Sunday, September 27, 2009

Cap and Trade and Krugman

Krugman has written today in his New York Times space on cap and trade. We had written extensively on this in a Cap and Trade White Paper months ago as well as on this blog when the Markey Bill came out.

Krugman begins by saying:

"I realized... that it might be useful to write down just what the Econ 101 version of cap and trade looks like; as it happens, this also helps explain the intellectual sins of Glenn Beck and Martin Feldstein.

So here we go. Bear in mind that something like what follows can be found in just about every intro textbook."

Well rather than going the economics approach, which as we have seen during this economic downturn was like listening to a collection of fighting witch doctors, and frankly people who I felt were totally clueless, I had used the facts as were available in the open data. My analysis shows that with a pure cap and trade, not the abortion created by Markey, which I shall return to, that by 2020 each person will be paying $500 per year more for electricity alone and by 2030 it will be $2000 per person per year!

Now to Mr. Krugman. You see, that having spent time on the MIT campus, I have always remarked that they kept the economics and business departments way down the east, also left, end of the campus, making it near impossible to wander there. I wondered why almost fifty years ago, but it became clear that it must be because they did now want to contaminate those of us doing real stuff with those who were just shall we say playing around. Krugman came from that part of the campus. Thus there thus a belief that economists are want to be manipulators of equations and numbers and have never demonstrated any consistent expertise in delivering models which consistently predicted anything, and worse could ever develop a strategy to follow. Imagine them building a bridge, you could to find two who would agree on the vary basics of say strength of materials!

Thus back to Krugman. He throws his graphs around and and then criticizes in his typical sarcastic and baseless manner those who oppose him. He states:

"OK, now let’s send in Beck and Feldstein...Beck got his number from someone who learned about a guesstimate of what the auction value of permits might be (way higher than current estimates, by the way), divided by the number of households, and proclaimed this the cost of the bill. In effect, he looked at a guess about the size of the blue rectangle, which does not represent an economic cost, and called that the cost to the economy.

In a way, though, what Martin Feldstein did was worse. He took the CBO’s estimate of “compliance costs”, which was $1600 per household in an early report (it’s now down to $900, but who’s counting?), and implied that this was the economic cost of the legislation...the true economic costs are just the triangle, and are much smaller."

Well my approach is to build a model up from the ground level using detailed facts just as any engineer would do building a bridge or computer network. I do not used nice graphs and general concepts, I use demonstrable facts. Frankly I know little of Beck, I gather he is some rather extreme proselytizer on the tube at late mid day, and some of us have other things to do at that time. Like run the numbers. I am talking of the numbers.

Now to the Markey Bill. The problem I articulated is that this Bill gives credits to entities which are funded by the tax. The entities are pork programs that Markey and his cohorts in Congress obtain a benefit from. I suggest you look at my posting in May detailing this and further read the Bill.

Thus this cap and trade bill is a tax on the consumer that redistributes the consumer's wealth to programs which most likely benefit Markey and his ilk! Krugman shows total ignorance of this fact.

I would suggest that Mr. Krugman deal with the facts and try approaching this the way an engineer of business person would. Then and only then do we get the chance to deal with it on a factual and repeatable basis. The approach of the economist we all know now is truly wanting, it can neither predict nor direct.