Krugman's On-Again, Off-Again Analysis
By David Henderson
Krugman’s bashing gets in the way of clear thinking.
In his most recent New York Times column, “Pollution and Politics,” Paul Krugman fluctuates between claiming one doesn’t need to do the analysis and actually doing the analysis. The issue: the Environmental Protection Agency’s Thanksgiving-timed proposal for substantial regulations on ozone. He briefly mentions the objections of some Republicans, writing:
Republicans went on the attack, claiming that the new rules would impose enormous costs.
So this reader, David Henderson, who is used to reading about governments actually imposing large costs, wonders: Is it true that the regulations impose large costs? One would expect, given Krugman’s attitude to Republicans, that he would reject their claim, maybe even by trying to claim that the regulations don’t impose huge costs.
But he doesn’t try to do that. Instead, Krugman writes:
There’s no reason to take these complaints seriously, at least in terms of substance.
No reason? Really? Why? But, of course, if one asks why, one is asking for a reason. And Krugman has already told us that he doesn’t need to give any stinkin’ reasons.
Still, Krugman is an economist and so in the last part of his article, he does get to costs and benefits. He writes:
In the case of the new ozone plan, the E.P.A.’s analysis suggests that, for the average American, the benefits would be more than twice the costs.
I have no idea whether the EPA’s analysis is correct. To his credit, though, Krugman does seem to understand that he needs to justify not worrying much about costs.
It’s just a strange order of argument, though, for someone who, when he wants to, can make a very solid argument. See “Ricardo’s Difficult Idea” for one of my favorite of his arguments and, indeed, one of the best pieces of economic exposition since Bastiat.
The way to understand this piece, I think, is as an attempt to dissuade people from questioning the EPA’s proposed regulations and an attempt to dissuade people from judging the EPA’s cost/benefit analysis.
That would also explain his bizarre statement of fact. In trying to explain why he thinks Republicans are against this new regulation, Krugman writes:
But the modern conservative movement insists that government is always the problem, never the solution
Krugman has to know that this is a false claim. I wish it weren’t. But conservatives, unless they have changed in the last 24 hours, are often the biggest advocates of government “solutions,” whether on drugs like marijuana and cocaine, on immigration, on terrorism, or on U.S. invasions of foreign countries, to name four off the top of my head.
I don’t want to leave this without pointing to some unintentional humor and some bad economics.
First the humor. Krugman writes:
the rich are different from you and me.
I trust that you see the humor. I’m not referring to the claims, that have spread like wildfire around the Internet, that his net worth is $2.5 million. His net worth, unless he’s a horrible saver, has to be a multiple of that. A few years ago, to be in the top 1 percent by wealth, one had to have a net worth of $8.4 million. Even if the threshold is now $10 million, I’m willing to bet that he’s above that. And even if he isn’t, and his net worth is “only” $5 million, that still makes him rich.
The bad economics:
Everyone breathes the same air, so the benefits of pollution control are more or less evenly spread across the population.
Everything we know about environmental quality says that it is a strongly normal good. That is, the amount we demand increases as our income and wealth increase. That means that the amount that wealthy people are willing to pay for environmental quality is greater than the amount non-wealthy people are willing to pay. Which means that the benefits of environmental quality to the wealthy exceed the benefits to the non-wealthy.
This doesn’t mean that the regulations are a bad idea. But it does undercut Krugman’s argument about the wealth. And he is a good enough economist that he would have noticed not only this mistake but also his other poor reasoning if his goal had been to inform and not to bash.