Sunday, September 16, 2007

Political economy

In today's NY Times, Greg Mankiw writes about "One Answer to Global Warming: A New Tax ... The case for using a carbon tax to reduce emissions of greenhouse gases."

Comparing it to cap-and-trade proposals, he suggests that the tax is superior because cap-and-trade is likely to be politicized and abused.

And the carbon tax will not be?

He adds that the, "... natural aversion to carbon taxes can be overcome if the revenue from the tax is used to reduce other taxes."

Yes, it can but how likely is that? This raises the question whether policy advice or policy analysis with a political tin ear is at all useful. Mankiw is a smart and well meaning analyst and so are many others. But if we are serious about the idea of political economy, how can anyone turn a blind eye to the political half?