Trump Sets the Optimal Global Carbon Tax!
Bravo! Maintain the blockade on Iran until Iran Makes the World Safe for Iran
Economics Matters — Blog/Podcast/Financial Riddler/MaxiFi Puzzler
Sign up for a free subscription at larrykotlikoff.substack.com. I’ll immediately make it a lifetime subscription. But please support Economics Matters. Just unsubscribe and resubscribe here on a paid basis.
Paid subscriptions come with a one-hour, free financial consultation. Email me to find a time at kotlikoff@gmail.com. You can unsubscribe and resubscribe for free. Also, please sign up your kids, friends, colleagues, students, … !
Teaching Financial Literacy in High School, College, or Graduate School? Contact me at kotlikoff@gmail.com. I’ll arrange free MaxiFi licenses for your students and a PRO license for you.
Disclaimer: My Opinions are solely my own. Economics Matters blogs and podcasts covers a range of topics, primarily personal finance, macroeconomics, and geopolitics. The fast majority of these posts focus on the facts as opposed to my opinion of the facts. That said, my opinions represent neither the views of Boston University nor of my company, Economic Security Planning, Inc.
Is the World’s Climate Hero Donald Trump?
Donald Trump or, as he is styling himself these days, Donald Christ, is full of surprises.
One minute he’s in love with Tucker Carlson. The next minute it’s, “Tucker is Low IQ person — Always easy to beat, and highly overrated!!!”
One minute, it’s “Iran agrees to hand over nuclear dust.” The next minute it’s, “If Iran does not agree to a deal, the whole of Iran will be blown up.”
One minute, Trump has “utmost confidence in Kristi Noem,” the next she’s fired. Pam Bondi? Same happy story.
The latest rumor is that Kash Patel — “the one guy to make the FBI great again” is also about to be looking for work. Maybe bartending?
One minute Trump’s tariffing China at astronomical rates. The next he’s TACOing out.
The only consistent thing about Donald Trump is his inconsistency.
Or maybe not. On Iran, at least, Trump seems dug in on definitively ending Iran’s quest for a nuclear bomb, eliminating Iran’s missile- and drone-producing capacity, and opening the Strait of Hormuz. This determination has, so far, lasted for weeks, which, for Trump, is an eon.
Many Americans, particularly Democrats, as well as our NATO allies don’t seem to get that their children, if not they themselves, don’t want Iran getting a nuclear bomb, don’t want Iran building ICBMs and millions of drones that will, over time, reach every corner of the globe, and don’t want Iran controlling the Strait of Hormuz.
But Trump, at least up to this minute, gets it and is following the strategy proposed in this April 6th posting. Is Trump reading my blog? Clearly. When you’re the Second Coming, you can read the latest everythings in, well, a minute.
We have the world’s most powerful military. Time is on our side. We don’t need to invade Iran’s Karg and other islands to control its petrochemical exports. We can use our navy and air force to embargo those and all other Iranian exports. We can, with the use of special forces, recover Iranian stocks of enriched uranium and gradually eliminate Iran’s remaining drones and missiles. We can make clear that no hostile Iranian leader will be free to show his head if he wishes to keep it for more than a day. We can start arming Iranians who want to rid the country of its vile theocracy. Finally, we can make clear that our gunboats are there to stay. This is not one, done, and run. Iran will remain under America’s thumb until its leaders agree that civilization is theirs to have and to hold, not to deny and destroy.
Anyway, within a week, Trump announced Iran’s blockade followed by seizing Iranian-flagged ships. For its part, Iran is back to blocking the Strait of Hormuz, indeed, even firing on tankers heading through the Strait.
Donald, Ask Your Father, Who Art in Heaven, for Patience
Donald, if it’s 3 AM, grab some shut-eye. Wars take a while to win. They don’t run on political or economic time. Suppose you need to blockade Iran for five years. The Gulf Arab states will survive. Their oil will stay safe underground waiting to be pumped down the road. For the US, it will be “Drill Baby Drill,” raising the price of US oil company shares and your self-esteem barometer — the S&P. Fertilizer and petrochemical feedstocks coming from the Gulf? Yes, they will be hard to replace in the short run. But global markets will adjust as they always do.
