The PST: A Lesson in Externalities
Do you know what the nose game is? For those who are self-employed or study in isolation, the nose game is a juvenile way of determining who, within a group, shall perform a less than desirable chore or task. I learned the rules of this game the hard way. I couple of years ago, my amazing colleague, John Robinson, was going on sabbatical. This meant that we needed someone to teach the Grade 12 economics course. Guess who lost the nose game?
So there I was – forced to teach micro and macroeconomics – never having taken an economic course in my life. Although the task was daunting and difficult, I soon fell head-over-heels in love with economics. I would come to each class and exclaim “Guess what! I just learned about…!” My students were very kind and were gracious with my new enthusiasm.
One of the most interesting concepts that we discovered was the notion of externalities, or costs or benefits of an activity that are not taken into account in the analysis of an economic activity. Take for instance car emissions. These emissions are a cost, but to date, we don’t deal with these costs effectively, or at all. This would be an example of a negative externality in this case. Uncontrolled negative externalities (like the burning of fossil fuels), if not dealt with properly, are a giant nose game, if you will.
In Manitoba, we are starting to understand the cost of not dealing with externalities. Each year, we spend millions of dollars on climate change in the form of floods. Recently, the provincial government instituted a 1% increase in the PST in order to help mitigate some of these costs. This, naturally, caused a huge uproar throughout Manitoba, as people view this minor increase in a consumption tax as an affront on personal liberty as it is an inconvenience for the wealthy, and could very well be a deal-breaker at the end of the month for the most vulnerable. The official opposition is having a field day with the PST. But I have to wonder, given the wilful blind-eye we turned to the costs of climate change, what are the alternatives? How do you deal with the externalized costs of climate change without increasing taxes or cutting services? Something has to give.
If the concept of externalities is taught at an early age, however, perhaps our ability to deal with floods and other issues related to climate change will improve. Or current federal government contains the biggest deniers of all, setting a massively damaging economic, social and environmental example for children. There is an irony in this as well, as part of the Harper Conservative brand includes their claim of being good money managers, but how can this be so when they ignore one of the largest costs ever to confront Canada and its economic future?
And not only are we ignoring costs when denying climate change, we are failing to capitalize on the next great market opportunity. Ramez Naam, in his book the Infinite Resource: The Power of Ideas on a Finite Planet, suggests that China will greatly surpass North America in economic growth, not because of traditional practices, but because of investment into green technology. Joseph Stiglitz, in Globalization and its Discontents, suggests the same. We however see limited leadership in Canada on both local and federal levels in this area.
Tom Mulcair has been the only one to suggest that “global warming is a real issue.” The Federal government on the other hand, has made the idea of externalities and carbon taxes a bad word in Canada. This position is nonsensical, as someone will end up paying for the production of carbon and other greenhouse gases – likely the most vulnerable in our society. The cost may be assumed by our species, other species, and the biosphere – something that has not been discussed fully within the K-12 system. Canadians watched Stephan Dion get bullied over this same idea by his own party, even though he was onto something with his Greenshift, or Pigovian tax idea.
Instead, we complain that we get flooded out each year or that taxes go up. This paradox demonstrates our inability to understand externalities, or costs that are not accounted. What I have found is that students pick up on this really quickly.
What if common costs were part of a curriculum designed to make our citizenry ecologically literate, as opposed to consumers addicted to buying Flipflëiners at Ikea. What if our citizenry contemplated the unaccounted costs associated with driving to the suburbs in an SUV and buying a coffee table made from Siberian lumber? What if we all grew up and truly accounted for the costs of our consumerist habits? Unfortunately, we can’t seem to move beyond the fact that the coffee table will make our living room look complete and how fulfilled we will be. This is where schools come into play.
In 2002, George Bush’s administration finally admitted that climate change was a reality and his administration came out with a policy of adaptation. This seems to be what we are teaching our students: Don’t worry about it, things will work out, we’ll adapt. Unfortunately, the cost of climate change is only going to increase, both in terms of dollars and human costs. We cannot create meaningful solutions, however, until we move past populist rhetoric and honestly account for the consequences of our economy’s energy source. Part of this means paying for our past inaction.
This large-scale nose game will pin the cost on all of us. The PST is a necessary, though reactive, way to deal with climate change. And though any reasonable economist who understands externalities could have forecasted this budget move, we have to recognise that it does not get to the root of the problem. To control carbon, or this uncontrolled negative externality, we need to direct public policy and education to effectively mitigate climate change. Otherwise, if the majority of scientists are correct, we will be facing an adjustment of accounts that will ask much more of us than a simple percent increase in a provincial sales tax.