Tories seem intent on using their time in opposition to weaken their advantage on free market economics

Henry Kissinger once noted that the exercise of political power consumes intellectual capital: time in office is spent making decisions, not absorbing new ideas. So in the normal course of things, this would be a time of reflection for Conservatives and conservatives (I’m going to use the two terms interchangeably here). The federal Conservatives and the Progressive Conservatives in Alberta are both choosing new leaders; it’s an ideal moment for conservatives to do some thinking and to rebuild their eroded stock of intellectual capital.

It’s not going well. Conservatives like to think their command of economics is one of their most valuable assets, and they can fairly take credit for their competent handling of economic policy during the financial crisis. But instead of strengthening their position on this front, Conservatives seem intent on using their time in opposition to weaken it. A party with a minimal understanding of market economics would have long ago abandoned its campaign against the idea of putting a price on carbon. By continuing and amplifying its campaign against using market-based policies to control greenhouse gas (GHG) emissions, the Conservatives are dismantling their credibility in economics.

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The foolishness of the Conservative rhetoric is difficult to overstate, and it takes many forms. For example, there’s the claim that fossil fuels are somehow exempt from the law of demand. According to this argument, higher prices for things such as gasoline won’t actually reduce GHG emissions. Instead of cutting back, people will maintain their consumption patterns, and the only effect of higher prices would be to force them to reduce spending on other things.

The obvious response would be to point to the voluminous statistical literature documenting the extent to which the quantity demanded for gasoline and other fossil fuels falls as prices increase, but you don’t even need to do that. All you need to do is remember what happened to gasoline prices after Hurricane Katrina temporarily wiped out most of the oil refining capacity in the Gulf Coast around Louisiana, reducing North American gasoline production by about 10 per cent. Although there were a few localized interruptions in supply, this sharp reduction in supply did not lead to widespread shortages. Prices rose instead, and people responded to the increase in price by driving less — just as the law of demand would predict. How much less depends on how much the price increases: the higher the price, the lower the quantity demanded.

As the Conservatives should really know by now, market-based approaches to reducing GHG emissions are more efficient than regulations. It’s better to let households and firms make their own priorities in response to price signals instead of having them imposed by the government. And the extra upside of market-based approaches like carbon taxes or cap-and-trade is that some of the costs of the policy are transformed into government revenues that can be used to compensate vulnerable groups or even to reduce other taxes.

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Of course, when it comes to the effectiveness of the program, everything depends on how stringent the measures are. A small carbon tax could have a smaller effect on GHG emissions than a strict regulatory regime. Indeed, environmental economist Mark Jaccard has argued that even if market-based approaches are more efficient, we should accept the efficiency losses of regulatory approaches if political opposition prevents putting a price on carbon.

It might be expected that the goal of a market-friendly party such as the Conservatives would be to campaign for the option that offered maximum effectiveness at minimum cost. Instead, the main contribution of the Conservatives to the debate on how to reduce GHG emissions has been to stoke political opposition to market-based approaches.

There are several reasons the Conservatives have stuck to this position in opposition, none of which do them credit. One could be that they hope to replay 2008 all over again, winning an election by campaigning against a carbon tax. (It’s worth noting that NDP thought has evolved from the positions they took in 2008.) Another could simply be to exploit anti-tax sentiment: Conservative economic policy is already drifting into a caricature of unreasoning tax hatred.

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Then there’s the possibility the Conservative position is basically a wink to the not-insignificant number of people who think nothing should be done, either because they think Canada should leave the job of reducing GHG emissions to the rest of the world, or because they think climate change is a hoax. These people are not numerous enough to win an election, but they could swing a party leadership race. But whatever the reason — misplaced nostalgia or sheer spite — Conservatives are frittering away the remnants of their intellectual capital in economics.

The Conservatives still have three more years to turn things around before the next election. But if they stay on their current path, people will be saying of the 2019 Conservatives the same thing that was said of the Bourbons after their years in exile during France’s First Republic: “They have learned nothing, and they have forgotten nothing.”

Stephen Gordon is a professor of economics at Université Laval.