Posts Tagged ‘Paul Krugman’

Newer Entries »

Going Green Won’t Cost Much

Thursday, June 25th, 2009

Since climate change legislation entered the public agenda, conservatives have been arguing that doing anything about global warming will cost too much. The most persistent commentator along these lines has been Robert Samuelson who wrote recently:

To comply with the House bill, CO2 emissions would have to be about 3.5 billion tons. The claims of the Environmental Defense Fund and other environmentalists that this reduction can occur cheaply rely on economic simulations by “general equilibrium” models. An Environmental Protection Agency study put the cost as low as $98 per household a year, because high energy prices are partly offset by government rebates. With 2.5 people in the average household, that’s roughly 11 cents a day per person.

The trouble is that these models embody wildly unrealistic assumptions: There are no business cycles; the economy is always at “full employment”; strong growth is assumed, based on past growth rates; the economy automatically accommodates major changes — if fossil fuel prices rise (as they would under anti-global-warming laws), consumers quickly use less and new supplies of “clean energy” magically materialize.

But this report from the Congressional Budget Office estimates the cost to households of the Waxman-Markey bill now before Congress would be about 48 cents per day. Will we hear a retraction coming from Samuelson?

As Paul Krugman says:

The point is that we need to be clear about who are the realists and who are the fantasists here. The realists are actually the climate activists, who understand that if you give people in a market economy the right incentives they will make big changes in their energy use and environmental impact. The fantasists are the burn-baby-burn crowd who hate the idea of using government for good, and therefore insist that doing the right thing is economically impossible.

This is right. The aim of Republican statements about policy is not to solve problems but to perpetuate the irrational anti-government animus that kept them in power for many years.

 

Tags: , ,
Posted in Economics, Environmental Issues, Politics, Watching the Conservatives | No Comments »

Markets Shmarkets, Just Say NO

Sunday, May 3rd, 2009

If there is a single approach to policy that conservatives have consistently endorsed over the past 30 years, it is that free-market solutions to problems are always better than government mandates.

The argument for free market solutions is that, in a free market, the price at which a commodity is sold represents the real preferences of the people involved in the transaction, and the profit motive provides an incentive for buyers and sellers to use their ingenuity to find the most efficient solution.

Proposals to institute a cap-and-trade system to reduce carbon emissions is one such free market solution.

A cap-and-trade system is a mechanism that sets an overall limit on the emission of greenhouse gases, but allows companies that can easily reduce emissions to sell credits to other companies for which such reduction would be difficult, thus creating a market for emissions credits. The cap ensures that emissions will not exceed a desired amount. Companies that limit their emissions can make a profit on their efforts; companies that do not limit their emissions must buy a permit to emit. All parties have an incentive to reduce emissions but can make their own decisions about how much to emit, when to purchase abatement equipment, how to price their product in light of their decisions, etc.

One of the reasons liberals have endorsed a cap-and-trade system, rather than a straight tax on carbon emissions, is the hope that, because it is a market-based solution, conservatives would endorse it.

But cap-and-trade proposals in Congress are receiving no love from Republicans. Conservative spokesperson Newt Gingrich has withdrawn his former support for it and legislation in Congress  is opposed by most if not all Republicans.

Why?

Granted, there will be costs to firms who must limit their CO2 emissions in order to sell emissions credits (or refrain from buying them), although current estimates are that the overall costs over time will not be an excessive drag on economic growth.

As Paul Krugman pointed out recently, complaints about restrictions on economic growth

…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.

So why don’t they think the economy can cope with limits on greenhouse gas emissions? Under cap-and-trade, emission rights would just be another scarce resource, no different in economic terms from the supply of arable land.

Republican opposition can be explained only if we infer (1) they deny that global warming is the product of excessive CO2 emissions, or (2) they simply do not care about the fate of the planet.

(2) is morally indefensible. But as I recently argued, (1) is as well, since whatever skepticism one has about anthropogenic global warming is outweighed by the potential dire consequences, given the probability that current science is roughly correct.

One of the enduring puzzles of our age is why anybody thought modern conservatism represented a defense of moral values. One way of understanding the current political climate is that Democrats and Republicans agree on what is good for the country but disagree on how to get there.

It is increasingly difficult to believe that Republicans have a concern for the good of anything.

Tags: , , , ,
Posted in Domestic Policy, Economics, Environmental Issues, Politics | 1 Comment »

A New Fault Line Among Liberals

Sunday, April 19th, 2009

Cross-posted at Philosophy on the Mesa.

As the various debates regarding economic recovery are unfolding, an emerging fault line is developing among liberals regarding the nature of reform.

I think the fault line can best be described as follows: Are we trying to return the United States to levels of growth and consumption patterns prior to the Bush debacle, i.e. during the Clinton era? Treasury Secretary Tim Geithner seems want something like that. Or do we need a more substantial restructuring of the economy, as someone like Paul Krugman would endorse? Should we preserve the goal of increasing levels of homeownership and robust consumerism through expanding credit and financial services, albeit with more effective regulation. Or is the idea of an economy based on easy credit, mass ownership of stocks, homes, and other investment vehicles, and dominated by the financial sector a bad idea?

Will an economy consumed with the pursuit of wealth always be subject to bubbles, gross inequality, and instability caused by excessive greed, regardless of the regulations we put in place?

On the surface these may appear to be purely economic questions. But in fact there is a moral dimension.

It is hard to see how a society based on wheeling and dealing could be anything but a society in which selfishness rules. Norms and virtues inevitably flow from our activity—we become what we do. When wealth acquisition is the measure of a person there is no natural limit to the temptation to acquire more. And because wealth begets wealth conferring a competitive advantage on the already wealthy, most people will in end be unable to compete and will fall by the wayside, like the bankrupt homeowners who window-shop at the malls today. Meanwhile, the wheeler dealers will always find a way to outwit regulators, who will be resented by everyone whose aspirations outstrip reality—most of us.

So I don’t think a return to Clinton era prosperity is quite the way to go. Getting more and more people into the middle and upper middle class is a worthy aspiration, but trying to expand the pie through cheap tricks won’t get us there.

The downside of more significant reforms, however, is less growth. And that is not a good thing. Maybe we should be willing to forgo the new wardrobe, hold on to a car for 5 years, and stick with last year’s cell phone technology. But what about the people who design, make, and sell clothes, cars, and cell phones? Slower growth means more unemployment, less opportunity, and these are moral issues as well because they entail suffering.

I don’t think we have to choose between growth and contraction. But we will have to re-describe the nature of wealth. The kind of wealth we have sought to create over the past 30 years was private wealth. And the excessive pursuit of private wealth inevitably leads to the greedy melee that we are still trying to disentangle.

But if we define wealth more broadly in term of social capital—better education, health care, transportation, a clean environment, higher levels of trust—we can pursue rampant growth and keep people well employed without creating lots of Bernie Madoffs in the process.

Tags: , , , , ,
Posted in Economics, Future of Liberalism, Political Theory, Prisons and Crime, Reviving the Left | No Comments »

Newer Entries →