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.
Check out the “Krugman in Wonderland” posts here on DOB – click here
William L. Anderson is an author and an associate professor of economics at Frostburg State University in Maryland. He is also an adjunct scholar with the Mackinac Center for Public Policy as well as for the Ludwig von Mises Institute in Alabama.
Read more at “Krugman-in-Wonderland”