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Tuesday, April 22, 2008

Hopelessness, Starring Paul Krugman as Thomas Malthus

It’s easy to get depressed about the economy these days. But there’s also the risk of going overboard, and falling into the abyss of hopelessness.

New York Times columnist Paul Krugman flirts with just such depression. Krugman does his best early 21st century impression of 19th century doom-and-gloomer Thomas Malthus in an April 21 column titled “Running Out of Planet to Exploit.”

Malthus saw a growing population outstripping the ability to feed that population. The results would not be pretty.

Malthus, of course, has been proven wrong time and again. Yet, his influence persists.

Krugman wrote:

But this time may be different: concerns about what happens when an ever-growing world economy pushes up against the limits of a finite planet ring truer now than they did in the 1970s.
For one thing, I don’t expect growth in China to slow sharply anytime soon. That’s a big contrast with what happened in the 1970s, when growth in Japan and Europe, the emerging economies of the time, downshifted — and thereby took a lot of pressure off the world’s resources.

Meanwhile, resources are getting harder to find. Big oil discoveries, in particular, have become few and far between, and in the last few years oil production from new sources has been barely enough to offset declining production from established sources.

And the bad weather hitting agricultural production this time is starting to look more fundamental and permanent than El Niño and La Niña, which disrupted crops 35 years ago. Australia, in particular, is now in the 10th year of a drought that looks more and more like a long-term manifestation of climate change.

Suppose that we really are running up against global limits. What does it mean?

Blah, blah, blah – it’s the same old Malthusian drivel.

Besides the various points he gets wrong on energy discoveries, the weather and economic growth, Krugman misses two major issues. First, human beings, working under the right incentives, are an innovative bunch. We keep coming up with new ideas and technologies that improve life, and there is no reason to doubt that this will not happen on the energy front. Second, Krugman talks about speculators and rising demand, but fails to note government’s role in restraining energy supplies. Just in the United States, massive swaths of energy in places like ANWR and off shore are placed off limits by government decree, for example. He also misses the role that inflationary monetary policy, both during the 1970s and today, plays in driving up energy prices.

In the end, Krugman has little use for the free market. That’s too bad because it seems to leave him on the edge of hopelessness.

When government reduces or eliminates unnecessary, costly taxes, regulations and restrictions on energy exploration, development and production; protects private property; maintains price stability; and allows price and profit signals in the marketplace to function, then entrepreneurs, investors, businesses and consumers can respond accordingly. Consumers have incentives to conserve, while producers have incentives to expand supply, invent and innovate.

The market works, despite the melancholy reflections of Malthus and Krugman.

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