Natural Born (Economy) Killers

When it comes to the use of certain kinds of fuels, myths abound and especially myths created and nurtured by Progressives in academe, government, and the media. Given that Paul Krugman is a card-carrying Progressive, one might expect him to propagate such myths, and he does in his usual Pavlovian style.

Some months ago, he claimed that the use of oil and coal creates such huge negative externalities that the very use of these fuels actually destroys overall wealth. In other words, according to Krugman, if we stopped using coal and oil, we would be wealthier than we are now, our economy more productive, and we would be healthier. Granted, that might sell in the salons of the Progressives, but if one steps back and applies simple logic to what he is saying, the outcome might be different.

(One is reminded of Sen. Harry Reid's "Oil makes us sick. Coal makes us sick," line a few years back. Reid makes us sick.)

In his recent column, Krugman makes the claim that Republicans claim that if the Obama administration were to allow more drilling, the economy would boom. He writes:

...Mitt Romney claims that gasoline prices are high not because of saber-rattling over Iran, but because President Obama won’t allow unrestricted drilling in the Gulf of Mexico and the Arctic National Wildlife Refuge. Meanwhile, Stephen Moore of The Wall Street Journal tells readers that America as a whole could have a jobs boom, just like North Dakota, if only the environmentalists would get out of the way.

Since I am not following the political speeches by the Republicans, I don't know if Romney has made such claims or not, and I have no idea of Moore is saying what Krugman says he is. (Yes, I have reason to doubt the veracity of Krugman's claims, given that the guy has told us that the late 1970s were a golden age of the American economy, that Teddy Kennedy, the authors of a lot of deregulation, actually were conservative Republicans, and that World War II brought prosperity to America.)

Now, if Romney and Moore actually said those things and in the context of which Krugman makes his claims, then I would agree in part with Krugman. Even a much larger energy boom (with coal, oil, and natural gas) than what we see now would not lower unemployment levels across the country by all that much, but certainly we would be better off economically than we are now.

Unfortunately, Krugman makes two major errors involving simple opportunity cost, neither of which surprise me, given that Keynesians want us to claim that in a liquidity trap, the opportunity cost of using factors of production is near-zero (yet, those factors are well-paid when a government "stimulus" magically brings them to employment).

The first is something that Krugman has ignored throughout his writings on energy: the rapid expansion of the dollar. Oil worldwide is priced in U.S. dollars, and when the Federal Reserve System "fights" the downturn by showering the world with that money, one should expect oil prices to rise regardless of how much turmoil there is in the Middle East.

Yes, the saber-rattling HAS made oil markets more unstable and more volatile, but when Krugman declares that the two-ton elephant in the living room really is a tea cozy, he is not being honest. For that matter, I find it interesting that an economist of Krugman's stature is claiming that supply issues matter in oil but don't matter in money.

Krugman's second problem comes with the following statement:

And this tells us that giving the oil companies carte blanche isn’t a serious jobs program. Put it this way: Employment in oil and gas extraction has risen more than 50 percent since the middle of the last decade, but that amounts to only 70,000 jobs, around one-twentieth of 1 percent of total U.S. employment. So the idea that drill, baby, drill can cure our jobs deficit is basically a joke.

Why, then, are Republicans pretending otherwise? Part of the answer is that the party is rewarding its benefactors: the oil and gas industry doesn’t create many jobs, but it does spend a lot of money on lobbying and campaign contributions. The rest of the answer is simply the fact that conservatives have no other job-creation ideas to offer.

The impact of ANY industry is not simply the number of jobs that are directly created within that industry. Does Krugman argue that agriculture is insignificant in this country because only about two percent of the population is involved directly in farming? For that matter, he recently argued that higher education is extremely vital to our society, yet the number of people employed in that field is tiny.

No, what he is saying is that he does not like the energy industries, so he is free to apply different standards to them than he does elsewhere. That is not economic analysis; it is political hackery, period.

