Only a progressive tax revolution can stop climate collapse

Only a progressive tax revolution may still be able to stop the climate collapse

The time to avert climate collapse with market-based instruments alone has run out - now only consumption reductions can help. And by taxing away the disastrous over-consumption, the funds for building a regenerative infrastructure can be made available at the same time.

by Ulrich Thielemann
[This article posted on 7/4/2022 is translated from the German on the Internet, https://makronom.de/nur-eine-progressive-steuerrevolution-kann-den-klimakollaps-vielleicht-noch-aufhalten-42217.]

Our society is in the midst of a profound transformation process. At the center: the economy. The next few years will determine whether change happens to us by disaster or we succeed by design.

The Economists for Future series of debates is dedicated to the associated economic challenges. On the one hand, they critically and constructively illuminate the narrowness of the economic sciences and the gaps in current economic policy. On the other hand, we discuss points of orientation for a sustainable economy and provide impulses for a pluralistic economics in which social-ecological necessities are appropriately addressed.

The first issue of the debate series was published between September and December 2019. The second part of the series started in September 2020, the third in June 2021. In the latest issue, aspects around power & markets will be addressed in the coming months. Here you will find all the articles that have appeared so far as part of the series.

UN Secretary-General António Guterres addressed the global public in forceful words at the presentation of the third part of the 6th IPCC report on April 4. He said it was a "document of shame" because the IPCC had no choice but to list the "empty promises that will put us on the road to an uninhabitable world." Instead of immediately setting about cutting emissions by nearly half by 2030 in a gigantic, unprecedented effort, given the rapidly closing window of opportunity, the existing voluntary commitments would currently lead to as much as a 14% increase.

The "real dangerous radicals" are not climate activists, but those countries "that continue to increase fossil fuel production." Meanwhile, exactly what Guterres calls "moral and economic madness" is being pursued everywhere, namely the development of more fossil fuel deposits. From Germany, for example, new LNG terminals for particularly climate-damaging fracking gas, including associated blocking blade effects, or new gas wells in the North Sea. There is a new "gold rush" for fossil fuels, especially gas, he said. Since prices are high, the development of "unconventional" deposits is also worthwhile, despite a declining energy return on investment. Therefore, the oil industry is planning various "carbon bombs." The scheduled implementation of these enormously carbon-intensive large-scale projects would break any CO2 budget and catapult humanity definitively into a deadly hot age.

Media compartmentalization

By all accounts, the IPCC report and its message of "Now, or never" received less media attention globally than the slap in the face of some actor at this year's Academy Awards, which took place at the same time. As for Germany, the ARD news programs, Tagesschau and Tagesthemen, did not report at all from April 4, so the audience of millions was spared Guterres' messages. The presenter of the ZDF heute journal said that Guterres had apparently "burst his collar," suggesting that it was not a well-considered statement.

The ZDF news magazine heute came up with the false report that we still have "three years left to finally reduce emissions and preserve a livable Earth". We would therefore still have until 2025 to initiate "the turnaround". This is a misrepresentation in that the reference year of 2025, from which global emissions would have to fall, by 43% by 2030 to meet the 1.5 degree limit with a probability of 50%, is simply derived from the nature of the model calculations used by the IPCC, which work with 5-year blocks. In the 2020-2025 block, the current trend is shown.

Moreover, according to the message of heute journal to its audience of millions, yes, CO2 can "simply be pulled out of the air." "This plant in Iceland can." The approximately $13 million plant, currently the largest in the field of "highly speculative" negative emission technologies, is capable of "neutralizing" a full 3 seconds of global greenhouse gas emissions in a year. Satirically, The Juice Media says that carbon capture and storage is a technique to "capture" taxpayer money to "bury deep in the oil industry's bank accounts" while undermining efforts to actually reduce emissions.

