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06/04/2009 05:12 am ET Updated May 25, 2011

Nobelist Krugman Attacks "Junk Economics"

Nobel prize-winning NYT columnist Paul Krugman has an excellent piece on climate economics 101, "An Affordable Salvation." It follows an economic lesson he gave on his blog to anti-green Washington Post columnist Robert Samuelson. Krugman explains:

It's important to understand that just as denials that climate change is happening are junk science, predictions of economic disaster if we try to do anything about climate change are junk economics.

Yes, limiting emissions would have its costs. As a card-carrying economist, I cringe when "green economy" enthusiasts insist that protecting the environment would be all gain, no pain.

But the best available estimates suggest that the costs of an emissions-limitation program would be modest, as long as it's implemented gradually. And committing ourselves now might actually help the economy recover from its current slump.

I do not believe climate action is all gain, no pain -- and try hard not to leave that impression on this blog. I run through what the most credible major independent studies find here: "Intro to climate economics: Why even strong climate action has such a low total cost -- one tenth of a penny on the dollar."

Krugman cites similar findings from EPA and the Emissions Prediction and Policy Analysis Group at the Massachusetts Institute of Technology:

Even with stringent limits, says the M.I.T. group, Americans would consume only 2 percent less in 2050 than they would have in the absence of emission limits. That would still leave room for a large rise in the standard of living, shaving only one-twentieth of a percentage point off the average annual growth rate.

To be sure, there are many who insist that the costs would be much higher. Strange to say, however, such assertions nearly always come from people who claim to believe that free-market economies are wonderfully flexible and innovative, that they can easily transcend any constraints imposed by the world's limited resources of crude oil, arable land or fresh water.

Needless to say, people like Newt Gingrich, who says that cap-and-trade would "punish the American people," aren't thinking that way. They're just thinking "capitalism good, government bad." But if you really believe in the magic of the marketplace, you should also believe that the economy can handle emission limits just fine.

Precisely.

As Krugman put it even more pithily in his dissing of Samuelson, people who push junk economics believe:

Limits on the world supply of oil, land, water -- no problem. Limits on the amount of CO2 we can emit -- total disaster.

Funny how that is.

The opponents of climate action believe in the limitless power of the free market to do everything -- everything that is except avoiding catastrophic global warming. If only it were funny, as opposed to utterly tragic.

But Krugman, who won his Nobel prize for international economics work on trade theory, has an extra argument on behalf of climate action now:

Right now, the biggest problem facing our economy is plunging business investment. Businesses see no reason to invest, since they're awash in excess capacity, thanks to the housing bust and weak consumer demand.

But suppose that Congress were to mandate gradually tightening emission limits, starting two or three years from now. This would have no immediate effect on prices. It would, however, create major incentives for new investment -- investment in low-emission power plants, in energy-efficient factories and more.

To put it another way, a commitment to greenhouse gas reduction would, in the short-to-medium run, have the same economic effects as a major technological innovation: It would give businesses a reason to invest in new equipment and facilities even in the face of excess capacity. And given the current state of the economy, that's just what the doctor ordered.

This short-run economic boost isn't the main reason to move on climate-change policy. The important thing is that the planet is in danger, and the longer we wait the worse it gets. But it is an extra reason to move quickly.

So can we afford to save the planet? Yes, we can. And now would be a very good time to get started.

The time to act is most certainly now. Related Posts: