Krugman on Climate: The Good

Paul Krugman’s essay in tomorrow’s New York Times Magazine is generating a lot of buzz. I like it more than most of what’s written on climate and economics these days, but I’ve still got a few reservations. I’ll write about those in a later post (whose title you should be able to guess). But first, here’s what I think Krugman gets right.

• The basics.

All the fundamental on how cap-and-trade works, why its better than command-and-control alternatives, why a perfect carbon tax only exists in theory, why cap-and-trade costs are likely to be limited, etc, are basically perfect. There’s really no need to expand.

• He focuses on risk and uncertainty as the main reason for action.

Advocates of serious action on climate have been burned for so long by people who use uncertainty as an excuse for doing nothing that they’re afraid to talk about the flipside: uncertainty about potentially catastrophic consequences is the biggest reason to act now. People talk about balancing a 2% cost of action with a 5% cost of inaction decades from now (and Krugman goes through those arguments, though see the Stern Review for Exhibit A), but it’s hard to see how stakes like that could justify making climate change a national priority. (Try to think of all the other things that could swing GDP by 5% by the end of the century; it’s a long list.) Krugman makes a far more important point: the costs of serious action are pretty easy to bound, but the potential consequences of not acting are not. That’s a great case for getting moving. It’s also robust to controversy over the finer details of climate science, something that if people didn’t appreciate a year ago, they should now.

• He doesn’t play into the green jobs / free lunch theme.

A climate economics article by a Democrat that doesn’t talk about green jobs or win-win-win-win-win solutions! (Yeah, I’m talking about you, Tom Friedman, but you’re far from alone.) Krugman doesn’t pretend that cap-and-trade will solve our oil problems, yield net job gains, or create extra GDP growth, because none of those claims can be supported by serious economic studies. That’s not to say that none of that is possible – it’s just that we don’t have models that do a good enough job of combining the micro aspects of the energy world with macro constraints on the economy to resolve most of this one way or the other. Krugman admirably sticks to what we know, rather than endorsing speculations that fit with his bottom line.

In the next installment, I’ll get to the bad, and maybe the ugly. So stay tuned for some thoughts in carbon tariffs, international action, and perhaps a few other things.