Dr. Pangloss and Serial Correlation in Asset Values
D-Squared Argues for Industrial Policy--of a Sort

Where Is Our Carbon Tax Proposal?

I understand why the Republicans haven't proposed a carbon tax--they, after all, aren't worried about the deficit. They like the deficit because it gives them an excuse to cut spending, and once they have cut spending they can then cut taxes on high income Americans, recreate the deficit, and then cut spending again.

But I don't understand why Obama hasn't proposed a carbon tax.

Ryan Avent:

Climate change: It's hot out there: A "HEAT dome" is descending on Washington. It's hovering over much of America, actually, sending temperatures into triple digits (or the upper 30s, if you prefer). This is just the latest in what has been a remarkable series of extraordinary weather events. America's south is experiencing a record drought. So, too, is the horn of Africa, where a famine may impact millions of people. In late June, an airport in Oman recorded the highest ever low temperature; on the evening of the 27th, the mercury failed to drop below 107 degrees Fahrenheit. Droughts, floods, deadly storms: the news is full of them. While it's not easy to attribute any individual event to climate change, it is clear that a hotter planet translates into a higher frequency of extreme weather events.

When we emit carbon into the atmosphere, we impose a tiny negative cost on society as a whole in the form of more rapid global warm and a greater intensity of the accompanying social ills. Views of the magnitude of this cost differ. Many studies peg it at somewhere between $5 and $150 per tonne of carbon. Other  studies indicate that it could be far higher—perhaps more than $1,000 per tonne. But the cost is positive, and a crucial first step to dealing with climate change, therefore, is to charge people for the carbon they emit. If you put a positive price on carbon, this price will be reflected in the cost of transactions, people will internalise the effect of their behaviour on the climate, and emissions will fall.

This is a pretty straightforward policy solution, and it's one that's been embraced by economists and various other wonks for years....

[I]t's nonetheless noteworthy that in the whole of this major American fiscal debate no one has proposed taxing carbon. Forget the nitpicks; it would be easy to design a tax so that it didn't kick in right away, and so that its impact would be progressive. But people in Washington would literally laugh in your face if you presented a carbon tax as a good policy choice to include in a deficit-reduction package. Whether or not the American government wiggles through this self-created disaster without wrecking the economy, that's a good reason for long-run pessimism.