Earth Equity News

Has Krugman Fallen Prey to the Progressives' Blind Spot? Letter by Michael Hoexter, reprinted (with permission) by CarbonTaxCenter, July 22, 2009. "Prof. Krugman -- I agree with you on many issues and also learn things from you as well. But sometimes you make purely political decisions that you vest with economic authority but not very careful thinking... You seem to be simply throwing your prestige behind an instrument that I believe is flawed, and not only because of an inchoate fear of speculation... Let's say we invented a market mechanism that made 'health' a tradable commodity. Would you support that? For some reason cap and trade has gotten a pass from so-called progressives for too long... Price volatility and arbitrage are the inevitable result of markets. Wall Street and others like carbon markets because of the (needless) complexity of carbon trading and the potential to exploit information asymmetries. On the other hand, to reduce carbon emissions we need a lot of long-term investments that on the whole do not benefit from financial market fluctuations... Cap and trade is the unfortunate offspring of an era of tax phobia which is fast drawing to a close. We are going to have to raise taxes, including Pigovian ones. Why not a carbon tax? Much more transparent and along with direct regulation a much faster route to the goal... For some reason, there is a blind spot with regard to cap and trade among so-called progressives... You seem to have fallen prey to it."