Krugman Unwittingly Compliments Free Market Conservatives
Tags Corporate WelfareFree MarketsOther Schools of Thought
In a recent article, New York Times columnist Paul Krugman was aghast at the draft memo outlining a Trump Administration proposal to subsidize nuclear and coal-fired power plants because of their superior resilience in the face of human or natural disasters. As someone who endorses actual top-down government bans on new coal plants, Krugman obviously opposes the plan. But he couldn’t just say that; instead, Krugman had to argue that the proposal reveals what hypocrites the free-market conservatives have been all along. Yet ironically, Krugman’s link shows that it is Trump’s own appointees who blocked Energy Secretary Perry’s earlier proposal and may do so again. And as Krugman’s own previous articles demonstrate, it is Krugman and his progressive allies who disregard their own official principles when convenient.
Krugman Takes Conservatives Out to the Woodshed
In order to appreciate the irony and hypocrisy of Krugman’s column, we need to first sample his style and tone. The following block quotation conveys the gist of his recent article:
Over the past 40 years or so conservatives have become ever more strident in their attacks on environmental protection. They questioned the science; they insisted that any attempt to limit emissions would greatly damage economic growth; they denounced government intervention and declared the sanctity of free markets…
And now all that talk about free markets is revealed as the sham it always was.
[C]oal-fired power became uneconomical. Instead of building new plants, we’re retiring old ones.
Partly this was the result of cheap natural gas thanks to fracking. Increasingly, however, we’re looking at the effects of the technological revolution in renewables…
So is the Trump administration accepting this market verdict? Of course not: as with trade, it’s abusing powers granted to defend national security on behalf of destructive policies that have nothing to do with security. In this case, it’s planning to force clean energy to subsidize dirty energy.
In any case, it’s yet another demonstration of the pervasive bad faith of the conservative movement. Nothing they said about their reasons for opposing climate policy were sincere, and now they’re perfectly willing to ditch all their supposed principles to keep the coal fires burning. [Krugman, bold added.]
And there you have it: Conservatives talk a good game about free markets when they oppose federal subsidies for renewables, but—alleges Krugman—all that faith in laissez-faire goes out the window when it comes to subsidizing coal.
Krugman’s Own Link Refutes His Entire Case
There’s just one awkward little fact in Krugman’s demonstration of conservative perfidy. (Incidentally, to avoid confusion: I personally am a libertarian, but I am defending the honor of free-market conservatism from Krugman’s botched hatchet job.) In his block quotation above, you’ll see that he embedded a hyperlink on the phrase “force clean energy to subsidize dirty energy,” so that his readers would know the news hook that was the context for his tirade.
Well look what happens if you actually call Krugman’s bluff and click on the link:
It would be hard to come up with a better refutation of Krugman’s thesis than the very link he himself gave to make his point.
Now look, it would be one thing if I could find, say, some Cato scholar (or one from the Institute for Energy Research, for that matter) who wrote a quiet blog post criticizing all federal subsidies to energy producers. Krugman might be able to shoot back that such weak protest had no influence, and that the real powerbrokers didn’t care about free-market principles.
Yet that’s not what we’re talking about here. Earlier this year the Federal Energy Regulatory Commission (FERC)—staffed with Trump Administration appointees—nixed Secretary Perry’s earlier proposal to support nuclear and coal-fired plants, because it ran afoul of their market philosophy, and they saw doing so to be outside their purview. And now the very article Krugman cites in his favor, is telling us that these same Trump appointees might stand in the way of the latest plan.
Please don’t misunderstand: I’m not claiming that all self-proclaimed conservatives are paragons of philosophical consistency. (For example, we at IER have criticized the Renewable Fuel Standard implemented during the presidency of the Texas oil man, Republican George W. Bush.) All I’m pointing out is that Krugman cited a news story as “evidence” for his claim that, if anything, proved the exact opposite of his thesis.
After all, nobody ever thought the eclectic Donald Trump himself was a dogmatic disciple of Milton Friedman. During the presidential campaign, Krugman actually wrote a column entitled “Trump Is Right on Economics”(!), and applauded the populist billionaire for being willing to deviate from conservative economic orthodoxy. So on this score, Krugman has utterly painted himself into a corner.
Krugman and the Democrats Are the Unprincipled Ones
To make the situation even more ironic, I can use Krugman’s own past columns to show that his accusations against conservatives apply far more to himself and the Democratic Party in general. For example, when reviewing William Nordhaus’s book that made the case for a carbon tax being able to accomplish greenhouse gas emissions reductions in the most efficient manner, Krugman wrote that “it would be very hard to set rules” to attack emissions correctly on the various margins, and went on to admit:
“So carbon pricing, says Nordhaus, is the way to go. And I, of course, agree—they’d probably revoke my economist card if I didn’t” (bold added).
Now the innocent reader might have thought the above admission—which Krugman admits is something so elementary that his status as a professional economist depends on it—would mean that Krugman would oppose top-down federal controls on the energy sector, to pick specific winners and losers. But nope, of course not. In his review Krugman continues:
Nonetheless, the message I took from [Nordhaus’s] book was that direct action to regulate emissions from electricity generation would be a surprisingly good substitute for carbon pricing—not as good, but not bad.
And this conclusion becomes especially interesting given the current legal and political situation in the United States, where nothing like a carbon-pricing scheme has a chance of getting through Congress at least until or unless Democrats regain control of both houses, whereas the Environmental Protection Agency has asserted its right and duty to regulate power plant emissions, and has already introduced rules that will probably prevent the construction of any new coal-fired plants. Taking on the existing plants is going to be much tougher and more controversial, but looks for the moment like a more feasible path than carbon pricing. [Krugman, bold added.]
