Thursday, October 20, 2011

Krugman: Create wealth by shutting down electric power plants

After shilling for the George Soros inspired (and partially funded) Occupy Wall Street "movement," Paul Krugman now is turning back to environmental matters. In his column, he accuses Republicans of wanting to poison and kill Americans because some of them support the use of coal-fired electric power plants. (I cannot say that I mind criticism of the Republicans -- heck, Lew Rockwell's site takes the hide off them nearly every day -- but at least the LRC people are principled and non-partisan.)

Krugman's claim is that coal-fired electric power plants do so much environmental damage that they literally destroy wealth. Citing a recent paper in American Economic Review, Krugman writes:
For it turns out that there are a number of industries inflicting environmental damage that’s worth more than the sum of the wages they pay and the profits they earn — which means, in, that they destroy value rather than creating it. High on the list, by the way, is coal-fired electricity generation, which the Mitt Romney-that-was used to stand up to.
While Krugman in this column and in a recent blog post is quick to say he is not advocating shutting down power plants, given his rhetoric and, frankly, the conclusions he is drawing, the logical response is to shut off about half of the nation's electricity grid. That's right, almost half.

To allow them to churn out electricity for another second would, in Krugman's words, "make us poorer and sicker." So, why doesn't Krugman openly say that ALL coal-fired plants should be shut down immediately? Good question. After all, if the NET RESULT of these operations is to make us "poorer and sicker," then immediate relief would make us wealthier and healthier, right?

Last month, Krugman declared on this subject:
It’s important to be clear about what this means. It does not necessarily say that we should end the use of coal-generated electricity. What it says, instead, is that consumers are paying much too low a price for coal-generated electricity, because the price they pay does not take account of the very large external costs associated with generation. If consumers did have to pay the full cost, they would use much less electricity from coal — maybe none, but that would depend on the alternatives.
That, however, makes no sense. If coal is dangerous, then even forcing more environmental regulations upon it would not make it a whit healthier and it would drain our pocketbooks and, hey, what possible damage could destroying half of our capability to produce electricity cause, anyway?

What Krugman assumes is that there is little or no wealth created by coal-fired electricity, only damage. Furthermore, he assumes either that Americans would get along just fine with blackouts and brownouts, or that we could put windmills all over the place, which also is another green fantasy.

The more I read Krugman, the more I realize that his view of the "ideal" society is a Third World country. After all, electricity in many Third World places is very scarce and expensive. Moreover, since Krugman also believes that printing money creates a "free lunch" (to use his own words from The Return of Depression Economics), he definitely would be comfortable with the "free lunches" that Third World governments create daily with their printing presses.

Having only given the AER paper a quick read, I cannot comment on it. However, it seems to me from the first reading that the authors assume that electricity really is not very important in the lives of Americans, and since they live in states where only a tiny percentage of electricity is produced via coal, shutting down the power elsewhere wouldn't affect the authors very much.

14 comments:

Mike Cheel said...

"For it turns out that there are a number of industries inflicting environmental damage that’s worth more than the sum of the wages they pay and the profits they earn — which means, in, that they destroy value rather than creating it." - Krugman

His Keynesian policies destroy value rather than creating it but he doesn't seem bothered by that.

Pete said...

When Krugman says:

It’s important to be clear about what this means. It does not necessarily say that we should end the use of coal-generated electricity. What it says, instead, is that consumers are paying much too low a price for coal-generated electricity, because the price they pay does not take account of the very large external costs associated with generation. If consumers did have to pay the full cost, they would use much less electricity from coal — maybe none, but that would depend on the alternatives.

What he is of course referring to is that he wants the government to put a tax on coal power buyers. That way, the supply of energy will decrease, and, what's even better, the government will have more taxpayer money to give to firms like Solyndra, and, what's best of all, taxpayers will have less money to spend on other things, thus decreasing profitability and employment!

Anderson, why aren't for this? Not only will a decreased supply of energy result in lower production, higher prices, and lower standard of living for Americans, but the government is the only entity that can truly allocate capital properly, by giving money to corporations that go bankrupt and thus waste resources, and who could be against decreased profitability and employment for random companies!

You're such a miserable boor. No wonder Keynesians hate you. You. Just. Won't. Play. The. Game!

Anonymous said...

"doesn’t necessarily mean that the industry should be shut down"- more weasel words from Krugman- applicable to any industry any time for any reason.

American Patriot said...

Once again Krugman proves that he is nothing but a radical leftist ideologue.
Economist,,hah, my a$$!

Dr Khan said...

@ Prof. Anderson
Did you not know that the real route to solving the sub-prime crisis was to buy houses and destroying them?
How naive of you!

William L. Anderson said...

Now, now! Be nice! Don't you know that there is no such thing as a malinvestment? There are only idle resources, so if the government throws enough money into the economy, those houses will sell, dont'cha know?

Justin said...

Question: As a non-economist, I'm wondering how anyone would possibly be able to calculate the total cost against the total benefit of electricity produced by coal-fired plants?

If there were some "wizards of smart" around capable of devising such a complex formula that would produce consistent and verifiable results, why couldn't those same geniuses just construct formulas that would tell us precisely what needed to be done to restore national prosperity?

