Tuesday, July 03, 2012

Krugman on the Green Economy

Here is a two year old piece that Paul Krugman wrote about the "green economy".  I really like 99% of the piece but it is revealing that such a skilled micro economist devotes little attention to the micro economics of climate change adaptation.

Here is his  quote.

"While there may be some benefits from a warmer climate, it seems almost certain that upheaval on this scale would make the United States, and the world as a whole, poorer than it would be otherwise. How much poorer? If ours were a preindustrial, primarily agricultural society, extreme climate change would be obviously catastrophic. But we have an advanced economy, the kind that has historically shown great ability to adapt to changed circumstances. If this sounds similar to my argument that the costs of emissions limits would be tolerable, it ought to: the same flexibility that should enable us to deal with a much higher carbon prices should also help us cope with a somewhat higher average temperature.
But there are at least two reasons to take sanguine assessments of the consequences of climate change with a grain of salt. One is that, as I have just pointed out, it’s not just a matter of having warmer weather — many of the costs of climate change are likely to result from droughts, flooding and severe storms. The other is that while modern economies may be highly adaptable, the same may not be true of ecosystems."
His own first paragraph contradicts the first point in the second paragraph.   As documented in my 2005 Restat paper, richer nations are better able to withstand losses from natural disasters. Property is damaged but many fewer lives are lost.  As a Keynesian,  Krugman should celebrate the capital destruction because this will lead to new investment and a higher  C+I+G!    For his second point to be important, he must have a story for what is the feedback loop through that ecosystem damage injures the modern urban economy.   How is New York City's health affected by ecosystem loss? It is certainly possible, but he needs a coherent hypothesis and must explain why international trade doesn't provide implicit insurance against the loss of any one ecosystem due to climate change.
Note that he spends 95% of the article on carbon mitigation and merely skims the adaptation part of the piece.   Given that the carbon mitigation piece continues to fail and global emissions continue to rise, I am hoping that more serious economists begin to focus on the micro economics of climate change adaptation.  My Climatopolis was meant to start the urban economic discussion of this point.