Krugman's toxic environmentalism

Over the past several years, Paul Krugman has become extremely predictable in his columns. First, the mantra is, "Democrats good, Republicans bad," as though a decorated academic economist should have such a childish view of the world. (Anyone who disagrees with the Great One, according to Krugman, does so out of malice toward anything that is good.)

In economics, he tells us that government spending is the cure-all for all ills, and he has endorsed what essentially is a money-printing scheme by calling for the Fed to purchase U.S. Government paper directly on the primary market. (He cleverly claims that we are mistaken about "money printing," since the Fed mostly expands bank reserves. If the Fed were to directly monetize federal debt, as Krugman recommends, this WOULD be real-live printing that essentially would be no different than what has been done in places like Argentina and Bolivia.)

And then there is environmentalism. In his recent column, Krugman again presents his environmental views, which pretty much can be contained in the following statements:

• Any statistics that the Environmental Protection Agency gives us regarding costs and benefits of new environmental regulations always are true, at least when Democrats control the White House;

• All fossil fuels are evil and burning them always gives us net costs. There can be no exceptions to this viewpoint;

• All government environmental regulations are good and necessary and anyone who questions them does so ONLY because he or she wants others to suffer and die. There can be no exceptions to this viewpoint.

Krugman's latest salvo deals with the new EPA standards for mercury and other toxins released by coal-fired power plants. Obviously, mercury is bad when absorbed by humans (all of us agree on that), so anyone who might question the latest from Obama's environmental chief, Lisa Jackson, does so because he or she wants children to suffer from mercury poisoning, or at least that is what Krugman is saying.

However, Krugman claims, don't take his word for it; no, the numbers, according to the EPA, tell the story:

The new rules would also have the effect of reducing fine particle pollution, which is a known source of many health problems, from asthma to heart attacks. In fact, the benefits of reduced fine particle pollution account for most of the quantifiable gains from the new rules. The key word here is “quantifiable”: E.P.A.’s cost-benefit analysis only considers one benefit of mercury regulation, the reduced loss in future wages for children whose I.Q.’s are damaged by eating fish caught by freshwater anglers. There are without doubt many other benefits to cutting mercury emissions, but at this point the agency doesn’t know how to put a dollar figure on those benefits.

Even so, the payoff to the new rules is huge: up to $90 billion a year in benefits compared with around $10 billion a year of costs in the form of slightly higher electricity prices. This is, as David Roberts of Grist says, a very big deal.

Actually, the cost that EPA gives is about $11 billion a year, although I will say that EPA is notorious for underestimating the costs and overestimating benefits. In this one, Krugman repeats the claim that just the "quantifiable" numbers regarding supposed gained future wages from children that won't suffer from mercury poisoning is an astounding $90 billion per year. Wow. One only can wonder at what kind of methodology the EPA used to come up with this fantastic figure.

First, the agency claims it KNOWS the future IQs of American children before and after the regulations. Anyone who believes this deserves to be sold the Brooklyn Bridge. However, it gets better. Not only does EPA know IQs, but it also claims to know exactly how much money these smarter children are going to make.

This is pure nonsense, for no one, no statistician, no economist, no biologist, no one can know what these numbers were, even if the underlying premise were true, that children were going to be smarter in the future because there will be less mercury in fish. That an academic economist is quick to showcase the numbers that have been politically-created says more about what Krugman is willing to swallow than the accuracy of these numbers themselves.

I can tell readers that I had my own experience with the EPA and its magic numbers. In 1991, I was doing research for a paper on the EPA and the 1990 Clean Air Act Amendments and came across a claim by the EPA that acid rain was killing more than 100,000 Americans each year, so that the proposed legislation would then effectively save more than 100,000 lives annually.

The late Warren Brookes also was researching those numbers, and he asked EPA officials where they had found such astounding numbers, and he was told that they came from researchers at the American Lung Association. Brookes then asked the ALA how it got those numbers, and ALA officials told him that they came from the EPA.

That's right; numbers that environmentalists were repeating in the media, and the media was repeating to Americans, had no official source at all. No one had done any such research; the numbers were created from whole cloth, but that did not deter the EPA and its allies from trumpeting them around the country.

