Paul Krugman and the Limits of Hubris
October 10, 2014
Economist Paul Krugman evidently feels irked and irritated by the notion that there might be limits to economic expansion: he has followed up his New York Times op-ed of September 18 (“Errors and Emissions,” to which I replied here) with a new piece titled “Slow Steaming and the Supposed Limits to Growth. It’s interesting to examine his latest assertions and arguments one by one, as they reveal a great deal about how economists think, and why they tend to disregard physical science when it comes to questions about finite resources and the possibility of infinite economic growth on a small planet.
Mr. Krugman begins by noting: “We seem to be having a moment in which three groups with very different agendas—anti-environmentalist conservatives, anti-capitalist people on the left, and hard scientists who think they are smarter than economists—have formed an unholy alliance on behalf of the proposition that reducing greenhouse gas emissions is incompatible with growing real GDP.” He omits mentioning a fourth group—ecological economists like Herman Daly, who take the position that, in the real world, the laws of physics and ecological limits trump economic theory. For Krugman, only mainstream economists are to be trusted; everybody else is prone to misconceptions. He seems perplexed why so many people are coming to the same mistaken conclusion from different directions. Could it be that they are all recognizing an unavoidable physical reality?
Next Mr. Krugman fires a volley at physicist Mark Buchanan’s recent essay, Economists are blind to the limits of growth. Back in the 1970s, Krugman’s mentor, Bill Nordhaus, led mainstream economists in denouncing the classic book Limits to Growth. Unfortunately for Krugman, Nordhaus’s attack looks in retrospect like mere hand-waving: analysis of relevant data from the last 40 years shows that the most pessimistic scenario from the 1972 Limits to Growth study is tracking reality quite closely.
Mr. Buchanan’s pithy piece zeros in on energy as the most important limit to endless economic expansion. But even though he carefully explains that we are getting more efficient at using energy (and balances that recognition with evidence that, despite this, economic growth implies using more energy overall), Mr. Krugman pretends that physicists have never heard of energy efficiency. He spends most of his op-ed explaining one instance (ocean-going freighters reducing their speed to use less fuel) as if this were proof of a new and pivotal principle that no hard scientist had previously noticed. Are there instances where we can use less energy while achieving the same effect? Of course! A better, though more shop-worn, example would be lighting: as a result of the introduction of compact fluorescent and LED lights, we’ve seen dramatic reductions in the amount of energy used to banish darkness from cities and homes.
But Mr. Krugman doesn’t follow through on his argument. If he is implying that there are no limits to growth because energy use can be made more efficient, then logically he must also argue that energy efficiency can be improved endlessly—at least to the point at which no energy at all is needed in order to run the economy (I say “at least,” because presumably even then further growth would be needed in order to prove the non-existence of limits). But of course that’s pure fantasy, as every physicist knows. Energy is defined as the ability to do work, and the ability to do work is what generates GDP. Energy efficiency can often be improved, but such improvements are subject to the law of diminishing returns: the first five percent of improvement is cheap, the next five percent costs more, and so on. Perfect efficiency in any process is either impossible to achieve, or infinitely expensive (depending on how you prefer to look at it).
My guess is that if and when Mr. Krugman honestly confronts the logical impossibility of infinite growth within a finite system, and the similar impossibility of infinite improvements in energy efficiency, he will retreat to saying something along the lines of, “Yes, but even if there are theoretical limits to growth, we’re very far from reaching them, so they’re practically irrelevant for the time being.” However, once one acknowledges that there are indeed theoretical limits to expansion, one must then ask, “What would be the likely signs that we are approaching those limits?”
I’ll suggest some: overall rising energy costs (indeed, energy production consumes a larger proportion of global GDP today than it did a decade ago); falling yields of minerals per unit of energy applied to mining and refining (this is now true almost across the board, from antimony to zinc); rising environmental costs and risks from industrial processes (see “climate change”).
