In today’s SMH there is a well-explained article in response to grinchface Abbott’s most recent example of trying to mislead the public – the claim that the government’s proposed carbon tax will just be a big bureaucratic money-go-round. From the article:
Perhaps the biggest furphy being bandied about by radio talkback hosts and others about putting a price on carbon is the assertion that, because the scheme will compensate households for any increase in costs, there will be no incentive to reduce consumption of carbon-intense goods and services, such as electricity.
”At best it’s a giant money-go-round,” Tony Abbott told one radio interviewer this week.
Sorry Tony, but good economists know better.
Economics students learn pretty early on that there are two important ways that changes in prices influence consumption. First, a price increase on a certain good has an ”income effect”. By reducing a consumer’s real income, it makes them feel poorer and prompts them to consume less of that good.
It is true the government intends to shield low- and middle-income households from this income effect by compensating them with tax cuts or cash payments for the full impact of any price increases on energy or food.
But there is a second way that higher prices influence consumption. Economists call it the ”substitution effect”. A higher price for carbon-intense products, such as electricity, encourages consumers to switch to consuming less carbon-intense goods and services.
For all the low & middle income earners who are being duped by opposition lies: Abbott is appealing to the Australian sense of fairness in order to mislead you into supporting his ignorance of legitimate climate change science. Abbott is on a mission to sink a carbon tax because he wants to protect the opposition’s biggest supporters: big business and high income earners. Don’t be fooled by his smiling grinchface. Anytime he pulls the grinchface you know he is full of it.
This is the face to watch out for: