A revenue neutral carbon tax helps face climate change, inequality, structural unemployment (UBI) and promotes growth

Sir, Ed Crooks reports that “Eleven leading international companies… have joined a campaign backing a revenue-neutral carbon tax in the US, as a way of tackling the threat of climate change that “embodies the conservative principles of free markets and limited government”. “GM and Total among 11 multinationals to support US carbon tax campaign” June 21. 

And yesterday, George P. Shultz and Lawrence Summers also signed up completely on the idea. “The inevitable climate solution” Washington Post, June 20.

Indeed, as I have written to you many times before, a carbon tax which revenues are equally redistributed to all, “carbon dividends”, is the way of how to align the market signal that helps face the current environmental challenges, with the current concerns about inequality and lack of sustainable economic growth.

It also constitutes a fiscally sound way to begin funding the universal basic income the society so urgently needs in order to face growing structural unemployment, before social cohesion breaks down, as then it might be too late.

It follows the same principles as what I proposed in May 2016, in order to combat pollution in Mexico City, and that you surprisingly yet very kindly published.

So Sir, forget the Paris Climate Agreement lamentations, at least for a while. The Climate Leadership's Council proposed carbon dividends proposal carries a lot more green, social and economic punch.

Please, even if this could make Trump to become a greater green hero than Al Gore, swallow it, for the best of our young. If Washington Post seems to be able to do so, you could too. 

PS. A decade ago I protested the trading of carbon credits as being just indulgences issued in order to keep on committing environmental sins. But carbon-tax-dividends, is that not something like democratic climate change indulgences, applied to and shared by all?

@PerKurowski

The 2007-08 crisis and the relative stagnation thereafter would not have happened without current bank regulations

Sir, Ed Crooks writes “Trump has threatened to “do a number” on Frank-Dodd banking regulations aimed at preventing another financial crisis.” “Populists push to roll back rules” February 22.

Well no! Except for the intent of eliminating overreliance on credit rating agencies, something that has yet to happen, the Dodd-Frank Act did not eliminate those populist bank regulations that caused the last financial crisis, or the relative economic stagnation thereafter.

Some real runaway populism, that happened when hubris filled technocrats thought they could, and at no cost, diminish the risks for the banking system with their risk weighted capital requirements for banks.

What did and does that regulation cause?

That the banks create dangerously large exposures to what is perceived, rated, decreed or concocted as safe, e.g. AAA rated securities and Greece. 

That the banks award too little credit to what can supply dynamism to the real economy, e.g. SMEs and entrepreneurs.

Crooks also writes: “In a 2012 OECD expert paper, David Parker of Cranfield University and Colin Kirkpatrick of the University of Manchester reviewed the state of academic knowledge and concluded that there were large gaps in our understanding of the effects of regulation policy”

I have not read that paper, but I am sure the conclusions must be absolutely correct. For instance, when regulators stress test banks, they do not even care to look at what should perhaps have been on their balance sheets, in order to satisfy the credit needs of the real economy.

It is amazing how the Financial Times insists on keeping all this hushed up.

Does that mean FT agrees with the regulatory statism reflected in assigning to the sovereign a risk weight of 0% while hitting us “We the People”, with 100%?

Does that mean FT finds nothing dumb in assigning a 20% risk weight to the so dangerous AAA rated, while hitting the innocuous below BB- rated with 150%?

Sir, here between you and me, what favours do you owe the bank regulators, or why are you so afraid of them?

PS. The Dodd-Frank Act is so surreal that in its 848 pages it does not even mention the Basel Committee

PS. I dare you to read an Op-Ed I wrote in 1999 about the dangers with regulations

PS. I dare you to read the remarks I gave to bank regulators in 2003 while being an Executive Director of the World Bank.

@PerKurowski

To better help the environment and fight inequality, get rid of the profiteers, and give the citizens the incentives

Sir, after a price increase of 6.000% last year, gasoline is currently being sold a US$ 1 cent per liter in Venezuela, a country in which people are dying because of lack of food and medicines. Can you imagine how much better it would be to sell that gasoline at international prices, and perhaps even adding some carbon taxes to it, and then share out the new revenues obtained among all Venezuelans? I have been fighting for such a solution for soon two decades.