Mr. Krugman writes: “So where does the notion that energy is somehow special come from? Mainly, I’d say, from not thinking about concrete examples . . . because if you think about actual economic activities even briefly, it becomes obvious that there are tradeoffs that could let you produce more while using less energy.” Again, that’s a statement no one would argue with. But Krugman’s own example of energy efficiency highlights the fact that there are often hidden costs to efficiency efforts. He writes that “After 2008, when oil prices rose sharply, shipping companies . . . responded by reducing the speed of their ships. It turns out that steaming more slowly reduces fuel consumption more than proportionately to the reduction in speed.” But moving ships slower meant deploying more ships to in order move the same amount of freight—thus substituting capital and labor for energy. This strategy didn’t require the development of new technology; the shippers were “just using the same ships differently.”
In the comments to Mr. Krugman’s op-ed on the New York Times website, Ken White (one of my colleagues at Post Carbon Institute) points out that all those extra ships represent plenty of embodied energy, which was expended in extracting and refining ores and in other aspects of ship construction. When we look at many (not all) efficiency gains this way—that is, from a systems perspective—much of the advantage tends to disappear. Does the added cost of embodied energy in this case equal the energy of the fuel saved? I don’t have the data and haven’t done the calculations, but even if there are some net savings they are probably much smaller than Krugman assumes. You can substitute capital and labor for energy in some instances and up to a point, but there is literally nothing that anyone can do without some expenditure of energy. Substitution itself is subject to limits.
Mr. Krugman clearly implies that it is only mainstream economists who think about concrete examples like the one just discussed; in contrast, hard scientists deal just in airy abstractions. For physical scientists, this must be surprising news, as most of them deal with concrete examples on a daily basis.
Here are some concrete examples:
- Nearly half of Earth’s wild animals have disappeared in the last 40 years as a result of the expansion of human activities.
- The costs of oil extraction are rising at over 10 percent per year due to the depletion of conventional oilfields that yielded economy-boosting cheap energy throughout the 20th century.
- The world loses over 25 billion tons of topsoil each year as a result of industrial agriculture, and at this rate many countries will effectively face topsoil exhaustion before the end of the century.
Why is Mr. Krugman leading a crusade against the idea of environmental limits to economic growth? I believe there’s a political agenda at work here, and that it’s driven by laudable sentiments. I normally hesitate to guess at other people’s motives, but in this instance they are rather plainly implied in Krugman’s two opinion pieces cited above. He evidently is deeply concerned about climate change and wants to see humanity avert the worst likely impacts, but he believes that policy makers can never be persuaded to adopt climate protection policies if that requires reining in economic growth. He writes: “[T]here’s a lot of room to reduce emissions without killing economic growth.” Yes, there’s room. According to a study Krugman himself cited in his previous op-ed, the first 10 percent of emissions cuts can be achieved without much pain. But beyond that, they’re all at a net cost to the economy.
Like Paul Krugman, we at Post Carbon Institute are deeply concerned about climate change and want officials to adopt policies to avert it. It’s true: if informed opinion leaders pretend that full climate protection can be achieved without any real cost, politicians are more likely to sign on to available no-cost policies. But they’ll only be agreeing to weak pledges that will fail to achieve the levels of emissions cuts that are actually required. By misleading policy makers and the general public this way, we merely waste time and opportunity.
By acknowledging that climate change is a serious threat to humanity’s future, Mr. Krugman is in effect acknowledging the existence of environmental limits to economic expansion. He would probably object that climate change is merely a limit to a fossil-fueled economy, and that a renewably-energized economy could happily expand forever. But once we open the limits box and peer inside, a long series of other critical boundaries quickly comes to light.
Let’s get real. The Earth is a bounded sphere, and the human economy is an engine that extracts raw materials and produces waste. If we keep that engine’s operation within the bounds of what our planet can absorb or replenish through its normal ecosystem functions, all is well. But if the economy continues to grow year after year, at some point the planet’s systems will be overwhelmed—even if we’re using renewable energy to extract and transform raw materials. Our uses of energy and materials can be made somewhat more efficient, but only up to a point. If the Earth itself were expanding at an ever-increasing rate, perpetual economic growth would pose no problem. Yet last time I checked, the planet hadn’t gotten any bigger—while our demands upon it continue to increase.
In his latest op-ed, Mr. Krugman derides “hard scientists who think they are smarter than economists.” I can think of several snide responses to that characterization, but actually I don’t think one is required. The phrase speaks volumes about economists’ own hubris.