recently stated we heading into 2 decades of “global cooling” The earths climate waxes and wanes. The EcoMarxists salivate at the prospect of natural cooling tying in with a reduction in CO2 production. It would justify their claims, as dishonest as they are, and would give their murderous politics great cred.

GuestNovember 13th, 2006 at 12:46 am

Why, oh why are supposedly sensible people being conned by a massive political scam like CO2 and Global warming. The Stern report is one of the greatest loads of politically motivated BS of all time. Read any critique and you will find it so full of holes it should be labelled comical. CO2 is NOT increasing earths termperature. Some very poor science was applied to data which suited the purpose of the EcoMarxists. They took it up as a cudgel with which to beat the Western Industrialist Pigs over the head. However what has happened now is that tax hungry Governments, mainly EU members have taken it on board. They all face massive liabilities in regard to Defined Pensions and have grasped the opportunity for a Moral Tax to fund it. Check out the real scientists websites for scientific rebuttal of CO2 induced warming. The Russian Academy has recently stated we heading into 2 decades of “global cooling” The earths climate waxes and wanes. The EcoMarxists salivate at the prospect of natural cooling tying in with a reduction in CO2 production. It would justify their claims, as dishonest as they are, and would give their murderous politics great cred.

RockRabbitNovember 13th, 2006 at 8:51 am

Written by Guest on 2006-11-13 00:46:22  Hey Guest, have you over indulged in the noxious weed?  RR

GuestNovember 13th, 2006 at 10:03 am

 Oil prices are going to rise no matter what the US does. The increase in price alone will bring about many of the suggestions you have listed. We DONT NEED a tax to reduce demand, the market will take care of that for us. Less goverment-PLEASE!

GuestNovember 13th, 2006 at 10:09 am

I was in thr believe that there would be a recession in ’07. I really am beginning to rethink that position. I have not seen a stock market this strong since 1997-98. Almost everyday a new high. Bad news is greeted with a dip and then closes higher. Buying on every small pullback. I’m afraid that any economic slowdown will be just that; a slowdown. The stock market is not too worried about a coming recession. Does anyone else see what I do?  Cliff

GuestNovember 13th, 2006 at 10:27 am

bottom line, don’t bet against Fed. If Fed is pumping market with liquidity, then long the market. And Fed is not worried about inflation and pumping market with alots liquidity. Is Fed lying, perhaps, but still don’t bet against Fed.

HUBRiniNovember 13th, 2006 at 1:56 pm

Roubini  – wrong on oil going to $100 in ’05  – wrong on the dollar crashing in ’04  – wrong on the recession of ’07?  – wrong for your investment decisions?  – right on serial alarmism?

JLarkinNovember 13th, 2006 at 2:22 pm

Cliff,  There is certainly room to rethink the soft/hard landing scenario. Big Oil companies, Microsoft, Cisco, Boeing, Halliburton and others are sitting on piles of cash, with increasing earnings. Their employees will be rewarded and pay off credit cards, mergers and acquisitions will be done, i-bankers will be rewarded and take exotic vacations, overseas assets will be bought, investments will be diversified, software and equipment will be bought, etc.  At the same time, housing and automotive sectors are tanking and will impact retail, mortgage-banking, consumer durables, etc. Consumers are over their heads in debt, foreclosures are increasing. An ARM on a $200K loan will adjust from 3.5% to 5.5% next year, raising the mortgage payment by $250. Is that a lot or a little? Can the consumer handle it or will it be the straw that breaks the camel’s back? What if gas prices rise? Gas prices have declined 13% the last couple of months, putting $300-500 a year back in the consumer’s pocket if prices stay where they are. What if the tax cuts are reversed?  Continue this discussion at http://www.larkinweblog1.blogspot.com 

GuestNovember 13th, 2006 at 4:06 pm

regarding view from the peak, above…please stop. you’re making a fool out of yourself. there has never been a recession where long rates rise.

DFNovember 14th, 2006 at 3:46 am

Hurrah for carbon tax.  But lowering deficits in the USA may not be wise as a depression is about to start. IT would be much better to spend and print tons of money and encourage all countries to do the same, indeed to threaten of trade barriers countries who do not enact major public spending policies (like china for instance). That would be comic too, a complete reversal of the failed washington consensus policies.  Spend and print that should be the leaders motto right now.   And not, as will alas probably be the case : cut and tax.  Wait till the depression hits and then make it worse through cuts and taxes.    We need more money printed and less money lended into existence. We need more exogeneous money creation and less endogeneous.   We need a renationalisation of money emission. And of course we don’t need any gold bugs and other austrian losers. Deflation is the threat. Massive countercycle policies are always the solution.  Why is it that the policies enacted tend to be procycle. That’s the problem.

BillDecember 1st, 2006 at 2:02 pm

Dr. Roubini, I have an idea along the same lines as a carbon tax, and I’m vain enough to think it’s a good one. It seems to me that a tariff on the price of a barrel of oil would work better than a tax on gasoline. It is my belief that above $40.00/barrel, the free market works extremely well at producing energy technologies that are based in North America: Biofuels, Tar Sands, Coal Gasification, Wind, Solar, and possibly Shale Oil to name a few. There are environmental impacts with these technologies, but that opens the door to other technologies. (As someone who remembers the Tech Bubble fondly, I would love to see companies like Rentech and Evergreen Solar become grossly overvalued, if they’re not already.) It will also have the benefit of raising the price of gas at the pump which should promote efficiency. I’m not usually a believer in protectionism, but I think this approach would take more money away from the “Petro-States” than a gas tax, especially if a recession drops the price of oil to $10.00/barrel, making us fat, dumb, and happy again.  Thank you for your blog, and for your appearances on Kudlow and Company. Bill  P.S. – I’ll admit that I don’t know enough about the oil markets to understand if a tariff is even possible.