Krugman: Cap And Trade Is A Good Short Run Economic Boost

Why is it that the people who think free-markets are the greatest thing in the world are the ones that think the market couldn’t react to a cap and trade program, asks Paul Krugman in his column.

Krugman jumps into the cap and trade debate saying that the concerns about increased electricity costs are overblown. Auction off the permits, use the revenue from the auction to reimburse the public and the costs aren’t so bad, says Krugman, citing EPA research.

More so than that, the new cost of carbon will spur investment in projects which could help the provide a jolt to the economy.

But suppose that Congress were to mandate gradually tightening emission limits, starting two or three years from now. This would have no immediate effect on prices. It would, however, create major incentives for new investment — investment in low-emission power plants, in energy-efficient factories and more.

To put it another way, a commitment to greenhouse gas reduction would, in the short-to-medium run, have the same economic effects as a major technological innovation: It would give businesses a reason to invest in new equipment and facilities even in the face of excess capacity. And given the current state of the economy, that’s just what the doctor ordered.

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