Thoughts on the Waxman-Markey Bill

The Waxman-Markey bill is the US's first major attempt to control the emissions linked to global warming. As you might expect, it has elicited a fury of views from economists.

Greg Mankiw points out the bill's major shortcoming: that most of the emissions permits are given away for free. These permits were projected to bring in $1 trillion in revenue over the next ten years, money that could be used to pay down the debt or help fund healthcare reform; instead, the bulk of this value will simply be given away to business interests.

In spite of the shortcomings, however, Dean Baker and Paul Krugman support the bill because the cost of doing nothing is higher than the cost of a bad bill:

"Temperature increases on the scale predicted by the M.I.T. researchers and others would create huge disruptions in our lives and our economy. As a recent authoritative U.S. government report points out, by the end of this century New Hampshire may well have the climate of North Carolina today, Illinois may have the climate of East Texas, and across the country extreme, deadly heat waves — the kind that traditionally occur only once in a generation — may become annual or biannual events.In other words, we’re facing a clear and present danger to our way of life, perhaps even to civilization itself. How can anyone justify failing to act?"

Provocatively, Krugman calls failure to act against the "existential threat" of Global Warming treasonous.

Don Boudreaux takes issue with Krugman's accusation:

"It's more accurate to say that Mr. Krugman is committing treason against reasoned debate. One of the most compelling arguments against climate-change regulation is not that global warming isn't occurring but, rather, that the dangers of further regulation far outweigh its likely benefits. Government regulation inevitably is a political animal; it's never guided purely, or even largely, by disinterested science.

Is it treasonous to worry about the influence of interest-groups on regulation? Is it treasonous to fear that centralizing more power in Washington will result in unforeseen negative consequences? Is it treasonous to believe that the threat to our well-being posed by further constraints upon markets is worse than is the threat posed by higher temperatures?"

The interchange between Krugman and Boudreaux highlights the major ideological conflict surrounding attempts to curb Global Warming. Putting science aside for a moment, we are talking about the correct response to a market externality (carbon emissions). For Krugman, externalities can be dealt with through policy intervention, such as a tax (or a cap-and-trade bill, which has the same desired intent). Boudreaux, on the other hand, is a firm adherent of Public Choice Theory, and worries about interest groups capturing the policy process and stifling individual liberty. Theirs is a conversation that would be substantively the same if we were talking about subsidizing research, overfishing or any other commonly cited externality. Krugman is more worried about the externality and Boudreaux is more worried about the intervention.

Like anything else, we economists can easily boil the issues of our time down to the basics of "government vs. the market."