One could almost get the impression that the leading media want to isolate us and themselves from the uncomfortable truth that only a radical departure from the previous, expansionist course of the economy, which they have mostly accompanied benevolently (for example, in the format "Börse vor Acht," which only "informs non-politically"), offers the chance to perhaps still avert the climate collapse. (Outside the bubble of opinion leaders, i.e. among ordinary citizens, practically no one is of the opinion that "Germany must become more prosperous" (p. 38)). This is already shown by a quick glance of the layman at the relevant graphs, which illustrate how drastically emissions would have to fall in order to meet the own commitments made in Paris 2015.

Just to meet the (inadequate) 2-degree target would require annual reductions on the order of 10% of current global emissions levels. This would require, for example, two to three large fossil fuel power plants worldwide to be taken off the grid - every week, for 15 years (IPCC AR6 WGIII, Ch. 17, p. 24).

The root of the evil: overconsumption

Guterres spoke in a pejorative sense of the "radicals" at the levers of power. What is actually meant by this is that they counteract states of humane normality, whether intentionally or by toleration. Strictly speaking, the more appropriate term for this is that of "extremism" (which does not have to be inherently narrowed in the sense of the protection of the constitution). For "radical" comes from root ("radish"). And of course we are allowed to ask about the root of an evil without being classified as "extremists".
In Western Europe, the top 10 percent of income earners emit six times as much greenhouse gases as the poorer half of the population

So what is the root of the evil of a world that, without drastic countermeasures, is heating up in a way that is hostile to life and destroying any humane normality? In progressive circles, the answer has become established that it is the overconsumption of the wealthy that is destroying our living space. According to Lucas Chancel's calculations, the top 10 percent of the global income pyramid are responsible for 48 percent of global greenhouse gas emissions through their consumption patterns. The middle 40 percent generate 41 percent and the entire bottom half only 12 percent of greenhouse gas emissions. The highest-income one-hundredth claim 17 percent, more than the entire bottom half of the world's population.

The fundamental idea, overcoming the neoliberal paradigm, is to tax away overconsumption and excess wealth through a progressive design of tax policy. This is advocated not only by economists such as Lucas Chancel and Thomas Piketty, but also by anthropologists such as Jason Hickel, climate scientists such as Arnulf Grübler, and authors such as the British journalist George Monbiot. The elementary point is to take the levers out of the hands of high-income earners and the wealthy to make disproportionate contributions to the destruction of the planet's habitability with their spending behavior.

Reducing rather than offsetting externalities

This progressive taxation is initially justified by the fact that greenhouse gas emissions are "external effects," i.e., physical impacts on others. The fact that these only develop their catastrophic effect in the aggregate does not change this fundamental connection.

Of course, we all - meaning the citizens of the West, the OECD world, Europe and even more those of the USA, but also the wealthy of the Global South - contribute to this climatological aggravation. For example, half of EU citizens are among the global top 10 emitters, the other half are in the middle 40 percent, and virtually no one is in the bottom 50 percent (Chancel/Piketty 2015, p. 31). The global top 10 includes those with an annual income of $38,000 or more, and the top 1 percent includes those with an annual income of $109,000 or more.

However, the disproportions are also enormous within the affluent regions. In Western Europe, the top 10 percent of income earners emit six times as much greenhouse gases as the poorer half of the population. The EU's far too weak emissions reductions over the past several years have been borne entirely by the bottom 90 percent, while the population attributable to the richest 10 percent increased their emissions by 3 percent (Oxfam 2020, p. 1). To meet the 1.5-degree target, the emissions of the richest 10 percent are too high by a factor of 10, while the bottom 50 percent of EU citizens would need to "merely" halve their emissions by 2030 to do so.

High-income earners are disproportionately responsible for the climate crisis, while the poorer half of the world's population is hardly responsible at all - but is in turn disproportionately affected by the consequences. In this context, however, one has to abandon the economistic interpretation of external effects, which takes the internal effects of market trade as a model. Consequently, the problem would be solved if the injured parties were compensated, which is called "internalization". Poor people who may have been driven into poverty, i.e. displaced, via (global) competition will settle for very little and continue to endure the harm. In contrast, it should be noted that the silver bullet of dealing with so-called externalities is omission. Even according to the principles of a "liberal" ethics limited to negative justice, harming others by physically affecting them is fundamentally wrong.

