The Textbook Economics of Cap-and-Trade

Nobel winner Paul Krugman does a good job of explaining “Cap-and-Trade.

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8 Responses to “The Textbook Economics of Cap-and-Trade”


  1. 1 Michelle Benton September 28, 2009 at 1:09 PM

    Krugman asked a question at the end of his blog that really sums up much of what is wrong with the current policy and practices: “What does it say when the people who claim to believe in this stuff (conventional neoclassical economics) throw it out the window as soon as it leads to policy conclusions they don’t like?” I took an environmental science class not too long ago and it helped me realize that sometimes benefits come in environmental packages, and that the total cost of something should take into consideration the environmental toll which we will inevitably end up paying for anyway. It is sad to see that the policy is dictated by the people with money and power and not by the people who are right. Sometimes going back to the basics is key. Instead we are dazzled with confusing theories to cover the real “benefits.”

  2. 2 Matthew Abang October 1, 2009 at 3:44 PM

    Krugman does a good job explaining the whole concept of cap-and-trade. While it is a good idea to try to stop pollution, this is just another cost for already struggling industries. Industries that are already struggling, like coal, steel and other manufacturers may not be able to operate with these restrictions. This will cause many jobs to be lost, as these industries will ship overseas to India and China. Instead, we should be looking to cut emissions in ways that do not hurt struggling industries. Companies that make profits are ones who can expand and create more jobs. Thee taxes and restrictions just hurt thee companies and will cause unemployment.

  3. 3 Mike Beretta October 6, 2009 at 2:15 PM

    This article shows exactly what is wrong with our economy today. Politicians help make the public believe in the theory and get them to vote. But what happens after the policy is passed and the government decides to change the plan anyway? They do what makes money at the time and worry about the consequences later. Why do the politicians bother with economists if they ignore their advice? It would be better to have economists explain to the public in a no nonsense, easily understood message the potential ups or downs of a particular issue and keep the politicians out of the mix.

  4. 4 Robert Rey, Econ 100 October 18, 2009 at 12:03 PM

    Krugman’s explanation of cap-and-trade makes a lot of sense. Forcing companies that emit a lot of pollution due to production to pay for it eventually benefits everyone both environmentally and economically. It gives money to the government for use to help the public through various means, like lower taxes. Hopefully, a lot of it is used for green investments to balance out what industries do, which will benefit the public as well in different ways. It’s a step in the right direction in holding them accountable for the shortcomings their operations make in the process. I suspect bigger and/or well established companies would have to go through a lot of changes in order to follow up with rules like this. Though, one fear I have is if there is nothing stopping the companies most affected by cap-and-trade to shift some of the cost burden towards their customers. The adjusting process could be very time consuming and expensive without forcing everyone to make sacrifices, especially in this recession.

    Also, I understand Paul Krugman’s disagreement with Martin Feldstein, both being economists coming from different parts of the spectrum. But Glenn Beck? The only thing he’s an expert in is his own “gut feelings” about how the world (should) work. He’s not an economist; he’s a personality with a political agenda. We give people like him too much power and influence these days.

  5. 5 Taylor Smith December 12, 2009 at 9:57 PM

    I think that this is a great idea to help cut down the pollution in the environment. It will cost money though, just like everything else so many companies will not want to deal with this because it cost money and does not make money for them. The government seems to be much like a business just in it for the money and does not care who they step on to make the extra penny.

  6. 6 Taylor Latt December 14, 2009 at 1:55 PM

    i agree with Taylor. isnt that how our nation is raised though? to only care about making the next dollar rather than worry about other people whose feelings we might hurt?

  7. 7 Hayden Scott December 14, 2009 at 8:05 PM

    I recall an econtalk podcast where Russ Roberts was interviewing Bruce Yandle on the tragedy of the commons and environmental regulation, mostly involving river pollution. This of course boils down to the same problem that cap and trade hope to solve. Krugman does a fairly decent job explaining these basic ideas but I don’t think he emphasizes the way cap and trade brings the market to bare to distribute the right to pollute to those who value it most, or are least efficient, to the extent that I would be satisfied since I think it might have been lost on some. His point in summarizing it was just to point out the inaccuracies in Beck’s argument so I suppose he focused his explanation to that end.

  8. 8 Anthony Azevedo February 24, 2010 at 11:13 PM

    United States of America can not be the only ones to start this pollution emit tax. If we are the leader then more companies would pull out of the USA and pollute mother earth from a different nation. This is what is wrong with our Politics and world politics. You can never please everybody but sticking to basic and doing right thing because in the end it benefits everybody should always be done. Our government needs to be overhauled, and we the people need to take it back. I still find it a joke that our president is either a donkey or elephant. These two parties have to much power, and need to be taken down. I’m sure that not what our four father had in mind.


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