So it seems that if anyone in the climate change policy debate doesn’t stick to what his own economic training teaches him, it’s Paul Krugman, not free-market conservatives.
For another example, consider this: Krugman has written repeatedly that the fate of Earth itself is in jeopardy because of the threat of greenhouse gas emissions; he once wrote that Trump’s personality itself might wreck the planet. You might think, then, that Krugman would say of this latest proposal, “I strongly object to subsidizing coal-fired plants, but I totally endorse subsidizing zero-emission nuclear energy, as it is the only plausible way that our grandchildren can be saved.”
And yet, the innocent reader of Krugman’s latest column wouldn’t even know the Trump proposal include snuclear power; Krugman just talks about coal and “dirty energy.” Why, it almost makes you think Krugman doesn’t really mean it when he warns that the planet is at stake, and that his apocalyptic rhetoric was just a scare tactic to get the vote out for Hillary.
Republicans Versus Democrats
But what about the Democratic Party in general? Surely they are more principled, with a coherent worldview that spits out the ideal policy in a consistent way? Well no, not according to Paul Krugman, who wrote in May 2017:
The Democratic Party is a coalition of interest groups, with some shared views but also a lot of conflicts, and politicians get ahead through their success in striking compromises and finding acceptable solutions.
The G.O.P., by contrast, is one branch of a monolithic structure, movement conservatism, with a rigid ideology— tax cuts for the rich above all else. [Krugman, bold added.]
And there you have it, right from the horse’s mouth. The GOP is at least capable of being hypocrites on their supposed conservative principles…because they actually have a set of principles. In contrast, Krugman proudly declares that the Democratic Party is a coalition of interest groups, without a unifying philosophy or worldview. (If you’re a member of the Democratic Party and take offense at this statement, please realize I’m just quoting Paul Krugman’s view of your organization.)
The Draft Memo’s Proposal
Regarding the latest proposed subsidy to nuclear and coal-fired plants, we don’t get much of an actual argument from Krugman. Indeed, except for his throwaway remark about the Trump Administration “abusing powers granted to defend national security on behalf of destructive policies that have nothing to do with security,” Krugman doesn’t even bother telling his readers what the rationale is.
For those who are more curious than Krugman, Bloomberg has posted a draft memo of the considerations behind the proposal. (Obviously in the present post I am commenting on the contents of the draft; the details might shift over time.) The idea is that the nation’s electrical grid is growing increasingly vulnerable to cyber and physical attacks, in addition to the constant threat of natural disasters. In this context, the memo argues, nuclear and coal-fired plants provide the most resilient sources to get the grid back up and running, because even natural gas plants rely on thousands of miles of pipelines that could be interrupted.
In light of the outrage concerning the tragic fate of the Puerto Ricans in the wake of Hurricane Maria, it’s not outlandish for the Trump Administration to be worrying about the security of the electrical grid. (On that score, Krugman was quick to blame “Trumpie” for an outbreak of cholera before retracting the claim as baseless.)
Now to be clear: Especially as a matter of principle and not setting a precedent, I do not agree with the policy of forcing utilities to buy electricity from power plants, whether they are wind, solar, nuclear, or coal, and whether the rationale is to reduce CO2emissions or to increase resiliency. But when it comes to the climate change debate, I would at least address the actual case of the other side, whereas Krugman can’t even be bothered to do that in the current situation.
In a genuinely free market, we could leave experts in the private sector to evaluate the risks of terrorism and other threats, and decide whether (say) the normal cost savings from a less resilient energy source outweighed the increased vulnerability. There is no reason that government officials can make such judgments better than investors with their own money on the line.
However, there is a giant asterisk here on this glib argument, which makes the policy conclusion not an open-and-shut case: We don’t have a free market in energy. In particular, suppose there were an attack that disrupted natural gas pipelines, so that only nuclear and coal-fired plants were available to pick up the slack. (Wind and solar are still not ready for prime-time.) Now in a free market, the sharp reduction in supply of electricity would lead to a huge spike in the price. Then those investors who had themselves “subsidized” the nuclear and coal-fired plants all along, would be rewarded for their farsightedness and awareness of the risks, and would earn large returns until the energy infrastructure could be repaired.
Yet that’s not how things would play out under our current system, in which utilities are heavily regulated. In particular, in the wake of an attack regulators wouldn’t let the operational power plants jack up the price of electricity—people (including the Democratic Party and Paul Krugman) would flip out over such “price gouging.”
And so we see that the standard methods by which a genuinely free market would handle all of these contingencies—thus obviating the need for a federal subsidy—would be stymied by pre-existing government regulation. Again, my own position is that it is a very dangerous path to go down, if one wants to justify further government intervention because of prior government intervention, but I’m pointing out that the situation is far more nuanced than Krugman’s simple tale of corruption. And to reiterate, this whole episode if anything shows how much more principled “movement conservatism” is than anything on Krugman’s side of the issues.
Originally published at the Institute for Energy Research
Robert P. Murphy is a Senior Fellow with the Mises Institute. He is the author of many books. His latest is Contra Krugman: Smashing the Errors of America's Most Famous Keynesian. His other works include Chaos Theory, Lessons for the Young Economist, and Choice: Cooperation, Enterprise, and Human Action (Independent Institute, 2015) which is a modern distillation of the essentials of Mises's thought for the layperson. Murphy is co-host, with Tom Woods, of the popular podcast Contra Krugman, which is a weekly refutation of Paul Krugman's New York Times column. He is also host of The Bob Murphy Show.