Sunday, May 17, 2009

Cap and Trade vs Tax

It looks like the Obama administration is going to move forward with a "Cap and Trade" system as a means to control carbon emissions. There is an interesting story in today's NY Times about how Cap and Trade became the acceptable way to address pollution.

If you are not aware, the US has been using a Cap and Trade system to control sulfur emissions causing acid rain in the late 80's. This was proposed by the first (or, should I say, better) Bush administration, and passes through Congress with bi-partisan support.

The interesting thing about Cap and Trade is this: Economists think a tax is a better idea, but politicians prefer Cap and Trade, because the word "tax" will kill them politically, and they also create a goody to hand out with Cap and Trade. As I tell my students, bad politics trumps good economics every time.

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