Time to take out the trash

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…