Perhaps it was the Beano where I first read of the Man in a Wardrobe Fallacy. Two guys are struggling with a heavy wardrobe. “I thought there were three of you”, the customer says. Punchline: “The other guy is inside carrying the clothes!”
The Man in a Wardrobe Fallacy relates to one of the numerous problems likely to stymie attempts to use the price mechanism to limit consumption. In a nutshell, everyone forgets that money is just a way of distributing resources.
It may not look like it at first sight, but here is a pertinent example of the Man in a Wardrobe Fallacy : if an economy can produce or afford to import enough fuel (say) for (say) 5% of the possible desires of the population, then 5% of the possible desires of the population will be satisfied, whatever nominal price you put on fuel. [This case relies on the possible desires of the population being large relative to the potential supply of fuel, but has anyone looked at the real world lately? Noticed how much more we all need to fly than we did 25 years ago? Anyone heard of The Reverend Thomas Malthus?].
Don’t believe me? Try a thought-experiment:
(1) Imagine a population of 100 people with incomes varying from 50 to 149 units a year. Everyone spends all their income each year (a total of 9950 units).
(2) Spending is such that all will use up to the first 50 units of their income – a total of 5000 units – to buy essentials such as food. Anything left over is spent on something that you (the government) want people to spend less on – let’s say drink, but the argument is the same for unnecessary fuel.
(3) One poor sod can’t afford even one pint all year, but, with no tax on drink, everyone else spends the remainder of their income in excess of 50 units – from 1 to 99 units – on drink. A total of 49.5*100 = 4950 units are spent on drink.
(4) Can’t have this, says the government. Tax drink at 25%, 50%, 100%! The tax rate makes no difference.
(5) The critical point is that the tax raised is distributed, let’s say evenly across the population. Now, a little thought will show that the government can do nothing more effective with the tax revenue. It could destroy it, but this would simply raise the value of the money remaining in circulation. It could spend it on imports, or even give it away as overseas aid, but then the money must (eventually) be spent on products denominated in units – and returned to our own besotted population!
(6) When we raise and redistribute the drink tax, it’s obvious that the amount of money spent in the economy each year increases from 9950 units to (9950 + x) units where x is the amount raised by the drink tax. As before, 5000 units are spent on essentials, leaving (4950 + x) units to be spent on drink. Whatever x is, (4950 + x) units buys exactly the same amount of drink as 4950 units did before the need to pay x units in tax to the government! Of course, because of the redistributive tax, even the poorest guy can now afford to drink – he had been earning 50 units a year, but this is now supplemented from the tax revenues – but the total amount drunk is the same!
The real world is a little more complicated. For example, as the price of drink is raised, people might choose to buy a substitute product instead. Heroin, say.
If we substitute for drink something more fundamental – fossil fuels (“carbon”), which are embodied in almost everything we consume – we see that the effectiveness of trying to limit consumption with a tax depends (in the first approximation*) entirely on the availability of substitute products. Absent planning permission for nuclear power stations, tidal energy barrages and wind-turbines, imposing a tax on carbon in the UK would have very little effect on overall fossil-fuel consumption. Such a tax would be a case of shuffling the deckchairs on the Titanic. It affects internal patterns of fossil fuel consumption, but not overall consumption, because it has no effect on the amount of carbon the UK can afford to import!
This is the Man in a Wardrobe Fallacy. Even if the Man has imaginary superpowers – like a modern-day Maxwell’s Daemon – in this case including weightlessness, redistributing the weight of the clothes in the wardrobe would not reduce the overall load by one single gram.
Note: Further fallacies (not for the faint-hearted!).
*Actually, it gets worse, but I want to stick to an explanation of the Man in a Wardrobe Fallacy here. Producing (as opposed to importing) renewable energy in the UK would simply allow us to increase our total energy consumption – we could afford to import the same amount of “carbon” as before!**
** Actually it might get even worse, as the economy would become more efficient than any others which don’t invest in renewables. We could undercut others on pricing of exports and therefore afford to import even more carbon than before…