Krugman’s blog from 4/28/16

Here’s “Impurity in the Pursuit of Salvation Is No Vice:”

David Roberts continues his carbon tax series. First he argued that such a tax isn’t the be-all and end-all of climate policy; he concludes with a discussion of the political economy, and argues that a carbon tax should be sold as part of a package, with the revenue dedicated to things like clean energy promotion.

I very much agree with the spirit, and probably with the specifics.

The common idea, among economists anyway, that a carbon tax should ideally be paired with offsetting cuts in other taxes, looks good in terms of Econ 101, and sounds like something that should help sell the thing to the public — that is, it sounds that way if you imagine that the public consists of econ grad students. In reality, revenue neutrality is an abstract concept that people will not, in general, believe in even if you try to explain it. Linking a new tax to some concrete goal is much more likely to work politically.

How do I know this? Look at the new taxes that have in fact been passed over the decades. The payroll tax was created — and increased a lot over time — by tying it to Social Security and Medicare. A significant part of the new taxes enacted under Obama were directly tied to the funding of the ACA. Economists may point out that such links are basically a fiction — the government has a bunch of revenue sources, it has a bunch of spending commitments, and any link between an item in column A and an item in column B is more or less arbitrary. But the people who set it up that way weren’t stupid, they were responding to a shrewd assessment of how voters think. Oh, and voters aren’t necessarily stupid either: they don’t do budget analysis, but they do resort to various rough heuristics to make sense of complex issues, and is that such a bad thing?

So I’m with Roberts here: do whatever is likely to work. Don’t insist that a perfect, Econ 101 revenue-neutral carbon tax is the only way to go. A mix of regulations, dedicated taxes, subsidies, whatever, as long as it makes a big difference to emissions is just fine.



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