Democratic Candidates and the Carbon Tax
by Travis Pantin
Sun, 6 Jan 2008 at 11:42 PM
Economics bloggers lambasted Governor Richardson for statements he made during Saturday's Democratic presidential debate regarding the viability of a carbon tax.
When asked whether he favored a carbon tax, Mr. Richardson said, "It's a bad idea. … The better way to do it is through a cap-and-trade system, which is a mandate. Furthermore, a carbon tax, that's passed on to consumers. That's passed on to the average person. That's money you take out of the economy. So it's a bad idea."
A Harvard professor and blogger, Greg Mankiw, responded: "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."
According to Mr. Mankiw, "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."
Senator Obama, who followed Mr. Richardson in the debate, corrected Mr. Richardson's mistake: "I do disagree with one thing, though, that Bill said, and that is that on a carbon tax the cost will be passed onto consumers and that won't happen with a cap-and-trade. Under a cap-and-trade there will be a cost. Plants are going to have to retrofit their equipment, and that's going to cost money, and they will pass it onto consumers."
An economist from George Mason University, Alex Tabarrok, said Mr. Obama "was by far the best" when it came to economic issues during Saturday's debate.
Senator Clinton, on the other hand, "was very poor," Mr. Tabarrok said. "She made some crazy argument that mandating energy efficiency was the way to get us out of the looming recession — as if wishing for greater efficiency would make it so."
Mr. Mankiw likened Mrs. Clinton's proposal to a fairy tale: "I think of this as 'magic-wand economics.' Like your fairy godmother, the President can wave a magic wand and make your problems disappear."
Redistribution in Democracies
In a democracy, income inequality should always lead redistributive tax policies — or so the common economic wisdom goes. If the masses are poor, the line of reasoning goes, they will vote taxes into existence that strip the rich of their wealth and reallocate it to the needy.
Two economists at the London School of Economics, Andreas Georgiadis and Alan Manning, recently wrote a paper that sheds doubt on that thesis.
They write: "In simple models of democracy, it is the median voter who is decisive and the government effectively does what they want, and they will typically want to redistribute resources from the rich to themselves. … However this prediction about the relationship between inequality and redistribution does not fare so well when confronted with data."
For example, America has higher levels of inequality than Europe, but less redistribution. This contradicts the prevailing wisdom, they say.
By way of an explanation for this paradoxical phenomenon, the authors offer the following: Perhaps the rich use their wealth to manipulate public opinion, convincing the poor that income redistribution is a bad idea.
So far, economists have had a difficult time computing such possibilities, according to Messrs. Georgiadis and Manning. "The determinants of what people believe is an area where economists are only beginning to focus their attentions," they write.
Economics on the Web Homepage
|
Print
Send
RSS
