Paul Krugman has written a new column about President Trump and the climate change mitigation Paris Treaty. Here is a direct quote:
"The same goes for claims that trying to rein in emissions will do terrible economic damage and destroy millions of jobs. Such claims are, if you think about it, completely inconsistent with everything Republicans supposedly believe about economics.
After all, they insist that the private sector is infinitely flexible and innovative; the magic of the marketplace can solve all problems. But then they claim that these magical markets would roll over and die if we put a modest price on carbon emissions, which is basically what climate policy would do. This doesn’t make any sense — but it’s not supposed to. Republicans want to keep burning coal, and they’ll say whatever helps produce that outcome."
I agree with Dr. K's points here but he is ignoring income effects. I bet that 98% of Republicans would agree with his points about "substitution effects" (see the first sentence of his 2nd paragraph above). But, Dr. K is ignoring income effects induced by the ramp up in carbon pricing. In simple English, Republicans would suffer a reduction in their suburban house value, an increase in unemployment risk, and a reduction in their capital accounts if carbon pricing is enacted.
Recall what I stated in my last blog post.
1. Republicans live in the suburbs and live a "high carbon footprint" lifestyle and thus will bear more of the economic incidence of a higher carbon tax than center city progressives. So, the average Republican faces a higher price if the carbon tax is enacted. See my papers here and here. In a differentiated products model, Republicans may gain greater consumer surplus from their light duty trucks and monster cars while progressives enjoy their fuel sipping Priuses. In my model, Republicans know what they want from markets and they perceive that progressive regulation will raise the price tag of the red meat, monster car, blasting air conditioner on hot day life style.
2. Republicans are more likely to work in "high carbon industries" (oil and other fossil fuel extraction industries) and thus may face greater unemployment risk from regulations that make these industries less competitive. Republicans are also more likely (I bet) to own shares in these companies such as Exxon and thus will suffer a capital gains loss from carbon regulation.