Without looking into the methodology, all I can say is that those mercury numbers are highly suspicious, and the notion that we would be looking at $90 billion of ANNUAL benefits is utterly fanciful, I believe.

Second, let us understand that the $10-$11 billion numbers also are well understated. The reason is that most of the costs will be applied to older power plants that do not have the official command-and-control devices that newer plants have, so the costs of compliance for these regulations will be concentrated upon those plants, not across the electric power industry as a whole. The correct application of these numbers is not to compare them to all electricity revenues, but rather the revenues that come from the electricity produced at the plants that will be affected.

Most likely, many of those plants would not produce enough revenues to justify the huge costs of compliance, so they would be shut down, and this is EXACTLY what Obama, Jackson, and Krugman want to happen. We are speaking of large portions of the U.S. electricity grid that come from the burning of "demon coal," and there is nothing more than Obama would love to see than Americans to face blackouts, brownouts, and soaring costs for electricity. (That's right; I believe Obama wants this to happen, as he is perhaps the most radical environmentalist -- at least in the Algore category -- to occupy the White House.)

What the EPA and Krugman don't include in the cost category is what happens when people have no electricity at all or are forced to pay substantially more for it. Electricity in a modern society and a modern economy is not a luxury; it is a necessity, and the government's attempts to deprive us of it only will wreak more economic havoc.

Third, what is an EPA directive on attacking "brown energy" without an appeal to the Broken Window Fallacy? Krugman's columns are full of the stuff, and, according to the EPA, this newest directive won't destroy jobs. No, it will create them. The following article notes:

American Electric, based in Columbus, Ohio, said in June that proposed EPA rules would force it to close parts or all of 11 power plants, eliminating 600 jobs. Complying with the rules would cost $8 billion, most of it on cleaning up or shutting plants that lack pollution-control equipment, it said.

The EPA says the rule would save lives and create 9,000 more jobs than would be lost, as power plants invest billions of dollars to install pollution scrubbing systems or build cleaner natural gas plants. It estimates the regulation could prevent 17,000 premature deaths from toxic emissions. (Emphasis mine)

Of course, the EPA has plenty of propagandists in both academe and the media to trumpet this nonsense that these new regulations will create "net jobs," not to mention net wealth. (George Soros is a major funder of Media Matters, and where would a vast network of lies be without his guiding hand?)

Yes, what Krugman and others want us to believe is that if we are forced to use more resources to create LESS wealth, that somehow makes us wealthier and creates more employment opportunities and, thus, creates more income streams for individuals. (Where is that bridge again?)

Krugman's column itself operates on the assumption that mercury is an unregulated toxin, as though there are no rules at all governing the release of mercury into the environment. That clearly is not true. First, mercury discharges into American waterways have been substantially reduced in the past four decades. Yes, I know, Krugman is speaking of mercury now that might enter the water via atmospheric mercury discharges, but nonetheless important strides have been made in that area.

Second, the whole issue of atmospheric discharges is fraught with false numbers. Pat Moffitt and I co-authored an article in Regulation that looks at how environmental groups, along with the EPA, have falsified numbers and claims about nitrogen being released via burning of coal. The misconduct and outright lies we uncovered were massive, and I have no doubt that the EPA is doing the same thing in regards to mercury and burning of coal.

In the end, we see a uniting of environmentalists and Keynesians claiming that wealth destruction is good for the economy, and that all we need to do is have less electricity -- and more freshly-printed money. This is a recipe for disaster.

I need to add that Paul Krugman, along with people like Ben Bernanke and Tim Geithner, are high-IQ people who apparently have not had their brains addled by mercury. Nonetheless, I cannot imagine anyone who is doing more damage to the economies around the world than these Really Intelligent Men who want us to believe that wealth destruction really is wealth creation. Maybe a few doses of mercury might have done them some good.

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I also am reporting very sad news about the recent death of Siobhan Reynolds, the most important voice against the government's war on painkillers, doctors who prescribe them, and those who suffer from chronic pain. I have posted something here.

