Reading over Brad Johnson’s summary table of the differences between the Kerry-Lieberman climate and energy bill, the White House’s original proposal, and the ACES legislation that passed the House last year one key thing that leapt out at me was the “hard collar” on the price of permits. All three proposals involve the allocation of tradable permits. This is preferred to a carbon tax for two reasons. One is that it doesn’t include the word “tax.” The other is that it lets you set a policy-determined total level of emissions and then have the market work out the price, rather than setting a price and then having the market set the level of emissions.

The Senate bill modifies this idea by mandating that permit prices trade within a certain band. That starts as a floor of $12 and a ceiling of $25 per ton. The floor increases at 3%+CPI, the ceiling at 5%+CPI. As a matter of policy design, the first time I heard it it sounded like a huge cop-out. But looking at the issue anew as this legislation is unveiled, I actually think the price floor aspect of this is really important. The reason is that it’s the solution to the potentially giant problem of “offsets,” the notion that a firm should be allowed to earn extra emissions by undertaking (or paying for someone else to undertake) negative-emission activities like tree-planting.

The problem with this is that it’s an enforcement nightmare. But the trouble with not doing offsets is that you’d be abandoning what is, in principle, a powerful tool for stabilizing the concentration of greenhouse gases. What the floor does is let you assume the worst about the offsets—the regulation is super-lax, tons of stuff is offset, and much of it has little value—and still be left with essentially an escalating carbon tax in the event that the market price of permits crashes. I think accepting a price ceiling is a small price to pay for the advantages you get with a floor, since realistically a giant spike in permit prices would be politically unsustainable anyway.

That said, I’m not in love with the difference in the growth rates between the floor and the ceiling. Why not five percent over CPI for both? The short-term difference between CPI+3 and CPI+5 is small, but the medium-term difference—and thus the impact on investment decisions—would be giant.

If you had asked me in 2006 about the political reaction to 10 percent unemployment I would have said “total freak out!” Heck, as late as 2009 I would have said “total freak out.” After all, the Obama administration was projecting 10 percent unemployment as a nightmare scenario in which there was no policy response to rising unemployment. The specter of 10 was supposed to prompt a freak-out. Well now here we are at 10 percent unemployment and there’s an eerie calm. I was a tiny baby during the last really serious recession but Brad DeLong was around:

The most astonishing and surprising thing I find about Washington DC today is the contrast in mood between DC today and what DC was thinking a generation ago, in 1983, the last time the unemployment rate was kissing 10%. Back then it was a genuine national emergency that unemployment was so high–real policies like massive monetary ease and the eruption of the Reagan deficits were put in place to reduce unemployment quickly, and everybody whose policies wouldn’t have much of an effect on jobs was nevertheless claiming that their projects were the magic unemployment-reducing bullet.

Today…. nobody much in DC seems to care. A decade of widening wealth inequality that has created a chattering class of reporters, pundits, and lobbyists who have no connection with mainstream America? The collapse of the union movement and thus of the political voice of America’s sellers of labor power? I don’t know what the cause is. But it does astonish me.

Two additional considerations. One is that not only has inequality widened, but the recession itself has been incredibly unequal. College graduates feel it primarily in the fluctuations of asset prices, and indeed there is a freakout every time the Dow plunged. The other is politics and partisanship. It’s typically the out-of-power party’s job to complain about poor economic performance, but the GOP is ideologically committed to the view that less stimulus and tighter money are preferable.

All that said, in policy terms the main difference is the ex ante interest rate. For whatever reason, expansionary monetary policy in the form of interest rate cuts is considered unremarkable and a sensible response to economic weakness. But once nominal rates get too close to zero, the political and policy consensus totally breaks down and you get something close to paralysis.