<!--[if gte mso 9]>Ah! Liberals versus conservatives, economists criticized for their politics … don’t you love the economic debate over … the cap-and-trade part of Waxman-Markey. Did you think I was going to say “economic stimulus” or “health care”?
Paul Krugman, in his September 24th column (“It’s easy being green”), rips those he disagrees with: “the campaign against saving the planet rests mainly on lies” and “partisan opposition to President Obama trumps any concerns about intellectual honesty.” In the article he is ripping Glenn Beck, but in his blog he points the finger at fellow (well-respected) economist Martin Feldstein.
I’ve reread Feldstein’s June 1 piece in the WaPo ("Cap and Trade: All Cost, No Benefit") and Krugman gets it wrong. Feldstein clearly says that the costs are to households, not society: “The proposed legislation would have a trivially small effect on global warming while imposing substantial costs on all American households.” And read this paragraph carefully to see if it mentions cost to households:
The Congressional Budget Office recently estimated that the resulting increases in consumer prices needed to achieve a 15 percent CO2 reduction -- slightly less than the Waxman-Markey target -- would raise the cost of living of a typical household by $1,600 a year. Some expert studies estimate that the cost to households could be substantially higher. The future cost to the typical household would rise significantly as the government reduces the total allowable amount of CO2.
I count 3 "households."
Krugman calls a lie his perception that Feldstein is attempting to mislead:
Feldstein knows basic economics, and is well aware that the $1600 number from that report wasn’t an estimate of the net cost to families — and strictly speaking, he didn’t say that it was. But he certainly created that impression, obviously deliberately.
Obviously? Huh? Like I said, I reread Feldstein and he is clear to say the cost is to households.
Krugman’s intellectual dishonesty claim (here and here) misses the mark by relying on the potential revenue recycling feature of cap-and-trade. If carbon permits are auctioned the resulting revenue could be used to cut income taxes, making households not much worse off. Krugman calls Feldstein a liar by requiring him to buy into a uncertain part of the policy:
Under Waxman-Markey, some of [Feldstein's cost to households] (a growing fraction over time) would be
captured by the government through auctions, and used to cut or avoid
increases in other taxes — in effect, recycled to consumers.
The tricky part of the debate is how economists on both sides of the Waxman-Markey vs. nothing debate (and also the cap-and-trade vs carbon tax debate) are handling potential revenues from cap-and-trade. Cap-and-trade, whether there is auction revenue or not, and income tax cuts are two separate policies. Revenue recycling is not necessary to make cap-and-trade an efficient policy for cutting greenhouse gases. Recycling is desirable from an economic point of view, sure, but it is not necessary. Arguments over cap-and-trade that use revenue recycling should point out this fact, not include income taxes as a twin policy.
And certain economists should quit calling people liars in their public discourse. Not nice.
Ed Reid said:
Revenue recycling is only an issue if there is revenue. The imposition of a cap produces no revenue in and of itself. Trading would be expected to result in both tax deductions, for buyers, and taxable income for sellers, probably largely offsetting.
However, there are still major emitter and customer costs which result from the expected returns on the investments required in no/low emissions facilities and equipment to actually reduce/eliminate carbon emissions; and, the parasitic power consumed to achieve the reduced emissions.
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Wed, 2009-09-30 10:48 — Ed ReidPost new comment