(2019-12-03) Critique Of Gdp And Carbon Tax Vaclav Smil

Ben Yeoh: Critique of GDP and carbon Tax, from Vaclav Smil. This is a good short critique of the carbon tax (I still think pricing might help but maybe I’m wrong). Followed by a good critique on GDP. (From Smil's Growth book.)

From Vaclav Smil (Growth) and he knows way more than me on energy. “...The largest externality that remains unaccounted for is the undoubtedly very large cost of relatively rapid global warming

extremely difficult to monetize, especially as some regions, some countries, and some economic sectors will also derive various benefits from rising temperatures and from an accelerated water cycle, and as many of these impacts will not be seen in force for decades to come (and hence will be steeply discounted by today’s valuations)

As a result, the carbon tax favored by many environmentalists and by some economists would be nothing but a largely arbitrary (and also a very crude) form of internalizing an unknown fraction of the unfolding and future effects of global warming. …”

And Smil on GDP (including the carbon tax critique).

Before too long it became obvious that, like every aggregate measure, GDP has many drawbacks—but despite suggested adjustments and proposals for alternative accounts, it has become only more entrenched as the dominant yardstick for appraising the achievements and assessing the growth of national economies.

Problems begin with the choice of currency

Even in countries with capable statistical services, this results in often considerable uncertainties, as is best illustrated by the frequency and extent of GDP revisions.

On the most basic level, proper GDP accounting requires a definition of the economy, that is, putting the boundaries on what gets counted

As it is structured, the GDP concept cannot capture nonmonetary exchanges (the barter economy) and unpaid work (such as household chores or child care provided by members of a family or by relatives and friends) or those financial transactions that take place outside the monitored flows of modern economies, deliberately avoiding them or being hidden, a sector known as the informal, shadow, underground, or black economy.

A comprehensive study of the shadow economy in the European Union put the average for all member states at 18.3% in 2015, with the range from 8.3% in Luxembourg to 30.6% in Bulgaria, and with Germany and France nearly identical at, respectively, 12.2% and 12.3%

From a long-term perspective, the most fundamental failure of GDP accounts is to ignore diverse forms of environmental degradation caused by economic activities and treat the depletion of finite resources as current income that adds to wealth

Remarkably, economists call these critical omissions “environmental externalities”: the very choice of the noun is telling because historically they were not an integral part of the cost of doing business and their still far from adequate pricing has been making slow progress.

One of the first large-scale instances of this effort was the elimination of visible particulate air pollution from the combustion of coal in large electricity-generating plants, due to the post-1950 installation of electrostatic precipitators that remove more than 99% of all particles (USEPA 2016a)

Removal of particulates and sulfur raises the cost of electricity generation by about 10%. But most externalities remain entirely unaccounted for.

The largest externality that remains unaccounted for is the undoubtedly very large cost of relatively rapid global warming... extremely difficult to monetize, especially as some regions, some countries, and some economic sectors will also derive various benefits from rising temperatures and from an accelerated water cycle, and as many of these impacts will not be seen in force for decades to come (and hence will be steeply discounted by today’s valuations). As a result, the carbon tax favored by many environmentalists and by some economists would be nothing but a largely arbitrary (and also a very crude) form of internalizing an unknown fraction of the unfolding and future effects of global warming.

These are not new concerns. Kuznets was fully aware of these deficiencies (obviously not of the effects of global warming but of environmental externalities in general and of other ignored inputs). He asked who could place a value on the country’s rivers or on the skills and capacities of housewives and his suggested subtraction of dis-services from national income estimates was far more radical than most of the recent calls for GDP redefinition. His preference is worth quoting at length.