That is why I jump of joy reading Ed Crooks’ report about a proposal in the US for “a tax on carbon dioxide emissions, starting at $40 per tonne, with all the revenue recycled in dividends paid back to the public.” It is being introduced by the "Climate Leadership Council" “Republican grandees propose carbon tax” February 9.

In May 2016 you also kindly published a letter of mine in which I proposed something similar as a tool to fight pollution in Mexico. 

I pray the referred to proposal gets to be approved in the US. It would set up a great example for the world on how one can effectively align the fights against environmental damages and against inequality. It would serve as a great appetizer for a Universal Basic Income scheme.

That said we could reasonably assume that, since it reduces the value of their franchises, the usual green movements and redistribution profiteers will fight it tooth and nail.

PS. Venezuela’s domestic gasoline prices should in fact be considered a violation of economic human rights, but I have found little interest, for instance in OAS, for pursuing such matter.

@PerKurowski

What is puzzling is that regulators, like Mark Carney, cannot see they might also be a source of huge systemic risk

Sir, Ed Crook, with respect to Mark Carney, the governor of BoE and the chair of FSB arguing last year that regulators need to address climate change promptly, quotes Daniel Yergin with: “It was puzzling that a central bank would choose to identify investment in this sector as a major systemic risk to the global financial system, when there are so many other more obvious and immediate risks” “Energy expert dismisses warnings of carbon bubble” October 20.

On occasions I myself have proposed slightly less capital requirements for banks based on environmental sustainability and job creation ratings, so that banks earn a little higher risk adjusted returns on lending when they are doing what many of us consider as social good. But I have always done that with much trepidation; as it clearly requires a lot of hubris to think you could intervene so without causing any unexpected negative consequences.

But the Basel Committee and FSB regulators suffer no such inhibitions. They have gladly gone ahead with imposing credit risk weighted capital requirements, all without the slightest consideration to how that could (and is) dangerously distort (for no purpose) the allocation of credit to the real economy.

In my homeland (Venezuela) we often refer to those who have been awarded power (or have given themselves powers) in order to engage in dangerous activities, as being monkeys with razorblades. That description applies perfectly well to regulators who are not eve aware of that their actions might in itself constitute the largest systemic risk for the financial system (and for the economy)

@PerKurowski ©

No “fiscal cliff” of the current size can be jumped over without a lot of private risk-taking.

Banks currently need to hold much more capital when lending to “The Risky”, like small businesses and entrepreneurs, than when lending to “The Infallible”, like the government or anything with a good credit rating.

So here the question: How much more does “The Risky” have to pay the banks, on top of their normal risk premiums, in order to be competitive when accessing bank credit? 

That question reveals the profound distortions produced by bank regulations which impede banks to perform with any sort of efficiency their absolute vital role of economic resource allocation. 

Unfortunately, that distortion is a topic not yet discussed by the private sector as can be seen in Ed Crooks’ report “Business calls for accord to boost growth” November 8. And, as for the bank regulators, they won’t even acknowledge questions on it. 

One of the problems is that “The Infallible”, and many banks too, are very much benefitted by such distortions, and so, until “The Risky” lift their own voice in protest, very little will be happening on this front. 

To me it is amazing that in the “Home of the Brave” the private business sector can sit down to discuss the future without discussing what an excessive regulatory risk-aversion must mean for that future. There is no “fiscal cliff” on earth that can be jumped over without abundant, and hopefully smart, private risk-taking.

Nothing ‘creative’ about destruction of lending to start-ups

Published in FT, December 14, 2011

Sir, Ed Crooks writes that start-up businesses are crucial for creating US jobs but their dwindling birth rate is stalling hopes of recovery "Cycle of 'creative destruction' loses momentum to start-ups", Is America working? December 13).

Lending to start-ups, as something perceived as “risky” for the banks, even though its absence would of course be much riskier for the world at large, requires a lot of that bank capital that is so scarce now; especially after the regulators allowed the banks to lend to what was perceived as not-risky, with little or no capital at all.

In Schumpeterian terms, one can say that bank regulators are engaged in simple and plain vanilla destruction.