Krugman v Samuelson on Green

Krugman: We Need Green Investments

In today’s NYT, Nobel Laureate Paul Krugman weighs in on climate change with the terse observation that “just as denials that climate change is happening are junk science, predictions of economic disaster if we try to do anything about climate change are junk economics.”

“Right now, the biggest problem facing our economy is plunging business investment. Businesses see no reason to invest, since they’re awash in excess capacity, thanks to the housing bust and weak consumer demand.”  Krugman outlines how a commitment to greenhouse gas reduction would give businesses a reason to invest in new equipment and facilities even in the face of excess capacity.

He concludes, “given the current state of the economy, that’s just what the doctor ordered.”

Samuelson: Re-run Your Scenarios

On the other side, reporter, author and Washington Post columnist Robert Samuelson says “The trouble is that these models embody wildly unrealistic assumptions: There are no business cycles; the economy is always at “full employment”; strong growth is assumed, based on past growth rates; the economy automatically accommodates major changes — if fossil fuel prices rise (as they would under anti-global-warming laws), consumers quickly use less and new supplies of “clean energy” magically materialize.”

Writing Prompts:  Financial Services, Environmental

• What’s more important, getting started on a global climate change or getting the right global environmental policy in place?
• Krugman admits “Yes, limiting emissions would have its costs. As a card-carrying economist, I cringe when “green economy” enthusiasts insist that protecting the environment would be all gain, no pain.”  Do green enthusiasts over-state their case?
• What about Krugman’s claims on overcapacity?

Green Investments and the US Labor Market

Soon-to-be-Relic?

A new white paper released by the Economic Policy Institute (EPI) reminds that the U.S. economy lost 5.1 million jobs over the past 15 months.

With a nod to the Obama administration’s commitment to a cap and trade plan for carbon emissions, the paper warns that, nevertheless, new federal investments are needed to provide economic benefits that “go beyond the primary one of emissions reduction.”

Promising Conclusions

The EPI concludes  that a commitment of $100 billion annually in new public investments over the next decade would yield:

• Approximately $160 billion in additional output annually for the next two years, which translates  into approximately1.1 million net new jobs created.

• An increase in the relative wages of those 70% of U.S. workers without a four-year college degree by almost 0.5% each year that the increased commitment to green investments persists. While modest, this amount does represent a wage increase for high school graduates that is roughly 40% as large as the entire increase this group has seen since 1979.

• An increase of approximately 100,000 in the number of unionized jobs in the United States (even in the unlikely case that all of the jobs supported through this new spending merely displaced currently existing jobs).

Writing Prompts:  Financial, Environmental, Services, Consulting

• Respond to this EPI conclusion based on your own data and experience:  “In the short run, any investment that can be done quickly to help meet the challenges of undertaking serious carbon emissions abatement will have welcome near-term macroeconomic impacts. And over the longer-term, these investments will provide a payoff in the form of climate change mitigation, energy independence, and economic gains from energy efficiency.  In the longer run, dedicating more resources to ameliorating global climate change will actually lead to a mix of industry employment that nudges back against the forces that have generated ever-greater wage inequality for most of the past 30 years.”
• Support or refute this EPI claim: “Each dollar of infrastructure investment—broadly defined—provides on net about $1.59 in additional economic growth, making it about 33% more effective than generic tax cuts and literally 10-15 times more effective than most business tax cuts. In short, infrastructure spending, including ‘green’ investments, is about as good economic stimulus as there is.”
• This week the cap and trade debate drew comparisons to the earlier Acid Rain Trading Program, which was established in 1990 under the Clean Air Act.  The administration said it “delivered huge benefits—to the tune of $120 billion a year—with an annual cost of only $3 billion a year. The acid rain program is a trading system comparable to a carbon cap-and-trade program.”  If you were in business during that time, reflect on the similarities and differences between the Acid Rain Trading Program and cap and trade.
• A new project of the Sierra Club, National Resource Defense Council and others, called “The Reality Coalition,” takes on the premise that there is such a thing as clean coal.  Is there such a thing as “clean coal”?
• Reflect on how the administration’s proposed Green Investments and cap and trade plans would directly affect your business or that of your customers.