Australia’s Carbon Dioxide Tax

I came across a rather unusual article on the Austrian Economics Website, the Ludwig von Mises Institute, which defangs an argument that was presented as a support for carbon dioxide taxation. In the article, the author shows a picture which was described as the ‘best sign’ at a pro-carbon dioxide rally, and I have copied a picture of the sign below:

It seems to be a formula which shows that Australians will be better off if they adopt the carbon dioxide tax. However, the article goes on to show the following:

This is a classic example of a mathematical analysis that proves too much. Notice, in the graph in the sign, that the two products are labeled “C” (for clean products) and “P” (for polluting products). Although they are labeled in this way, the fact that the horizontal axis represents the consumption of polluting products plays absolutely no part in the analysis. There is nothing in the graph representing the pollution that these products cause, and so the label is merely a name. The letter “P” is nothing more than an algebraic symbol, one that could just as easily stand for pies, pastries, printers, pizzas, polka lessons, picture frames, pole dancing, ponies, popcorn, pool tables, poppy-seed muffins, pornography, postcards, potatoes, potpourri, poultry, pumpkins, puppies, pudding, or any other good or service (including goods and services that don’t start with the letter “P”).

Thus, by the exact same mathematical argument, the graph implicitly purports to show that a government can make people better off by taxing any good and then compensating the consumers of that good. Though the government taxes the polluting products in the graph, the sign maker could just as easily have switched the labels on the axes so that the government taxes the clean products, and the result, according to the same analysis, would still be a consumer who is better off.

The interesting point about the chart presented is that it appears to offer a mathmatical proof that carbon dioxide taxation will leave people better off. However, the same chart could ‘prove’ that taxation of anything under a similar scheme would somehow, as if by magic, make people better off. It is, of course, totally silly. The problem is that it is the sort of pseudo-scientific argument that, on the surface appears to be impressive, and this is exactly the argument presented by the author of the von Mises article.

When we think of this impressive appearing chart, we can only imagine that those who are supporting the taxation of carbon dioxide will find that this kind of presentation can only serve to bolster their beliefs, and present a ‘proof’ that they must be right. It is one of the great dangers in the overall debate about climate change; apparently scientific proof is not always what it seems. In this case, a mathmatical model presents a silly and impossible argument, but nevertheless this will serve as a buttress to an argument.

I recommend reading the article in full, as I can only touch on quite how silly the argument presented in the chart actually is.


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