And if these guys actually did exist, then why are we in the mess we're in now? Haven't we already tried Krugman's Miracle Economic Tonic?

Eric said...

I think you guys are reading to much into what Krugman said. He's basically arguing that coal power enjoys an unfair advantage because they are excused from paying some of their upkeep costs. Its almost like a government subsidy; since the government does not hold coal power companies responsible for their environmental and health costs, those costs are instead passed on to someone else, allowing coal companies to keep the profit.

I also think you're being disingenuous when you argue Krugman wants to shut down coal power and plunge the US into darkness. Obviously what he wants to do is give solar power companies subsidies so that they can grow and gradually replace fossil fuels. Now you may disagree with this policy, but that's the policy you should be arguing against, rather than making something up and criticizing Krugman based on it.

William L. Anderson said...

Look, this is one of the few times that Krugman actually claims to understand Opportunity Cost. He has made the claim that the opportunity cost of burning coal for electricity is so high that it destroys wealth.

Therefore, if burning coal has a higher opportunity cost than not using it, you stop using it, period. Furthermore, massive subsidies to solar and "alternative energy" companies cannot rewrite the First and Second Laws of Thermodynamics. And subsidies tend to lead to more subsidies.

I agree that not even Krugman would call for an immediate shutdown of power plants. However, his economic argument still would call for it. Furthermore, the notion that a few economists can know all of the costs associated with burning coal is ridiculous. The notion that coal is making us "poorer and sicker" but that massive cannibalization of our economy to subsidize Algorean "alternative energy" really is a joke, but the joke is on us because we are forced to give these subsidies, many of which go directly to Algore's pocket via his own "alternative energy" fund company.

Eric said...

@ William Anderson

Therefore, if burning coal has a higher opportunity cost than not using it, you stop using it, period.

I don't think Krugman is as strict a theorist as you are. Even if his economic theory leads to the conclusion that all coal power plants need to be immediately shut down, that's not what he's advocating, because he recognizes there are practical considerations. You are the one who's saying his theory is leading him to advocating shutting down coal power plants. You're putting the words in his mouth.

Furthermore, the notion that a few economists can know all of the costs associated with burning coal is ridiculous.

You admitted that you haven't read the report yourself, so you shouldn't really critique their conclusions until you have grounds to do so. Also, you seem like you're making an "experts don't really know anything" argument here, which is weird since your justification for writing this blog is based on your own expert status as an economist.

The notion that coal is making us "poorer and sicker" but that massive cannibalization of our economy to subsidize Algorean "alternative energy" really is a joke,

the main problem with this statement is the use of the word "massive." I'll let Krugman respond to you on this one:

"The amounts spent on anything remotely resembling Solyndra is a rounding error on a rounding error. It’s just not what your government does on any significant scale."

So even if there was a ten fold increase in subsidies on solar power, it would be, in Krugman's words, a rounding error on a rounding error. Furthermore, it would totally be worth it, because it would allow us to replace an energy industry with a massive opportunity cost (coal power) with one with a low opportunity cost (solar power).

William L. Anderson said...

Eric, I appreciate your comments and I realize that Krugman himself would not advocate immediate shutdown. However, he claims that the cost of electricity is so high and so wealth-destroying that the price of electricity should be jacked up with "alternatives." Does he really believe that Americans would be better off having government bureaucrats forcing Americans to freeze during the winter and bake during the summer?

He also fails to take into account the cost of subsidies that would go on forever. Krugman is wedded to the idea that the subsidies would be temporary and would be lifted as soon as the industries can be profitable on their own. (That is, when enough power plants are shut down to make high-cost "alternative and green" electricity price competitive.)

Tell me when that has happened before. Subsidized industries tend to stay subsidized because they become part of the political system. There is a reason that ADM advertises mainly during the Sunday morning news talk shows.

I just think Krugman overestimates the harm and underestimates the good effects of lower-priced electricity. Likewise, if we do what he is demanding, we will have an electricity system of a Third World country. However, since Krugman already wants a Third World tax and regulatory system, maybe he really wants the USA to become a Third World nation. That is where we are headed, or at least we will have a fate like that of Uruguay or Argentina.

ekeyra said...

Eric,

The main problem is the cannibalization of profitable industries to prop up fantasies of sustainable green energy. If they were sustainable they wouldnt need subsidies. Its possible that if and when fossil fuels start to run out their cost will go up and green energies will be cheaper to use. This, however, is a function of the free market, and not something to be left to the whims of al gore, krugman, mindless federal beauracrats or you. If people want green energy they will pay for it. Period. If they dont suck it up and stop putting guns to people's heads to make them do what you think is the "right thing".

As for your rounding error, how many families could you feed for an entire year on 500 million dollars? To you and the feds thats just pocket change, but to people who live in reality, thats a shit ton of money to wave goodbye to. And you want to increase it tenfold?!

Michael Maier said...

The difference between Austrian and Krug-ites is that nearly every Austrian out there would be perfectly willing to dispose of all government subsidies and let the market hash it all out.

Name ONE Krug-ite that says the same.

Talk about apples & oranges...

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