Economists have to thank the “Progressives” of the world for their existence. Their 100+ years of policy follies have provided us with example after example to use in our economics courses. But I want to offer up the Progressives the opportunity to put their money where their mouth is today. You see, they really only “disbelieve” economics and economic theory when it does not suit them, but when some economist discovers a way that state intervention can be welfare improving, they jump all over that bandwagon. That kind of opportunism used to get one beat up on the schoolyards, now it gets you exalted as being the Savior of the Public Interest.

So, here goes. Many Progressives insist that rich people (and non-rich people) do not respond negatively to higher taxes. A common mantra is something like, “hey, top tax rates in the 1950s were 90%, and that did not end the world.” Many Progressives insist that some goods are so important that firms will exercise infinite amounts of market power because people are forced to buy it at any price and therefore the government should intervene in the market to prevent companies from getting the power in the first place. Many Progressives insist that workers do not respond to increased job risks by looking for other jobs or demanding higher wages. Many Progressives insist that firms could just pay “sweatshop” workers just a few more cents than they already do with no adverse consequences to the firm. Many Progressives insist that Walmart is exploiting its workers and should be forced to allow them to unionize and to pay them higher wages.

Let’s say the Progressives are right. What this all amounts to is that Progressives believe in unicorns. In econo-speak, what it means is that Progressives “disagree” with the law of demand. That is like disagreeing with the law of gravity. The law of demand says that as something gets more costly (whether in monetary or any other cost) we see actors consuming less of the good, or lower qualities of the good. Progressives dispute this behavior. For example, go mention to one of them that it is possible that making donuts healthier might make people fatter, or that mandating seat belts might make people less safe and they will call you any number of names. That they call you names does not make you wrong, in fact it is an interesting commentary on Progressive psychology.

Some Progressives might even go farther. Since there is this cutesy theoretical possibility that for some goods when their price goes up people will consume more of them, that this somehow rocks the foundations of economics. We can think about what types of goods these might be. Without drawing indifference curves and budget constraints, (I can if you want), what needs to be true of a good for this to happen is this:

1. That it is an “inferior” good. An inferior good is one that you consume LESS of when your income increases. In other words, if you gave me another $1,000 per month in salary, instead of our family ordering pizza in, perhaps we instead go out for a fish-fry. In that case, the pizza is, for us, an inferior good.
2. That is not enough. For me to consume MORE pizza when its price increases (or less when its price falls) what would also have to be true is that my consumption of pizza makes up a large portion of my spending (in econo-geek speak, this would mean that the measured income effects of a price change would be large). In other words, small changes in pizza prices would have large impacts on my left over budget to spend on other goods. If I consume 7 pizzas per week no matter what, and the price of pizza doubles, that is like having lots of income taken away from me. But if I consume 1 pizza per year and the price of people doubles (and I continue to buy one single pizza) then that is not like having very much income taken from me.
3. The good must have lots of more expensive substitutes. Why? Because when it is “inferior” I prefer to consume other things when I get richer. Thus, there must be other things for me to turn my attention to. This is clearly the case for pizza.

Why do I bring this up. Because you might argue that “fossil fuels” fit the bill.If you are rich enough, you don’t have to rely on “cheap” fossil fuel to run your life. You can afford the fancy Prius or the huge townhouse in downtown. Second, most people believe that since energy is used to make and do just about everything, that it makes up a huge portion of people’s budgets – either directly or indirectly. Data disprove this, but Progressives need not be bothered with evidence. So let’s assume they are correct. Finally, there clearly are lots of more expensive substitutes for fossil fuels – those are the things the Green Czars in DC are subsidizing right now because they are economically uncompetitive on their own.

If this is in fact true of fossil fuels, then one might reasonably argue that if fossil fuels got more expensive that humans would increase their consumption of it (in accordance with that theoretical possibility). Therefore, if we want to solve the problem of global warming then the obvious solution would be to … subsidize fossil fuel consumption. Well, if you really don’t believe in the law of demand, and you agree with the provisions above, then by lowering fossil fuel prices, people will begin to feel so much richer because of this decreased price, that they will substitute to more expensive and “healthier” sources of fuel.

I’ll sign up for the Progressive agenda when a group of them come out in support of the policy to subsidize fossil fuels because it is consistent with their underlying beliefs about how economies really function. I won’t hold my breath – that kind of consistency has not been evident for the 120 or so years the Progressive movement has existed – why would I expect it to happen now?