The Unemployment Paradox and Commodity Taxes

by David Eichler The author is a professor of physics at Ben Gurion University in Israel. He received his Ph.D. in 1976 from the Massachusetts Institute of Technology. Further biographical information can be obtained at http://www.bgu.ac.il/~eichler/. 19.02.2009

Abstract

The recent slowdown, it is suggested here, was not caused so much by the collapse of a housing bubble or mortgage delinquency, as is frequently claimed, but rather by losses of capital due to high costs for energy and operation of the financial sector. The new, slower state of the economy at the close of 2008 is less undesirable than in mid-2008, despite the increase in unemployment, because the reduction in the consumption of basic commodities saves more national wealth per unit time than the labor of the recently unemployed would have contributed. The advantages of the low consumption, including lower commodity prices, could be maintained and stabilized by a) rescaling wages to the lower commodity prices, b) allowing insolvent financial institutions to restructure or collapse and, most important, c) replacing much of the existing tax burden with a large fossil fuel tax, which can generate the revenue needed to provide for the unemployed, promote future employment, and stabilize the business market. Such economic advantages of a shift from income tax to fossil fuel tax are quite apart from any motivation to limit greenhouse gas emission.

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