And forget about blowing up every last power plant and bridge in Iran. If you do, you’ll leave Iran no incentive to comply with your demands. Plus, violating international law isn’t kosher. Every day you maintain the blockade and every Iranian flagged ship you seize makes Iran’s economy weaker, reduces its income for enriching uranium and building weapons, and conveys the benefit of MISA — Make Iran Safe for America. Even better, it maintains your brilliant policy of setting the optimal global carbon tax.
Donald, You’re the Globe’s Climate Savior
Whether you meant to or not, Donald, you’ve just raised the price of a barrel of oil to the level associated with an optimal global carbon tax. Need proof? Read this article, which appeared in 2024 in The European Economic Review. I’m one of four co-authors. The others are University of Zurich economist, Felix Kubler, University of Lausanne economist, Simon Scheidegger, and Bank of Russia economist, Andrey Polbin.
This paper, in my not-so-humble opinion, is the top economic analysis of global optimal carbon taxation going. Here’s a summary.
Climate change will impact current and future generations in different regions very differently. This paper develops the first large-scale, annually calibrated, multi-region, life cycle model of selfish overlapping generations — generations that readily emit massive amounts of carbon in full disregard of the welfare of their own and other regions’ young and future generations. The model features region-specific temperature and damage functions with the phased impact of emissions on global and regional temperature calibrated to the latest scientific evidence. Absent policy, climate change, under high-damage scenarios, will dramatically reduce GDP in most regions, with India, Brazil, and the South Asian Pacific suffering long-term catastrophic damages. Carbon taxation, coupled with cross-region and cross-generation financial transfers, can both correct the carbon externality and produce a global win-win, raising the welfare of all current and future agents across all regions by 4.3 percent.
Take Credit Where Credit’s Due
Donald, I know you’re on record saying climate change is a hoax. But that was a minute ago. Let Donald be Donald. Announce that the Iranian blockade is hedging your climate bet. If climate change is real and, down deep your know it is, you’ve just raised the price of a barrel of crude by $45 — almost precisely the increase in the price of crude associated with the optimal global carbon tax policy simulated in Can Today’s and Tomorrow’s World Uniformly Gain from Carbon Taxation?
How will this help you politically? Easy. You’re losing MAGA supporters faster than you’re losing cabinet members. But by taking credit where credit’s due — for being the only leader in the history of the world to set the proper global price of carbon, tens of lefties will start singing your praises. This includes Norwegians on the Nobel Peace Prize Committee.
Stay the Course
Donald, not all that’s gold glitters. The major rise in the price of dirty energy, which you alone have engineered, is the dream come true of the vast majority of climate scientists and economists, not to mention billions of others across the planet. The longer Iran restricts its own use of the Strait, thanks to your “You blockade us, we blockage you.”, the faster clean energy will replace dirty energy.
Hence, there is no need to threaten Iranian power plants and bridges. Leave your cards on the table. If Iran returns to attacking Gulf nation desalination plants and infrastructure, there will be plenty of responses available to the US military — all within the confines of international law.
Hold out — not for regime change, but regime behavioral change. In the meantime, take a minute to become the planet’s climate savior. Do a TACO — Trump Alters his Climate Opinion.
Great, Larry, yes. Two things:
1. Raising the price of oil is an excellent carbon tax. It will cause the price of coal, natural gas, to rise too. Good classroom discussion item.
2. I thought at first it might just be his tariffs, if they're still alive. Less discriminate, to be sure.
I am of the opinion that the only policy set that can prevent a catastrophic financial crisis from engulfing the US in the next decade is severe financial repression. Required steps include institutional changes like cracking down on private equity, hedge funds, "non-profit" endowments and foundations. And, vast increases in tax revenue which can only be obtained from from broad based excise taxes such as a VAT. The income tax is mined out and wealth taxes are counter productive.
A carbon tax is certainly worth including in the portfolio, if only for the political valance. But, unless the tax is either universal (ha ha ha) or backed up by a very broad import tax on all goods and services from non-conforming countries, it will simply complete the destruction of all productive activity in the US.