Although I agreed with Krugman on some points and disagreed on others, there were two places where I not only disagreed but thought he had the economics wrong. First, he is wrong when he suggests that if we’re more risk averse, it follows that we should spend more on climate control. The reason is that risk averse people don’t like income inequality (because it boosts the risk of being born poor), and spending more on climate control exacerbates income inequality across generations. Therefore risk aversion cuts both ways on this issue. Second, Krugman is wrong when he gives (some) credence to James Hansen’s economically illiterate belief that altruism is somehow less effective under a cap-and-trade regime than under an emissions tax.
As always, I’ll be back on Monday.