Tuesday, July 14, 2009

Sarah Palin’s Supply-side Silliness on Cap & Trade

Whenever a supply-sider lectures us on economics, it is always fun to see if said supply-sider even knows the basics of economics. Case in point in an op-ed opposing cap & trade from Sarah Palin:

There is no shortage of threats to our economy. America's unemployment rate recently hit its highest mark in more than 25 years and is expected to continue climbing. Worries are widespread that even when the economy finally rebounds, the recovery won't bring jobs. Our nation's debt is unsustainable, and the federal government's reach into the private sector is unprecedented ... There is no denying that as the world becomes more industrialized, we need to reform our energy policy and become less dependent on foreign energy sources. But the answer doesn't lie in making energy scarcer and more expensive! ... Job losses are so certain under this new cap-and-tax plan that it includes a provision accommodating newly unemployed workers from the resulting dried-up energy sector, to the tune of $4.2 billion over eight years. So much for creating jobs … The ironic beauty in this plan? Soon, even the most ardent liberal will understand supply-side economics. The Americans hit hardest will be those already struggling to make ends meet. As the president eloquently puts it, their electricity bills will "necessarily skyrocket." So much for not raising taxes on anyone making less than $250,000 a year.

I guess we should give her credit for actually knowing we are in a recession. But cap & trade is more about our long-term future and surely new jobs can be created in other sectors – assuming the current Republican love of Herbert Hoover economics does not get in the way of rational macroeconomic policy. And I would hope the former governor of Alaska might recognize that a well designed cap & trade policy could actually reduce the deficit she worries about. Conservative economist Greg Mankiw even thinks the extra tax revenues might allow us to lower other forms of taxation – perhaps on those “Americans hit hardest”.

But my main problem with this op-ed is that it contends that cap & trade represents a restriction on the supply of energy, which confuses an alleged shift of the supply curve with what is really going on – a tax wedge between the demand curve (private marginal benefit of using energy) and the supply curve (private marginal cost). Credit goes to Brad DeLong for clarifying how Palin may have missed the main reason why economists including Greg Mankiw endorse policies akin to cap & trade:

So I called Jennifer Lee:

ME: Good morning. My name is Brad DeLong. I got your email about the cap-and-trade op-ed this morning and I was wondering if I could ask you a few question. An op-ed about cap-and-trade energy policy that doesn't even whisper about global warming? Why is publishing this something to be proud of rather than embarrassed about?

Others have noticed the same problem as documented by Steve Benen.

Update: Palin was for cap & trade before she was against it.

1 comment:

hapa said...

Credit goes to Brad DeLong for clarifying how Palin may have missed the main reason why economists including Greg Mankiw endorse policies akin to cap & trade

very charitable of everyone to assume that sarah palin wrote or understood the argument beneath her byline.