1. I often see people argue that if we raise the cost of labor (by dictat) businesses will be forced to use labor more efficiently, thus boosting their productivity, which means a more productive economy. This can be a misleading train of thought.

2. Perhaps the best way to see this is to use another input instead of labor, such as energy. If you make energy more expensive (say, a carbon tax), businesses will have an incentive use energy more efficiency. If they can, they will use less energy per unit of output.

3. But this will come at a trade-off. As energy becomes more expensive, other alternative inputs become relatively less expensive, and more attractive to use. Companies that use energy more "productively" may rely - and draw - more heavily on other resources instead.

4. In purely economic terms, whether this is leads to "greater productivity" is uncertain. It might, if the shift in prices favoring one input over the other reflects the real relative scarcity and cost of the various resources available.

5. In the case of energy, there is an argument that the market prices does not reflect the externalities, and thus the full costs, of using fossil fuels. A carbon tax "corrects" that price and thus could lead to a more economically efficient outcome.

6. There might also be non-economic outcomes that people want to prioritize - national security, for instance, or equality - which are served by altering prices and therefore resource utilization, at the price of maximizing economic productivity, though willingly.

7. I'm not arguing that existing market prices, absent policy intervention, always reflect that optimal solution. That's not what I'm trying to point out here.

8. What I am pointing out is that productivity cannot be measured by one input, and thus boosted simply by making that input more costly and inducing people to use less of it. Using less of one thing may mean using more of another.

9. Using less energy, for instance, may mean turning to solutions that require more time, or more labor, per unit of output. Greater energy efficiency might translate into lower labor productivity - or vice versa.

10. But the question is whether that is happening because labor is actually producing more (as in the case of technology), or because other resources are required to replace labor as an input. https://twitter.com/radekzaleski/status/1385087341602160640?s=20

11. Do this thought experiment with other resources: Iron ore. Land. Time. Water. Whatever you like. Think of the trade-offs involved if any of these suddenly became more expensive, and under what conditions the net result might be positive or negative for the economy as a whole.