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Krugman on target AGAIN

He’s lucky he’s got tenure. With his track record, he’d be drummed out of economics otherwise. I mean, this is the field which, in all seriousness, avers that we’ll never run out of oil. And they’re right. If oil costs $10,000 a gallon, people will go to any lengths to extract or make another few drops of the stuff. It’s the law of supply and demand. The fact that it has zero practical application at those levels doesn’t enter into it. For economists. So I’m sure a group that believes in fairy stories — the Rational Economic Man is another good one — would get rid of Krugman in a second if they could, him and his big flat feet clumping around insisting on reality.

What brought this on? Another brilliant op-ed An Affordable Salvation [1] and the earlier post on his blog: Anti-green economics [2].

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 [3] of Congressional proposals, find only modest costs.

I have to jump in to boggle a bit. Let’s even pretend to grant that measures against global warming are “incredibly costly.” That only matters if the alternative is less costly. However, any study that looks at the price of doing nothing concludes that the expense is enormous, bigger than doing something by an order of magnitude. Case in point is the Stern 2006 [4] review of the economics of climate change. (Wikipedia has a simple summary [5].) His estimate is that 1% of global GDP is the cost of averting “the worst effects” of climate change. The cost of doing nothing is likely to be around 20% of GDP. As time goes by, both estimates grow bigger, and the probable cost of doing nothing grows bigger faster. So, the obvious choice is to . . . do nothing? Hello?

Krugman goes on to demolish the economic argument against government regulations to help save the planet, but my favorite part is this:

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.