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

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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.

Will concludes:

I wonder if Ryan would like to be more explicit about what he thinks my priorities are. I'll tell you what I think my priority is: to make people, especially poor people, better off. I am against this bill because I honestly believe it will leave many people worse off and make almost no one other than politically-connected domestic interest groups better off. I think Ryan has a different assessment of its likely effects, but I don't see any need to slyly impugn his motives. If he thinks his argument is so winning, then it might benefit him to drop this kind of well-poisoning rhetoric, which is beneath him, and start actually winning the argument.

I'm sorry, I didn't mean to be sly about this. I think Will's first priority is to make sure that government does as little as possible. On the occasion of Arlen Specter's party change, for example, Will wrote:

My quick take is that this sucks, because the more choke points in the policymaking process the better.

Now, I also think that Will wants to make poor people better off, and he believes that the less government does the better off poor people will be. And I think that when forced to choose between direct government action to make people better off and government inaction, he'll choose the latter. And where climate change is concerned, this is the path to disaster.

How to square all this? Well, I can't read Will's mind, but I assume that he thinks either that in the absence of government action, Bangladesh's economy will grow so rapidly that it will be able to afford to erect large dikes or buy a new homeland, and that in any case, it would simply be better for all involved if developed nations would allow all the Bangladeshis to immigrate. Or, that in the absence of any economic incentive to reduce emissions or engineer some global solution, the market will nonetheless provide.

I"ll let Will clarify his position, and you all judge which is more likely -- that passage of Waxman-Markey sets the stage for an international climate agreement which can be improved over time, or that in the absence of any American action on climate change, the poor of Asia and Latin America and sub-Saharan Africa become rich enough in the next century to avoid the negative effects of climate change or are allowed to move, en masse, into rich nations less susceptible to the worst impacts from warming.

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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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