Earth In The Balance Sheet
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by Paul Krugman
Slate Online Magazine

(This article, excerpted from one that originally ran in April 1997, was included in 1998 Energy Futures, a publication of the Natural Resources Defense Council and Uncommon Sense Inc.)

Like most people who think at all about how much burden their way of life places on Spaceship Earth, I feel a bit guilty. But my consciene is clearer than usual this year--and so are those of 2,500 other economists. Let me explain. A few months ago an organization called Redefining Progress enlisted five economists--the Nobel laureates Robert Solow and Kenneth Arrow, together with Harvard's Dale Jorgenson, Yale's William Nordhaus, and myself--to circulate an "Economists' Statement on Climate Change" calling for serious measures to limit the emission of greenhouse gases. To be honest, I agreed to be one of the original signatories mainly as a gesture of goodwill and never expected to hear any more about it; but the statement ended up being signed by, yes, more than 2,500 economists. Whatever else may come of the enterprise, it was an impressive demonstration of a little-known fact: many economists are also enthusiastic environmentalists.

Partly this is just because of who economists are:

Being by definition well-educated and, for the most part, pretty well-off, they have the usual prejudices of their class--and most upper-middle-class Americans are sentimental about the environment, as long as protecting it does not impinge on their lifestyle. (I'm happy to reuse by grocery bags--but don't expect me to walk to the supermarket.) But my unscientific impression is that economists are on average more pro-environment than other people of similar incomes and backgrounds. Why? Because standard economic theory automatically predisposes those who believe in it to favor strong environmental protection.

True, economists generally believe that a system of free markets is a pretty efficient way to run an economy, as long as the prices are right--as long, in particular, as people pay the true social cost of their actions. Environmental issues, however, more or less by definition involve situations in which the price is wrong--in which the private costs of an activity fail to reflect its true social costs. Let me quote from the textbook (by William Baumol and Alan Blinder) that I assigned when I taught Economics 1 last year: "When a firm pollutes a river, it uses some of society's resources just as sure as when it burns coal. However, if the firm pays for coal but not for the use of clean water, it is to be expected that management will be economical in its use of coal and wasteful in its use of water." In other words, when it comes to the environment, we do not expect the free market to get it right.

So economists who actually believe the things they teach generally support a much more aggressive program of environmental protection than the one we actually have. True, they tend to oppose detailed regulations that tell people exactly how they must reduce pollution, preferring schemes that provide a financial incentive to pollute less but leave the details up to the private sector. But I would be hard-pressed to think of a single economist not actually employed by an anti-environmental lobbying operation who believes that the United States should protect the environment less, not more, than it currently does. (The signers of the climate-change statement, incidentally, included 13 economists from the University of Chicago.) Isn't this amazing? Not only do thousands of economists agree on something, but what they agree on is the warm and cuddly idea that we should do more to protect the environment. Can 2,500 economists be wrong? Well, yes--but this time they aren't. The Great Green Tax Shift--a shift away from taxes on employment and income toward taxes on pollution and other negative externalities--has everything going for it. It is supported by good science and good economics, as well as by good intentions.

I do not, realistically, expect the Economists' Statement to change the world. But then I didn't expect it to go as far as it has. Certainly those of us who signed it did the right thing; and maybe, just maybe, we did our bit toward saving the planet.

Paul Krugman is a professor of economics at MIT whose books include The Age of Diminished Expectations and Peddling Prosperity. First published in Slate. Reprinted with permission. Slate has now gone to subscriptions. Please find out how to subscribe at

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