David R. Henderson  

Krugman's Misleading Post on Coal

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There used to be a lot of coal miners, but not any more -- strip mines and machinery in general have allowed us to produce more coal with very few miners. Basically, it's a job that was destroyed by technology long ago, with only a relative handful of workers -- 0.06 percent of the US work force -- still engaged in mining.

So what is this fight about? There's capital invested in coal and coal-related stuff, hiding behind the pretense of caring about the workers. And there's also ideology, of which more soon. But the war on coal already happened, it had nothing to do with liberals and environmentalists, and coal lost.


This is from Paul Krugman, "The War on Coal Has Already Happened," June 7, 2014.

As I've noted earlier, Paul Krugman is clever and crafty. He will write something that, if you read quickly, you will take one way and think he made a mistake. But if you read it more carefully, you will see that he covered himself and simply wrote something that misleads the majority of his readers.

The quote above is such an example. A reader reading quickly might think that it's no big deal for Obama to restrict coal-fired utilities because there are so few jobs at stake in coal mining. But Krugman has covered himself by pointing out that there is capital invested in coal and owners of capital have a stake in producing coal.

But wait. Isn't there another important player in the coal market, namely utilities that buy coal and will now need to turn to a more-expensive fuel? Don't they stand to lose and lose big time? Potentially, yes. So why didn't Krugman talk about them? Actually, he did. At least, I think he did. I think he was getting at coal-burning utilities when he referred to capital invested in "coal-related stuff." "Coal-related stuff" is not exactly a technical term. A reader would have to pause over that term before figuring out that it means coal-burning power plants.

And there definitely is one group that Krugman does leave out that many readers of his blog and of Econlog are probably in: namely, people who get electricity from utilities that burn coal. Isn't it interesting that this economist, who won his Nobel Prize for his contributions to understanding free trade, left out from his analysis a large group of beneficiaries of free trade, namely consumers?

The number of jobs in the coal industry is not the crucial variable. To see why, imagine that one person, working one very complex configuration of capital, could produce all the coal from one huge mine. Imagine that there are 500 such huge mines. Now imagine that the government bans use of coal. 500 people lose their jobs. Even if each of them is making a producer surplus of $20,000 a year, that's only a $10 million a year loss of producer surplus. But a huge amount of producer surplus, mainly in the form of gains to capital and gains to owners of the coal, would be lost and a huge amount of consumer surplus would be lost. This is what I'm getting at with Pillar of Economic Wisdom #8: "Creating jobs is not the same as creating wealth."

Note: I'm assuming, in the paragraph directly above, that when the government bans the use of coal, it doesn't get produced. In fact, of course, much of it would still be produced--and shipped to Germany or China or somewhere else.


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COMMENTS (8 to date)
ThomasH writes:

Let's agree that discussing whether a policy is good or not by the number of jobs "created" or "destroyed" in nonsense. If we do a cost benefit analysis of the Keystone pipeline, it is positive because it generates profits after paying for all the costs including the COSTS of the jobs it "creates." The regulations on CO2 emissions from coal fired utilities are good or bad according to whether the damage they do to the economy in the short run are less than he benefits of reducing CO2 accumulation in the long run. Jobs and electricity bills are just not good indexes of either.

I suppose that Krugman has heard "jobs killer" so many time that he wanted to zero in on that fallacy. I sure do.

Handle writes:

If you can replace a term in a quip with a valid analogous object and it sounds absurd, then the quip is bunk.

So, if labor productivity increased in any field, then there is a war on the output commodity, and that commodity lost.

"But the war on corn already happened, ... and corn lost."

"But the war on cars already happened, ... and cars lost"

"But the war on ice already happened, ... and ice lost."

Krugman is getting worse and worse.

MikeP writes:

I suppose that Krugman has heard "jobs killer" so many time that he wanted to zero in on that fallacy.

Then he should have!

By responding as he did -- by claiming that the "war on coal" was a "war on coal jobs" -- he is completely supporting the notion that jobs are the proper metric of coal.

It's hard to believe this is the same person who wrote:

Even more fundamentally, we should be able to teach students that imports, not exports, are the purpose of trade. That is, what a country gains from trade is the ability to import what it wants. Exports are not an objective in and of themselves: the need to export is a burden that the country must bear because its import suppliers are crass enough to demand payment.

Consumption, not jobs, is the purpose of individual trade, and the marginal value of consuming coal over its alternatives -- not anything having to do with coal jobs -- is the cost of restricting coal's use as a fuel.

So Krugman looks up employment statistics, discovers something he didn't know before, and thinks this discovery is newsworthy?

I can see the news now:

Nobel Prizewinning Economist Surprises World By Learning One More Fact!

"I didn't see that coming," the economist admitted, "I thought I knew it all." But then he did it: he learned something new: coal mining employment in the United States has declined over the last thirty years.

Mark Bahner writes:
The regulations on CO2 emissions from coal fired utilities are good or bad according to whether the damage they do to the economy in the short run are less than he benefits of reducing CO2 accumulation in the long run.

There are also benefits from not mining coal, air pollution benefits of avoided air pollution emissions of particulate matter, NOx, SO2, Hg, etc. from not burning coal, and avoided potential impacts from coal fly ash, if it is disposed of in ways that don't protect the environment.

I haven't studied the magnitude of these "co-benefits," but I could easily believe that they have substantially more value than the benefits from reducing CO2 emissions.

Mark Bahner writes:
Note: I'm assuming, in the paragraph directly above, that when the government bans the use of coal, it doesn't get produced. In fact, of course, much of it would still be produced--and shipped to Germany or China or somewhere else.

Not "in fact," but perhaps "in theory." (From the wisdom of Homer J. Simpson: "...in theory. Communism works. In theory.") :-)

The actual fact is that only a relatively small percentage of the coal produced worlwide is shipped to another country for use. Per the world coal association, total coal production was estimated at 7831 million metric tons in 2012. Total exports were 1256 tons, or 16 percent. And only 966 tons (12 percent) was steam coal or lignite, with the remainder being coking coal generally used for metals production.

"Coal facts," from the World Coal Association

Coal's main advantage as a fuel--compared, say, to natural gas--is that it's inexpensive per unit of energy. That advantage declines signficantly when the coal needs to be hauled on rail through mountains and then on barges across oceans.

jdgalt writes:

@Mark Bahner: Did you mean 966 million tons, or 0.000012 percent?

Craig Loehle writes:

coal "jobs" include all the jobs to make all the mining equipment, service it, provide electricity to the mine, etc. In addition, if utilities all switch to natural gas, the price of nat gas will go up (supply and demand!) which will raise my heating bill. If the switch is to more expensive sources such as renewables or nuclear (ha) then electricity prices will rise which will slow the economy, act just like inflation by stealing people's wealth, and reduce profits. It is hilariously NOT about coal miner's jobs.

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