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Sunday, January 6, 2008

Carbon tax fallout

Greg Mankiw describes the carbon tax debate moment that I noted earlier:

As a former energy secretary during the Clinton administration, Richardson has presumably studied these issues. But here he demonstrates extraordinary ignorance (or perhaps extraordinary disingenuousness) about the economic impact of cap-and-trade systems. By contrast, Obama shows extraordinary clarity and honesty about the effects of the policy he is proposing.

The economics is straightforward and uncontroversial. Both carbon taxes and cap-and-trade systems put a price on carbon, raising the cost of producing carbon-intensive products such as gasoline. In both cases, this cost will be passed on to consumers. The government can, however, raise revenue through a carbon tax or auction and use that revenue to reduce other taxes and help offset the adverse income effect.

In case you are curious, Hillary Clinton is the next speaker on this question, but she does not weigh in on the particular issue of carbon taxes vs cap-and-trade. Instead, she offers some typical vacuous blather about requiring utility companies to help us all become more energy efficient. I think of this as "magic-wand economics." Like your fairy godmother, the President can wave a magic wand and make your problems disappear.


Andrew Samwick sees the moment as a microcosm of the Democratic contest:

I think that this exchange, which is a stark example of differences that over the past year have been more subtle, gives an indication of why Senator Obama may have appeal that crosses over the political center. I can respect his answer but not the other two.


Grist magazine, however, prefers Clinton's feel-good environmentalism:

People are already sacrificing. We need a road out of that.

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