I’ve been spending some time thinking and writing about
things that no-one else is currently talking about, which is terrible for
generating page views on your blog but good for making prudent investment
decisions. Today however we won’t be doing any investment analysis; we’ll just
be taking out some of the political garbage spoken by politicians of late. By
now the carbon tax has kicked in, people have received their first compensation
payments, we’ve started paying bureaucrats to take money from polluters so they
can give it straight to us to pay the higher prices being charged by polluters because bureaucrats
are taking money from them to give to us to compensate us for the higher prices
polluters charge because they are being taxed to… etc (see here), and
businesses are starting their first round of defensive excuse making about why
prices are rising. Now why would they do this when the whole point of the tax
was to raise prices?
The government gave them some incentive when they made
threats to companies about how raising prices higher than the tax necessitated
would result in harsh reprimands, and also that the government has any hope in hell
of proving that such a tactic was in play. Needless to say trying to scoff
laugh and swallow my cereal all at once resulted only in quiet choking sounds
as I witnessed this most pointless of comments on Sky News Business. Businesses now are covering there backsides in case the government is stupid enough to believe its own threat and tries to prove a price hike was "blamed" on the carbon tax. The truth is, businesses don't need to make up excuses to raise prices; Adam Smith (to whom we pray at night as the father of modern economics) provided one that has been accepted by all schools of economics from day one. Now hold ya breath.
Of course the whole point of the tax is to raise the price
of 'polluting products' for consumers and reduce the revenue that producer’s
receive for them, giving both the incentive to buy and produce less of the product respectively.
In How Labor’s new budget is going to reduce our surplus we looked at this
process in detail, and you’ll notice that in that example the “losses” we’re shared
out relatively evenly. By this I mean that after the tax was implemented, in
the resulting equilibrium, the consumer had to pay an extra forty cents for each car, and the
supplier received forty cents less for every car he sold. However this isn’t always so. By changing the
shape of the curves (or lines in our example) we can see how the gains and losses from government
intervention are shared by producers and consumers. Hold tight…
