Gerard
Jackson
I had
several emails from greenies arguing that curbing CO2 emissions is good
economics “because it will lead to more investment and this would mean more
growth and jobs.” This is one of the nuttiest arguments for cutting CO2
emissions that the greens used in their war on cheap energy and it reveals a
staggering ignorance of economics. Nevertheless, the “usual suspects” have
mindlessly promoted it, one of them being Anatole Kaletsky, an economics
writer for the Reuters and The
International Herald Tribune and one of the crudest
Keynesians in the media today. And that is really saying something.
I
referred to Kaletsky in particular because these emails reminded me of an
outrageous article he wrote for Rupert Murdoch’s Australian1 in which he
seriously argued that severely restricting CO2 emissions would stimulate
economic growth and employment because it would, and this comment is a real
beauty, “have the effect on the world economy comparable to a large-scale
war”. This is truly Orwellian: war and destruction bring prosperity, peace
brings stagnation.
In case
anyone thinks this nonsense is held only by ignorant journalists allow me to
point to Paul Krugman who asserted that the upside of the 9/11 terrorist
attack is that it will generate an “increase in business spending2.”
Of course, it also meant an increase in government spending which he thinks
is absolutely terrific. Then we had Fred Bergsten from the Institute for
International Economics in Washington. According to this brilliant thinker
and former assistant secretary of the US Treasury the tsunami tragedy should
be a good thing for its victims, at least those that survived, because:
Like
any disaster, you get negative effects through destroying existing properties
and people’s health, but you do get a burst of new economic activity to
replace them, and, on balance, that generally turns out to be quite positive3.
It
follows from their logic that wholesale destruction leads to greater and more
advanced investments and thus raises the standard of living. This is
Keynesianism gone mad. Wholesale war leads to the wholesale destruction of
life and capital. This obviously lowers the standard of living. Does anyone
think the standard of living was higher in Germany in 1948 than in 1938?
Per
capita consumption in Britain in 1948, for example, was lower than in 19384
despite 6 years of continuous warfare — or should I say because of the
effects of 6 years of war compounded by post-war socialist policies? As Henry
Hazlitt pointed out with the example of the broken-window fallacy5,
the likes of Kaletsky, Bergsten and Krugman only concern themselves with the
immediate effect the action, they cannot see that for anything to be replaced
something must be sacrificed. Economists — real ones, that is — call this
opportunity cost.
A
competent economist will readily admit that when capital goods are destroyed
by war the standard of living must fall. Now these goods can only be replaced
from two sources: (a) Existing capital goods must be withdrawn from other
lines of production, thus lowering output there, or (2) savings must increase
which also means a further fall in consumption. Economic growth basically
means capital accumulation6. Capital goods come from savings which
in turn comes from forgone consumption. In other words, to save means to give
up some present consumption in favour of greater future consumption. It
should be patently obvious that bombing factories or flying airliners into skyscrapers
cannot increase gross savings. In fact it lowers them because capital goods
are also savings.
Even
after a devastating war a country can raise its standing of living, Germany
and Japan are proof of that. But the point is that it was not the war that
did it but their high savings rates and comparatively free-market post-war
policies. If the likes of Kaletsky and Krugman are right it would pay a
country to thoroughly wreck its factories, offices, transport systems and
even housing stock every few years7. Looked at from this angle the
absurdity of the idea that destruction creates prosperity becomes immediately
obvious — or should.
One
doesn’t need a war, thank God, to expand the capital structure. One just
needs plenty of savings and entrepreneurship. Greater savings provides the
necessary capital while entrepreneurship dissolves and recombines capital
combinations in a way that increases efficiency and lowers the costs of
production — and all without the need for mass bombing. What Kaletsky and the
other vulgar Keynesians don’t understand is that market processes are
continuously dissolving inefficient capital combinations and even destroying
obsolete capital goods. This is part and parcel of the market process that
raises the standard of living.
Kaletsky’s
silliness brings us to so man-made global warming. According to this economic
wiz kid raising the cost of energy “will boost employment, investment and
economic activity. . .”8 But how can it boost investment when
investment can only come out of savings? Did Kaletsky mean that raising costs
and lowering output raises savings? Or was he seriously suggesting that
investment can exist without savings? After all, investment consists of the
material means of production which can only come from forgone consumption,
i.e., savings, which is the real cost of economic growth.
Kaletsky’s
stuff is unbelievably bad. But on the basis of his outrageous nonsense he
argued — as did others of his ilk — that the poor ignorant masses would be
better off materially if they swallowed green propaganda, as he has done, and
took a massive cut in their standard of living. What can I say, except drop
dead, mate. The test of a good economist is to be able to follow the
secondary consequences of an economic decision. He is one who is not captured
by immediate effects and so ignores the long run. Kaletsky is not a good
economist. So what does this also say about the mighty Krugman and the other
Keynesians that utter this claptrap?
* * * * *
1Anatole
Kaletsky, Digging beneath the gloom,
The Australian, 29 November 2000.
2Paul
krugman, Reckonings; After The Horror,
New York Times, 14 September column 2001.
3Cited
in Peter Martin’s article a Dismal
failure to count the true cost, Herald Sun, 5 January 2005.
4John
Jewkes, Ordeal by Planning,
Macmillan & Co. LTD, 1948, pp. 20, 147-8).
5See
Henry Hazlit’s Economics Made Easy.
This splendid little book is a great introduction to free market economics.
66By
capital accumulation we do not means the simple multiplication of capital
goods but, as the Austrian school of economics explains, an expansion of the
capital structure.
7Simon
Kuznets noted that before the advent of the Industrial Revolution there was
virtually “no fixed durable capital” as we understand the term and that a
great proportion of society’s savings were taken up in repairing and
replacing capital that wore out about every 5 or 6 years. (Kuznets, Population, Capital, and Growth: Selected Essays,
Heinemann Educational Books, 1973, p158.)
It
ought to be obvious to any student of economic history that only the mass
production of iron that the industrial revolution brought about could make
possible a large-scale production of fixed capital goods without which there
can be no real capital accumulation. Yet the unthinking likes of Kaletsky
argue that destroying vast amounts of fixed capital promotes economic growth!
Not only are they lousy economists they are historical illiterates
8In
2008 the Sydney-based Center for Independent Studies published Exploring a Carbon Tax for Australia,
An absolutely shabby piece of work that actually argued that a carbon tax
would bring fourth new technologies and promote economic growth. Greg
Lindsey, executive director and founder of CIS, has yet to offer an apology
or even an explanation for this atrocity.
The
carbon tax and the deceit of one of its advocates
Bad
economics and double-dealing
|