Notes on Krugman’s “Building a Green Economy”

by Tristan on April 16, 2010

in Activism, Climate change, Ethics

Paul Krugman is an economist, and a decent one. His recent piece in the New York Times entitled “Building a Green Economy”, however, reveals he has not recovered from the brainwashing that is neo-classical economics training. He continues to reproduce the discourse of market solutions even where the market is perverted specifically to avoid the solution it might have provided. What’s worse is he remains an apologist for the current American political situation even at the point where its inadequacy becomes obvious. His failings can largely be understood as a product of his decision to embrace the alienation offered by economics, whereby your individual actions become meaningless, and the only thing important is system. At this point, the question of changing the system disappears because it is something “you” would have to do. In the end, for Krugman, the question of saving the world for our grandchildren is not a moral question at all, but an empirical statement about preferences, desire satisfaction, and the discount rate.

Krugman’s article begins with a discussion of Pigovian taxes. Pigovian taxes are based on the assumption that an economic interaction which has negative externalities could still be beneficial overall, so rather than banning it the appropriate thing to do is to put a price on the negative externality. This is already morally dubious, because there is no strict indication that the price will be returned to those hurt by the negative side effects of the initial transaction. The alternative approach, regulation, is rejected by Pigou and Pigouvians because (and I’m simplifying), the free market approach is the most efficient, so if we just put a price on everything, the best solution will naturally come to pass. The example of a potential Pigovian tax Krugman gives concerns the cost differential between local and imported fruits and vegetables:

“When shoppers go to the grocery store, for example, they will find that fruits and vegetables from farther away have higher prices than local produce, reflecting in part the cost of emission licenses or taxes paid to ship that produce.”

There is some truth to this. I am all for carbon taxes. However, the downside of using a price to reduce the amount of carbon emitted by the production of fruits and vegetables is the sheer number of deciding factors involved in deciding which food gets eaten where by the “free market”. For one, the trucking industry is massively subsidized by the state through the construction of roads. Even if diesel fuel has a carbon tax applied, there is still an undue competitive advantage given to firms far away by the state construction of highways. I’m not saying we should get rid of highways – rather that trucks should pay road tax per kilometer based on their weight capacity, as this is a good indicator of the damage they do to roads. Another issue is the labour costs – the  farmers who treat their workers the worst, i.e. imports effective slaves from across the country and the americas, will likely be able to supply Dominion with cheaper tomatoes than a local farm which obeys Canadian Labour standards. Similarly, provinces which still ban the formation of farm labour unions have a competitive advantage over provinces which have decided that this ban “substantially impairs their right to freedom of association under the Charter of Rights and Freedoms.”

Furthermore, supermarket chains like Loblaws sign contracts with California growers which specify that in exchange for access to California fruits and vegetables in the winter months, they must purchase Californian fruit and vegetables in the summer months as well. This means local food is kept out of major city markets even when it is cheaper.

Ignoring the complexity of market solutions is one thing – but what’s much worse is Krugman’s stagnant and placid attitude towards the current political “reality”. For example, when discussing the merits of cap-and-trade, he states:

“Politically speaking, doling out licenses to industry isn’t entirely bad, because it offers a way to partly compensate some of the groups whose interests would suffer if a serious climate-change policy were adopted.”

The presumption here is that there is a duty to compensate groups whose interests would suffer if mitigation policies were adopted – but is this a good presumption? In a morally neutral world, perhaps, but in the real world firms which profit from carbon heavy processes are not just metaphorically, but actually stealing from our future. No one has a right to steal or to harm others, not even according to Libertarians like John Stuart Mill. The problem is then, how to make a political situation where such basic principles of liberty would be respected? This would be the genuine liberal dream. Krugman makes the same mistake of engaging in nasty political apologetics when he compares cap-and-trade to a carbon tax system:

“The question is whether the emissions tax that could actually be put in place is better than cap-and-trade. There is no reason to believe that it would be — indeed, there is no reason to believe that a broad-based emissions tax would make it through Congress.”

Sure, that is a question you could ask, but it is not all clear that it is “the” question. If the reality is that it isn’t clear that we could pass a meaningful, just and fair climate change bill through Congress – then the question isn’t “how do we pass a barely minimal one which benefits existing polluters disproportionately to the damage they have caused and continue to cause”, but how do we make a Congress which could pass a bill that would be genuinely in the interest of the American population? It’s a question for social organizers, democratic activists, and educators.

