Climate change losers as bad betters or dumb buyers?

A number of people have brought up Paul Krugman’s discussion last week about economic growth and climate change emissions: Growth and Greenhouse Gases – Paul Krugman Blog – His comments to me seem rather prosaic for somebody of his gifts, but maybe I am just not seeing the “wow” there.

However, I did see a “wow” discussion on climate change, carbon pricing, and social equity last week for the Keston center event I organized on pricing and social equity. Cap and trade with auctioned permits is essentially a pretty efficient carbon tax. UCLA’s Matt Kahn, always a treat, said something that got me thinking. He asked about whether those who are in carbon-intensive industries should be treated as bad betters or dumb buyers rather than victims of public policy, which strikes me as a very reasonable question at this point in the debate.

We’ve all heard the line that carbon regulation will cost job and create jobs, which has its distributive consequences, but Matt’s question is one I haven’t hear before: carbon-intensive industries as bad betting or dumb buying. Economists often argue that bad betters or dumb buyers shouldn’t be rewarded in markets, for good reasons: they either have bad information or they aren’t very smart about how they use information and they make bad market decisions. I have argued before that homeowners who have bought foolishly shouldn’t necessarily be saved from the consequences of those decisions. Is carbon intensity the same thing?

In general, those who are concerned about people who lose out from government regulation believe that these folks are victims; with sweeping new policies, programs and investments, the state can create windfalls on the one hand (the jobs and industries created) and wipeouts on the other (the industries and jobs lost). You can see how this is different from a bad better or in a market.

In our case, with climate regulations, which have been floating around for over 10 years, you have to ask: is a carbon loser at this stage–a decade into the debate–a victim or a bad better?