On Economics and Climate Change

Recently, Dane and I have been having a spirited "argument" about climate change and how to combat it. I put argument in quotes, because I suspect we agree much more than we disagree.

Dane recently suggested that I don't like economic approaches to climate change, so I just want to take a minute to clear up any confusion. I definitely believe that economics will come into play in dealing with climate change. I am not opposed to economic solutions to climate change. What I am opposed to is 1) economic solutions being the only solutions on the table and 2) the idea that if we fix the economics, everything will follow. We don't have to worry about the social ramifications.

For example, take a carbon tax. A carbon tax sounds really good to economists because basically what it is doing is putting a price on carbon. Raise the price of carbon, and let the invisible hand of the market guide us to a little economists' utopia where our carbon emissions are down 80%, and fairies read Hayek to you while feeding you peeled grapes.

Now, in theory a carbon tax might be a good idea. But, economists who believe carbon taxes are the answer are ignoring the political reality: changing our tax structure is incredibly difficult politically. Inevitably, changing our tax structure will produce winners and losers, and we have to focus on what we are going to do to cushion the blow for the losers. Unless we adopt an approach that couples economics with larger concerns about social and political institutions, nothing will change.

So I guess what I'm arguing is not that economics don't matter. Of course they do. But that we need to look holistically at institutions, and not put all our faith in the market.