Gaining funds for the gigantic financing needs of an energy turnaround.

Second, the financial resources raised through progressive income and wealth taxation on the model of the postwar economy (with marginal tax rates of about 90 percent in the U.S.) are to be used to cover the gigantic financing needs associated with replacing fossil fuels with renewable energy sources. This consists primarily in the development of a renewable infrastructure. The IEA estimates the financial requirement at around 4 percent of current world GDP - every year until 2050. No one wants to pay for this infrastructure from the outset, which is why policymakers must ensure that it is built up successfully in order to maintain a level of prosperity that is sustainable in social and ecological terms. The build-up would be facilitated by a lower level of energy and resource consumption brought about by tax policy, as simply less would be consumed and access to the resources of the already overstretched planet would be reduced. If one did not also have to supply all the SUVs, long-distance flights, yachts, etc. with energy in a "sustainable" manner, the financing requirement for the energy transition would also decrease.
In an economy based on the division of labor, there is no other way to get people to provide desired or required services than through payments

Financing is necessary anyway, even if one relies on direct regulatory law and instructs the actors to operate and consume in a regenerative way very soon. In an economy based on the division of labor, there is no other way to get people to provide desired or necessary services. If, for example, the installation of heat pumps and solar systems were mandated, property owners would have to buy them en masse, causing prices to skyrocket. Not only because the skilled labor is simply not available in the time available to us, which we hope will still avoid triggering the tipping points, but also because of the gigantic demand for raw materials, especially metals. This underscores the importance of the first pillar of the climate policy fiscal revolution: reducing consumption and thus lowering the normative target for which "security of supply" must be established.

The Failed Idea of Market-Conforming Climate Policy

The previous, market-conforming climate policy (certificates and excise taxes) may be considered a failure. It has essentially led only to a sideways movement of emissions in the West. It is questionable whether it has made any difference at all. The much too weak reductions (by about one third in the EU since 1990) are mainly due to a quasi-subsidy system (EEG levy), Wall Fall Profits and production relocation, especially to China. The only slight reduction in the previously built-up, extremely high level of emissions, together with China's entry into the world market and its coal-fired exports to the OECD world, has led to the total amount of global CO2 emissions remaining in the atmosphere for millennia almost tripling since the first climate conference in 1979 and nearly doubling since the adoption of the Framework Convention on Climate Change in Rio in 1992.

At its core, the idea of market-based climate policy was to create green inflation through "carbon shock therapy." This rationing via price was supposed to "incentivize" the emitters of fossil fuels, economically strong as well as economically weak, to in turn "incentivize" potential suppliers of renewable energies to build up a renewable infrastructure to cover the (possibly further growing) "energy demand" and to make these energies available. Since this would have led to massive distortions - both with regard to low-wage earners, who are already financially at the breaking point, and with regard to companies competing (globally) - this policy turned out to be far too timid.

Time has run out for this experiment, which goes by the code word "technology openness," in view of the "short and rapidly closing window of opportunity to ensure the world's habitability." Now only reductions in consumption will help. And this should be done fairly by those who can afford it: the wealthy, the winners of the (global) location competition.

Climate justice now

On the one hand, consumption reductions are indicated for reasons of polluter justice. To put it bluntly and as an example: the mass use of SUVs (and also motor homes) causes famine in remote regions of the world. On the other hand, for reasons of fairness in the substitutional development of a regenerative infrastructure - admittedly at a lower level of consumption than today.

In this context, we can refer to the well-established principle of "ability to pay" in tax policy (the application of which, however, has been watered down considerably since the neoliberal turn): Anyone with a high income or wealth, regardless of whether it is based on "performance" or value creation or on skimming, on "resourcefulness," luck or whatever, is "more capable" than low-wage earners or the wealthless in terms of the financial contributions he or she has to make to the accomplishment of a common task (such as the construction of a renewable infrastructure). It is therefore reasonable to expect him or her to make higher contributions. This idea is also found in the principle of "common but differentiated responsibilities" in global climate policy.

