Mankiw on Cap and Trade...

I agreed 100% with Mankiw in his Commentary in NYT's A Missed Opportunity on Climate Change

 

Until I went over to Economist View where Mark Thoma notes something I didn't know:

What he doesn't mention, and I'm not sure why, is that the permit giveaways are scheduled to end after after 10-15 years. That's not as good as auctioning the permits from day one, but it does put a plan for auctions in place. So in the long-run, the intent is to auction 100% of the permits just as Greg desires, the giveaways at the beginning are an attempt to get the bill passed. There are lots of problems with the bill as currently formulated, and a key consideration is how credible you view the promise to auction permits in the future. Going on a diet tomorrow is easy to plan, but when tomorrow comes will the plan be executed? I hope so, but have my doubts.

I didn't know that the bill schedules a full auction 10-15 years from now.  I assumed that the government would always be giving away chuncks of credits, at least thats what I got from reading some of the opposition to the bill.  Maybe I just wasn't reading the oppositions positions close enough. 

 

Thoma sends us over to Ryan Avent for more on Mankiw's position...

This is the point at which some real world figures would help. In fact, most of the allowances will be used in ways that reduce the cost of the bill to consumers. Some of this is via direct refunds to households. Some is via household tax credits. Some is via investments in efficiency and research — programs that will make it easier for households to substitute away from carbon-intensive activities over time. Most of the value of the allowances will go toward reducing the incidence of the increased carbon costs on households. And this is why the CBO judged the bill to have such a low cost for households, particularly those with lower incomes. The lowest income quintile will actually enjoy a net benefit from Waxman-Markey (not including the benefit of reduced warming). This is important context when talking about the threat of “lower real take-home wages, reduced work incentives and depressed economic activity.”

I criticized Mankiw previously for supporting a veto of the climate bill without providing details on the mental model he was using that would make a bill with fully-auctioned permits acceptable and one without veto-worthy. He offers a hint today:

The hard question is whether, on net, such a policy is good or bad. Here you can find policy wonks on both sides. To those who view climate change as an impending catastrophe and the distorting effects of the tax system as a mere annoyance, an imperfect bill is better than none at all. To those not fully convinced of the enormity of global warming but deeply worried about the adverse effects of high current and prospective tax rates, the bill is a step in the wrong direction.

Mankiw then proceeds to urge the president to veto. I think this is ludicrous, but I appreciate what he’s done here. He has made it clear that his support of a carbon tax is primarily about improving the overall efficiency of the tax code. That’s good to know. It suggests that those interested above all else in improving tax policy in an environmentally-friendly manner can continue paying attention to Mankiw, while those of us focused on the problem of climate change while mindful of economic costs can ignore him.

Perhaps in the future, when he is fully convinced of the enormity of global warming (we’ll send him some generals to talk to), he’ll be worth paying attention to again.

The fact is we have to have some kind of forward progress taking on global warming and we have to have it now...

 

Depending on what comes out of the senate I might just have to swallow this one.

Posted via email from Jim Nichols