Wednesday, April 29, 2009

Krugman on climate change economics

As someone with a dust covered PhD with Krugman's name all over it, it is good to see that he has also seen the light and that "trade and the environment" is the future.

Krugman is still da man.

H/T: Env-econ

Anti-green economics [NY Times]

Clearly, opposition to doing something about climate change has fallen back to a new position: claims that attempting to limit greenhouse gas emissions would be incredibly costly. Yet the most careful studies, like the big MIT study of Congressional proposals, find only modest costs. Pay no attention, say the critics.

Via Pete Davis, I found Robert Samuelson’s latest, which Davis thinks was wonderful; all I can say is, huh?

Here’s the key graf in which Samuelson tries to deny the results of the studies:

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.

I don’t think there’s a single thing there that’s right. What on earth do business cycles have to do with it? The models may assume growth based on past trends, but they DO ask whether emissions policy would greatly slow growth — and the answer is no. Consumers aren’t assumed to “quickly” use less — the time frame in these models is decades long. And new supplies don’t “magically” appear — they respond to price incentives, which is what economics usually says.

I don’t especially mean to pick on Samuelson, but this column exemplifies a strange thing about the climate change debate. Opponents of a policy change generally believe that market economies are wonderful things, able to adapt to just about anything — anything, that is, except a government policy that puts a price on greenhouse gas emissions. 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.