In large-scale societal contexts, the moral insight of the individual is too weak to solve the problem in question in a sustainable way.

The helplessness of current climate policy is shown by the fact that, on the one hand, the necessity of reducing energy and resource consumption is recognized, but this is understood as purely individual ethical "sufficiency" and is satisfied in this respect with appeals to citizens. This not only ignores the dimension of justice for the polluter (whoever wants to may continue to drive an SUV, to recover from career stress on the Maldives), but also the meaning of constitutional politics in general. This is to solve the problem of the weakness of moral obligation: In large-scale social contexts, the moral insight of the individual is too weak to solve the problem in question in a sustainable way.

This is true even if all actors would have seen the rightness of a measure (here: reduction of energy and resource consumption). They cannot be sure whether their contribution, which may be laborious and directly disadvantageous to them, or their refraining from it, will fizzle out without effect. Therefore, the general moral insight to be gained in political deliberation must be supported or fulfilled by legally binding sanctions. Tax policy is an important, indeed indispensable, dimension of climate policy. It would be necessary even if we were to switch to per capita rationing along the lines of a wartime economy (such as that of the USA or Great Britain). Back then, huge quantities of armaments had to be produced, today the energy turnaround. Then the fascization of the world had to be averted, for which the U.S. spent 37 percent of GDP for a few years, today the end of a civilized survival of mankind.

About the author:

Ulrich Thielemann is director of MeM - Think Tank for Business Ethics.

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Homo economicus is the holy of holies of economics
Economic policy
Economists - modern prophets?

The layman might think that ethics has no place in economic theory. Don't economists preach egoism? And isn't homo economicus maximizing his utility the holy of holies of the discipline? That is exactly how it is.
by Ulrich Thielemann
[This article posted on 7/23/2015 is translated from the German on the Internet, https://dievolkswirtschaft.ch/de/2015/07/2015-08-09-thielemann/.]

Homo economicus is the holy of holies of economics
The fact that parents actually spend child allowances for the benefit of their children - instead of for their own consumption needs - is considered an expression of "biased" decisions in behavioral economics.

"Rationality" and "efficiency." These are the ethical pillars of prevailing economic theory: utility maximization is considered an expression of rationality, and interaction relationships should be designed efficiently. Both terms - rationality and efficiency - are normative in nature.[1] Rationality concerns the ethics of action, efficiency the political ethics. Those who speak of efficiency usually mean that it should be increased as much as possible. And those who declare the instrumental reason of homo economicus to be the epitome of rationality deny any binding force to opposing views of right action.

No Sensorium for Moral Objections Allowed

Against the accusation of preaching egoism, many economists object that homo economicus can also have moral preferences. Some people feel better and thus increase their utility when they see moral objectives realized. Their cost-efficient implementation against resistance ("constraints") is then again a matter of rationality. Homo economicus is therefore an ethically neutral concept, which is above any ethical doubt and, moreover, brings more rationality into the world.

However, the actions of the "moral" homo economicus remain self-interested. He perceives other people solely in their resistance and tries to induce them to the desired behavior by incentives or dismissals. The fact that they may have justified objections to the allegedly moral objectives is excluded. This is because taking these objections seriously would contradict the rationality understanding of homo economicus.

As a result, the prevailing economic theory advocates a model of society in which all actors are mutually stimulated or stimulated away from each other and everyone is focused on nothing but increasing their privately defined success. They are only interested in their useful or harmful effect properties. To speak with Kant: "merely as means", not "as ends", not as beings of equal dignity. This concept of practical reason is absolutely not justifiable. Justification would presuppose the recognition of our interaction partners as individuals who could possibly raise justified objections against us.

