Thursday, May 10, 2012

How Paul Krugman and Global Warming Skeptics Think Alike

In a thought provoking article on the global warming debate, a point made by the author is that the conflicting views about global climate change delve down to a question of how "sensitive" is the earth to the tons of CO2 being pumped into the atmosphere. If global warming skeptics are correct, then the earth's temperature is not very sensitive to the impact of CO2 emissions and global climate change alarmists such as Jeff Masters and James Hansen are misleading the public.

The issue of "sensitivity" is equally critical to the debate on sovereign debt. As shown by the low interest rates for the government issued debt of the U.S., Japan, the UK, and Germany, the economies of developed countries that control their own monetary policy via sovereign central banks have a low sensitivity to their current huge level of national debts and deficits. However, at some point interest rates are almost certain to show more "sensitivity" to government debts and deficit spending.

Paul Krugman favors larger deficits, seeing historically low interest rates as a go-ahead for even more federal borrowing.  He supports massive New Deal-style public-works spending, which would employ “armies of government workers.” Krugman also favors more monetary stimulus by the Fed to boost spending throughout the economy. Krugman's position is that we have not used enough Keynesian stimulus ammunition on the monetary or fiscal fronts. 

In my view, the complacency and optimism of both Krugman and global warming skeptics is lunacy. The U.S. economy may muddle along for another 2-5 years behind a fiscal policy that adds a trillion dollars a year to the national debt, but at some point the sovereign debt will become unsustainable. Similarly, our planet may be able to sustain a couple more decades of pumping over nine billion metric tons of carbon a year into the atmosphere, but eventually this will lead to severe and disruptive climate change. Krugman and global warming skeptics may believe in low sensitivity of: a) the economy to debt and b) the planet to carbon emissions, but this path is filled with frightening long term risks.

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A Scorecard For Ranking U.S. Treasury Debt Risk Versus Other Countries

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