Why Al Gore Will Increase Our Spending and Why We Should Thank Him

All week I have been hearing about Hurricane Earl and its imminent touchdown on the East Coast.  What struck me most was that there was three more hurricanes following Earl practically on the same path towards the east coast.  Al Gore, scientist and hippies have been claiming that we are changing our climate, and our doom is coming very soon (maybe not that extreme).  Anyways, it is documented that our weather has changed.  Over the past couple years, the weather has become more extreme.  For example, the heavy snowfall in Washington DC, hurricane Katrina, the tsunami in southeast Asia, record breaking heat, and the countless other examples.  Unless you are part of the twenty five percent of the population that believes Barack Obama is a Muslim, global warming is a real thing.  So what are we doing to try to stop climate change?  Congress has basically narrowed it down to two options.  The first is a carbon tax, and the more popular choice is cap and trade.  Both choices are basically a tax on carbon products.  Below is a basic supply-demand chart of what a tax on carbons will do to the carbon market:

   

I had to borrow this graph from a website because I do not know how to create images on this blog.  What this graph is showing is that any tax on carbon or emissions will create an artificial price for the products that emit carbon (gasoline and oil).  The market price can be found at q1 (x-axis) and p1 (y-axis).  Any time the government involves itself into a market, inefficiencies are created.  In this case, a tax or the cap and trade plan will cause the price of carbon emitting products to shift to S2.  The red triangle, known as the dead weight loss, is how much efficiency is lost in the market due to the governments intervention.  This can be corporate profits, which leads to job loss and other aspects of production loss.

This means for the consumer that prices will increase.  Does this mean we should tar and feather Gore and the climate scientist for telling us about the change in our climate, and all the politicians that propose these regulations.  Not at all.  In the short run, it is rational to be angry about the change in price.  So what is our response to the higher prices.  We consume less, or alter are habits.  For example, we trade in that good ole American pick up truck for a hybrid.  The drop in demand for carbon emitting products will eventually shift the cost back to market equilibrium.  If no one wants the product, you have to sell it at a price where consumers will buy it.  We can also start demanding alternate fuel and energy sources.  This artificial change in price can nudge us in a direction where we are more responsible with what we put in the air.  I highly doubt that any action will occur in in the near future dealing with climate change, mostly because government officials fear the size of the dead weight loss.  It is not in the nation's best interest to impose a tax on carbon at a time of economic instability.  It is interesting to see how this debate on environmental policy will shape in the future, that is, if it is ever considered.  So I am going to wait these increasingly more violent hurricanes out and hope that something is done.