Sometimes, I find it genuinely strange that Krugman does not advocate for democratic reform for two reasons. For one, he is swayed by James Hansen’s moral argument against cap-and-trade, and secondly, he is keenly aware that the middle class in the U.S. was created directly as a result of a period where socialist organizers were very strong, and the “new deal” was imposed to ward off the red scare. However, the problem is not so complicated – we can see Krugman’s basic misunderstanding of democratic politics in his critique of Hansen:

“What Hansen draws attention to is the fact that in a cap-and-trade world, acts of individual virtue do not contribute to social goals. If you choose to drive a hybrid car or buy a house with a small carbon footprint, all you are doing is freeing up emissions permits for someone else, which means that you have done nothing to reduce the threat of climate change. He has a point. But altruism cannot effectively deal with climate change. Any serious solution must rely mainly on creating a system that gives everyone a self-interested reason to produce fewer emissions. It’s a shame, but climate altruism must take a back seat to the task of getting such a system in place.”

Krugman’s point seems to be: we can’t be worried that acts of individual carbon virtue might be counter productive, what matters is the overall system. Now, I’m with him that the overall system matters, even matters more than individual decisions. But, I’m not willing to throw out individual decisions altogether, and here’s why: a rational state is a state where people see their personal interests as something in common with others, or at least in harmony with others. It’s crucial in civil society for people to be able to recognize when their individual actions contradict the general interest, so that they can try to build lives where contributing to their own happiness contributes to the happiness of others as well. This is just part of being a complete human being. It’s often cited that Adam Smith argues this happens by accident, but, for one, this isn’t really true – Smith demands conditions of “perfect liberty” which no “capitalist” society comes close to meeting (the point of the advertising industry is to make sure that nothing like “perfect information” is ever dispensed). For another thing, Smith is just wrong: he ignores the basic nature of humans as social, as needing to get along with/fit into a general group, and understand the interest of that group as something they could be with or against.

It bothers me that Krugman’s political insight is so poor, because he is a good economist that has decent moral bearings. He advocates for protectionist carbon tariffs, for outright banning of coal power, and stresses the long term importance of dealing with climate change:

“if we don’t take action, global warming won’t stop in 2100: temperatures, and losses, will continue to rise. So if you place a significant weight on the really, really distant future, the case for action is stronger than even the 2100 estimates suggest.”

Of course, the problem here is the “if you place a significant weight…” – why is it up to you? Why do we think it is our choice whether or not give our grandchildren a decent world to live in? Theradical subjectivity of ethics has reached the point where saving the world is no longer a “duty” but a “preference”, a thing we might desire which might have some weight, but since it’s far off in the future we can discount it in favour of an extra 2 or 5% growth.

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{ 7 comments… read them below or add one }

Milan April 16, 2010 at 4:44 pm

I also wrote a response to this article: Krugman on climate economics.

I thought his piece was quite good, overall.

Milan April 16, 2010 at 4:46 pm

However, the problem I have with Krugman here is his assumption that this is already functioning, and Pigovian taxes are an example of the market already doing a great job at getting a moral and productive solution to the problem of negative externalities. The example he chooses is the cost differential between local and imported fruits and vegetables:

“When shoppers go to the grocery store, for example, they will find that fruits and vegetables from farther away have higher prices than local produce, reflecting in part the cost of emission licenses or taxes paid to ship that produce.”

This is, of course, complete rubbish.

This isn’t what he says at all. Right before the passage you quote, he says:

Econ 101 tells us — probably correctly — that the only way to get people to change their behavior appropriately is to put a price on emissions so this cost in turn gets incorporated into everything else in a way that reflects ultimate environmental impacts.

He is saying that if there was a price put on emissions, it would be reflected in things like the price of food imported from far off.

Tristan April 16, 2010 at 4:52 pm

I see, I actually misread that passage – I had just read his talk about the success of auto emissions curtailing and I thought he was speaking in present tense, rather than hypothetically.

Milan April 16, 2010 at 4:59 pm

Also, for the benefit of those who haven’t taken courses in economics, it might be worthwhile to put more effort into defining terms that are unfamiliar to educated laypeople, such as ‘negative externalities’ or ‘perfect information.’

People have rightly pointed out that there are barriers to accessibility both on my site and on this one, which weaken their ability to be influential and compelling to most audiences.

Milan April 16, 2010 at 5:03 pm

Regarding this site in general:

Some section headings on long posts might also help people keep track of them better, while avoiding the creation of giant blocks of text that intimidate people and put them off. Despite being very interested in climate ethics, I take one look at posts on the Climate Ethics blog and then generally file them away for a time when I will have more time to concentrate, which usually never comes.

Adding some Creative Commons photos might also help us make this site look more engaging and less intimidating.

Milan April 16, 2010 at 5:05 pm

As for Krugman’s views on politics, I think he assumes that our current political system will basically be able to deal with this problem, without major changes to its structure or function. It is just a matter of realizing that the cost of mitigating climate change is much lower than the costs of letting it run unchecked.

The question of just how much political change is really needed is one that we have come back to again and again.

Tristan April 16, 2010 at 5:46 pm

I altered my post to address my mis-reading.

“The question of just how much political change is really needed is one that we have come back to again and again.”

It’s a question we have to turn to again and again, until we figure out what to do, and then start doing it. And then, we’ll need to turn back to it because we will have gotten it wrong.

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