I Swear, the Last One on Cap-and-Trade

Really, it is. I'd just like to address a few additional comments from Will Wilkinson. He writes:

Ryan evidently believes it is almost obvious that the structure of the strategic problem in securing global climate policy coordination is less complex than the problem of putting together standard-issue public goods, like a system of roads. In the case of global climate policy coordination, we're talking not about diffuse millions but a mere "handful of great powers," who will enjoy such concentrated benefits from an agreement that the normal worries about credible commitment, assurance, free-riding, and so forth do not really apply. So the absence of a coercive enforcement mechanism is pretty much irrelevant. Not only shouldn't we worry about the standard logic of interdependent strategic action, but it's almost deliberately dense to do so. My bad.

Sigh. Do I think that it's easier to coordinate international policy than to use national government to build roads? No, I do not. Here's how the discussion went, as far as I can tell.

Many on the left have suggested that a unilateral commitment to reduce emissions might be a good idea ahead of forthcoming international climate negotiations. Will argued that this made "statist-liberals" hypocrites, since they're always going on about how the government needs to provide various public goods. I responded by saying that the typical scenario in which this happens -- involving infrastructure or education at the national, state, or local level is nothing like global climate negotiations.

It is less easy to obtain a climate agreement through voluntary negotiations than through a coherent, authoritative international government using the coercive power of the state, it's true. For better or worse, the latter option is not currently available. And I suspect that obtaining an international climate agreement through negotiation is quite a bit easier than establishing a world government and then getting a global bill passed. The world has managed to establish and adhere to international rules on a voluntary basis in the past, and I suspect we'll do it many times in the future.

Next, Will seems not to understand what I mean by a repeated game:

The repeated game between the U.S. and China looks to me trickier than this. First, it's better for China in the short and medium term if we tax carbon emissions and they don't. They sure will be happy to see us go first. (It will, among other things such as encouraging capital flight to China, give them more slack with which to clean up things like SO2 that really do matter to them in the short term.) So then what do we do if they don't play along? Impose carbon tariffs? Then we have probably just started a trade war with our chief source of inexpensive manufactured goods. Is this the repeated game Ryan has in mind?

No. The repeated game I have in mind is one in which China and America negotiate on a near-continuous basis on a wide range of political and economic issues, such as: trade, international finance, environmental rules, geopolitical issues (including, say, diplomatic exchange on the subject of North Korea), immigration, sporting activities, space, and lord knows what else. In this scenario, goodwill or trust accumulated in one round is quite valuable in the next, and can facilitate pareto improvements. I'll admit -- I'm assuming that China would be interested in something other than a purely confrontational relationship with America. I suspect that if I'm wrong about that, we'll have enough to worry about in the decades to come that the economic costs of Waxman-Markey will prove entirely unimportant, however big or small they might be.

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Ryan Avent is The Economist's economics correspondent and the primary contributor to Free Exchange, an economics blog

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