This is more than just the loss of an ideological partner. Siobhan was my friend and she and her son recently visited us here in Finzel. I am going to miss her very, very much.

Do regulations always work as the authors claim?

One of the most enduring of Holy Doctrines from the Progressive Era is that "experts" employed by the government are wise and discerning, and new regulations, be they for finance or the environment, always work exactly as they are supposed to do. Thus, any new edict from the Environmental Protection Agency will do exactly as it says, creating a cleaner country and reducing pollution and negative health effects.

In a recent blog post, Paul Krugman continues this Progressive tradition of bowing to regulation in an attack on recent remarks by Republican Congressman Paul Ryan. First, Ryan's quote (responding to an attack by President Obama):

Just last week, the President told a crowd in North Carolina that Republicans are in favor of, quote, “dirtier air, dirtier water, and less people with health insurance.” Can you think of a pettier way to describe sincere disagreements between the two parties on regulation and health care?

True to form, Krugman responds by declaring that Obama MUST be telling the truth because, after all, according to The Great One, Obama's remarks are "a literal description of GOP proposals to weaken environmental regulation and repeal the Affordable Care Act".

One has to understand a few things about Krugman's statement. First, does he consider ALL environmental regulation ALWAYS to be good? For example, if the EPA tomorrow were to ban all private automobiles, would that in the end lead to a cleaner -- or dirtier -- environment?

Regarding ObamaCare, is he claiming that this law actually will result in MORE people receiving medical care? I don't see how that is possible, given that doctors will be under more scrutiny than ever, both with regulations AND criminal penalties, and they will spend more time than ever doing paperwork. (Talk to someone in a medical office and that person will give you a lot of information on just how much extra work government regulations create -- and labor is a scarce thing.)

Furthermore, what good is "access to insurance" if one cannot see a doctor? In some places in Canada, they literally have lotteries to see who is able to see a physician, which means the medical care is "free" (not paid directly, but indirectly through taxes) but for many people, unavailable.

As for environmental regulation, one of my areas of specialization has been environmental/resource economics, and one of my mentors, Bruce Yandle, has done a lot of research on the ACTUAL effects of environmental regulation. This point is important, because, unlike Krugman, Yandle has sought out to find out what really happens with regulation, as opposed to Krugman, who claims simply that a regulation always accomplishes its purpose -- if the correct party is in power.

Yandle always taught us to look beyond the rhetoric and the claims and examine the rules and the results. In a recent article in Regulation, Patrick Moffitt and I have done just that in a study of the new environmental regulations for Barnegat Bay in New Jersey.

Interested readers can look at the piece in its entirety, but from what we have found, the new regulations and restrictions are coming about because the EPA and the New Jersey Department of Environmental Regulation (where Lisa Jackson was before she became Obama's choice to head the EPA) are targeting "nutrients" (and especially nitrogen) have misdiagnosed the cause of the bay's demise. This should not be surprising, given that much of so-called environmental science today is utterly politicized.

In fact, both Moffitt and I are convinced that the directives of the EPA and the NJDEP will make the waters of Barnegat Bay MORE polluted and less productive than if these agencies had done nothing. I know, that is politically incorrect.

I found out just how politicized it was 20 years ago when I researched the EPA and acid rain, and it was made clear then and is even more so now that when the EPA funds scientific research, it EXPECTS results that are in line with its political leanings. I'm not kidding nor exaggerating, and have talked to EPA scientists who say that if good research contradicts the EPA narrative, then the research is ignored or suppressed, and those that insist on doing it find their careers in jeopardy.

So, instead of examining the results of regulation, Krugman simply looks at the so-called intentions of the framers of the rules, and then claims that anyone who disagrees with the regulations does so because he or she wants people to get sick and die. But, then, Krugman says the same thing about anyone who thinks the Keynesian narrative is wrong; the only people, according to Krugman, who disagree with Keynesian analysis are those who want others to lose their jobs, their homes, and maybe their lives.