Comments on: Krugman on Waxman-Markey's Cost: We Hope His Readers Can't Multiply

By: David C

David C — Tue, 06 Oct 2009 03:09:24 +0000

There’s one big gaping hole in your logic. Martin Feldstein’s $1,600 figure was for 2020, not 2050. From his WSJ article: “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.” That 15% number is slightly below Waxman-Markey’s 2020 target, not its 2050 target. Using your method, Paul Krugman’s 2020 number is then $550 dollar per household, substantially below Martin Feldstein’s number.

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By: Noblesse Oblige

Noblesse Oblige — Sun, 04 Oct 2009 02:50:03 +0000

Put aside the razzle dazzle. The cost to the economy would be the additional cost of energy systems favored by government, over the cost of systems that would be incurred without government intervention ( presumably mostly based on hydrocarbons). These systems will suck capital out of the rest economy that would have been used to produce real economic progress. Any reasonable set of numbers runs to the trillions for the US alone. And at the end of the day, we will be no better off environmentally than we are now. That is, the ‘externalities’ remain the same, because the whole thing is based on flawed science — if you want to grace it by calling it ’science.’

By: Richard W. Fulmer

Richard W. Fulmer — Fri, 02 Oct 2009 22:10:02 +0000

I have two basic issues with Krugman’s analysis:
1. As PaulD points out, the benefits of reducing U.S. CO2 emissions are almost negligible. Even Waxman-Markey proponents admit that. So any cost to the economy is a net loss.
2. It’s a static analysis. If I rob Peter to pay Paul, in a static model, there is no impact on the economy in the aggregate. In the real world, Peter buys locks for his house.

By: PaulD

PaulD — Fri, 02 Oct 2009 19:55:39 +0000

I understand the perspective you are presenting and I think it is a valid one to consider. At the same time, I think that Krugman makes a valid point from a different point of view.
I see Krugman arguing that energy markets achieve an efficient outcome only when the full cost of energy is included in its price. By their nature, markets do not include the cost of externalities such as the cost of pollution emissions. He therefore argues that society receives the benefit of a more efficient allocation of resources when the price of energy is adjusted by government policy to reflect its true costs. If this is done with a tax, the cost of the tax to society is directly offset by the harm averted to society by the resulting reduction in CO2 emissions. This is a different argument than suggesting the cost of a general tax is offset by the benefit of government spending financed by it.
Krugman’s theory is basic economics 101. In real world, however, the difficulty is that it is almost impossible to determine the true cost of CO2 emissions and the accompanying level of taxation that results in the most efficient allocation of resources. If the tax is set higher than the real cost of CO2 emissions, then the energy markets will not reflect an efficient allocation of resources and real harm will be done to the general welfare.
It is likely in Krugman’s view that any politically feasible tax will be lower than the true costs of CO2 emissions and will therefore at least move the costs of energy towards a more efficient allocation of resources. Lest I be accused of agreeing with Krugman, I am much more skeptical that the costs of CO2 emissions are higher than their benefits. Accordingly, I while I agree with his theory, I don’t agree with his real world policy advice.

By: Andrew

Andrew — Fri, 02 Oct 2009 15:55:23 +0000

“These costs have to be set against the environmental benefits.”

So, what he is saying is that we need to compare the cost to the benefit. Okay. The benefit is zero. Zip. Zilch. Nada. Nothing. If we are going to go to that step, then it doesn’t matter if people are “exaggerating the cost”-if it isn’t free, the cost exceeds the benefit, since there isn’t any.