Even behavioral economics does not overcome homo economicus

This could be one of the reasons for the triumph of behavioral economics. Behavioral economics is supposed to accomplish the feat of invalidating the criticism of the economistic core paradigm without overcoming it. By turning to empiricism, behavioral economics can present itself as a "positive" theory claiming freedom from value. This allows to dispel the impression that the paradigmatic core of the discipline is a questionable ethics, even an ideology, namely the market ideology. Through its behavioral-economic-empirical reorientation, economics can also free itself from the reputation of speaking the word of a general egoism. After all, in its experiments it usually finds out that people generally do not act as "rationally" as one felt compelled to assume in order to prove the legitimacy of homo economicus, whereby one proceeded according to the motto: If everyone acts this way, then it must be right after all.

The fact that behavioral economics does not abandon the core economic paradigm is shown by the fact that it continues to regard utility maximization as the epitome of rational, i.e. correct, action. The fact that, as a rule, parents actually spend their children's allowances for the benefit of their children instead of using them to satisfy their own consumption needs is regarded as an expression of "distorted" decisions.

But if homo economicus cannot be located, at least not necessarily, on the side of empiricism, where then? Well, it moves from the object, from "the people", to the addressees of the theory - whom it now understands as its customers. The insight into empirically existing "decision weaknesses" is namely the starting point for the efficient control of the behavior of "the people" and the exploitation of their weaknesses. Theory itself becomes business. This is the reason why this empiricist line of research calls itself behavioral economics.

Justice instead of efficiency


The classical material justification of advantage maximization is known to be that its pursuit serves the common good or "efficiency," by which specifically growth is meant. A supra-personal power must be presupposed: the famous "invisible hand" of the market. That this metaphysical belief is still prevalent is shown not only by a look at almost any economics textbook, but also by the fact that, according to widespread belief, the financial crisis can be traced back to the inability of financial market players to maximize their advantages. According to this view, they were animated by "animal spirits," which prevented them from pursuing their true, long-term profit maximization interests - however plausible this may be in view of the bail-outs of pensioners and a look at the statistics on the rich.

The efficiency apostles do not care much about the fact that interaction relations should not be efficient, but primarily just. However, they cannot avoid the question of justice, because the question can always be asked: Efficient for whom, and for whom not? It is no exaggeration to say that the ideological purpose of the efficiency criterion is to eliminate the competition losers from the models.

In the utilitarian version, the lesser loss of some is justified by the greater gain of others. Thus, the losers have to sacrifice themselves to the increase of a supposed total benefit. The Paretian variant - where no one is supposed to lose - is either not applicable to competition, or losses are reinterpreted as investments that will pay off tomorrow. Thus, unemployment is seen as a temporary problem that those affected have to overcome "on their own responsibility" by making appropriate investments in their human capital. The consequence is a general economization of living conditions, since those who do not fully orient their lives toward increasing their competitiveness are threatened with a fall.

Paradigmatic plurality is needed


The prevailing economics lacks conceptual measure and center. That alone is the problem. It always advocates economization, never against it or in favor of relativizing it. This finds its theoretical expression in economic theories for practically every area of life: education, politics, law, the family, the environment, morality. Economic theory is an "imperialist" science, as it itself confesses.[2] Therein consists its arguing "from an economic point of view".

This, however, is a misguided economic-ethical position, at any rate worthy of questioning. Therefore, there is an urgent need for a pluralistic opening of the economic sciences, so that the argumentative dispute about the ethically correct interpretation of market-competitive interaction relations and the status of market logic again becomes a normal part of economic discourse.[3]

Cf. Ulrich, P. (2008). Integrative business ethics. Foundations of a life-serving economy, 4th ed., Bern/Stuttgart/Vienna; Thielemann, U. (2010). Competition as a concept of justice. Critique of neoliberalism, Marburg.
Lazear, E.P. (2000). Economic Imperialism, in The Quarterly Journal of Economics, 1/2000, pp. 99-146.
Cf. http://www.plurale-oekonomik.de/home/ as well as http://www.mem-wirtschaftsethik.de/memorandum-2012/.

Suggested citation: Ulrich Thielemann (2015). Homo economicus is the holy of holies of economics. Die Volkswirtschaft, July 23.