Friday, September 19, 2014

Paul Krugman's Despair

A couple of important economic reports this week lay out the argument that climate mitigation measures such as a cap and trade or carbon taxation would not accrue nearly such high short-term costs as might at first be expected.  One of these is from the International Monetary Fund ("Carbon Pricing: Good for You, Good for the Planet") and the other, the New Climate Economy Report, is authored by a blue ribbon panel advised by top economists.  The message from both reports is that when one accurately counts even the short term benefits of carbon pricing measures (e.g. reductions in mercury pollution from coal burning) they will outweigh the short term costs.

Over at the New York Times, star economist Paul Krugman uses these reports to argue against the "dangerous" doctrine of what he calls "climate despair": that the "only way to limit carbon emissions is to bring an end to economic growth."  As he points out, this assertion can cut two ways: on the right, to claim that since growth must continue at all costs, we cannot afford climate policies that might reduce it; or on the left, to argue that physical constraints will sooner or later bring growth to an end, and that we should start planning for that era now.

It's the second of these positions that seems particularly baffling to Krugman.  With astonishment, he acknowledges that even some hard scientists argue that economic growth is physically constrained - according to Krugman, because "...they don't understand what economic growth means.  They think of it as a crude, physical thing..."

Apparently, if those like UCSD physicist Tom Murphy truly appreciated the non-physical (a.k.a. spiritual, what else should we call it?) aspect of economic growth, they would understand how it could float free of those pesky laws of thermodynamics!

In their book How Much Is Enough?, Robert and Edward Skidelsky demonstrate that from Adam Smith to Keynes and beyond, economists treated "growth" (they would probably have said "improvement") as a short-lived phase through which they hoped societies would pass until they reached the stage of "enough", the point where all their citizens could enjoy the resources needed for a good life.   It is only recently that "growth" has become detached from the objects that it was sought in order to attain, and has become regarded as an end in itself.

From this perspective, and whatever the short-term costs and benefits analyzed in the two reports I mentioned (and all can agree that the news in them seems good), the environmental limits revealed by climate change are important news, an euaggelion, not a message of despair: a message that calls humanity back to what really matters.

Message to Krugman: Crying "More" for ever is not what really matters.  Growth is an idol.  And bowing down to an idol is the true despair.

Image of Paul Krugman from the New York Times, believed to be fair use.
EDITED: Response to Krugman by Paul Heinberg of Post Carbon Institute here.


Anil said...

What economic growth means, or rather it also includes, is the growth in services. That's what is missing from the arguments that take growth only as a production/consumption pair. Granted, that's a very big part of it, but in economical terms, size of the economy includes services, or simple exchanges without anything produced physically. If you give me an apple in exchange for a dollar and I add value to it by, say, giving it a name and sell it back to you, there economy doubled in size, growth without physically producing anything.

John Roe said...

Thanks for your comment, Anil. Of course I understand that not *all* of economic value involves the consumption of physical "things" (say, the use of energy). But so long as you are willing to grant that "that's a very big part of it", you have not evaded the force of the limits-to-growth argument. If the physical economy is of limited size, say L, and if the physical economy is "a very big part" of the whole economy (let's say, conservatively, at least 1 percent), then the size of the whole economy cannot get more than 100L. (And that factor 100 is only seven doublings, less than 200 years at standard rates of growth...) The post by Tom Murphy that I reference works this out in more detail.)