Tuesday, December 08, 2009

Krugman crunches (and bakes) the numbers

Paul Krugman, Nobel laureate and NYT contributor, thinks cap and trade is really neat.  Part of his justification for saying so raised my eyebrows:
The Congressional Budget Office has estimated that by 2050 the emissions limits in recent proposed legislation would reduce real G.D.P. by between 1 percent and 3.5 percent from what it would otherwise have been. If we split the difference, that says that emissions limits would slow the economy’s annual growth over the next 40 years by around one-twentieth of a percentage point — from 2.37 percent to 2.32 percent.
The problem is that the effects of cap and trade hit gradually.  Averaging the pain of the measure using years for which it assessed very little in taxes misleads the reader.  Note, for example, the summary of reduction targets for carbon emissions:
  • 3 percent cut by 2012
  • 17 percent cut by 2020
  • 42 percent cut by 2030
  • more than 80 percent cut by 2050
Most of the pain occurs in the second half of the total 40 years.  I have yet to locate a concise summary of the tax implications, but mostly likely those are also substantially backloaded.

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