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Relative prices drive this, but I would want to add a footnote to that point: there was absolutely no reason why the change in relative prices of necessity had to favor a cleaner energy source. In this instance it is favoring a cleaner source, and that's fantastic for the planet. But particularly because negative externalities bias dirty energy prices downward (from their marginal social cost, that is), it didn't have to turn out with that happy ending.

I'm not sure I'd call it "dogma" to continue to point out the externalities associated with dirty energy.

What we do need - certainly - is a good economics approach to these environmental issues that does take into account substitution and relative prices along with the externality problems.

Absolute slam-dunk column. :-)

I am in favor of building dikes (like the Dutch) to deal with climate change since nothing we are likely to do will stop it.

Planting more tulips might help as well! Not to mention windmills!! Boy, were the Dutch ahead of the game or what? Feel free to be skeptical about the warming alarmists as well, the scary scenarios all come from abuse of multivariate models. See The Climate Caper for a good inside view.
http://www.the-rathouse.com/2011/Paltridge-Climate-Caper.html

The most immediate effect of more warmth and more CO2 will be beneficial, greening the planet.

It helps to know about the alarming prehistory of the warming scandal, that was the international movement against nuclear power which morphed out of the Ban the Bomb movement when it was taken over by the radical left.
http://www.the-rathouse.com/2011/Grover-Power.html

Rafe, I was working for an electric utility in the late 80's when global warming first became a concern. At that time everyone blamed utilities so we took it seriously. It was science back then.

Politics took over soon after the collapse of the USSR. Socialist couldn't use the economic justification any longer, so they fished around for another cause and landed on AGW.

Russ Roberts has a podcast with Gary Taubes, author of "Why We Get Fat" over at econlib.org. Robert ties much of Taubes research to similar problems in economics and getting the mainstream to see the facts staring them in the face.

But when I read Taubes' book, it was very depressing. The way the medical establishment has clung to a failed paradigm in the face of overwhelming evidence against it is very discouraging and so similar to what has happened in economics.

America's trust in scientists is so misplaced.

The quick conversion does point to something else we should consider: that despite heterogenous capital, re-allocation of resources can be quite fast when allowed to occur. I think this supports the notion that a hayekian recovery after of credit boom/bust can be swift if it is supported by nominal stability, even given massive malinvestment.

The challenge for us then becomes explaining why a recovery such as ours has been so slow and doing so with rigor.

John, Estey's book "Business Cycles" has a great chart of every business cycle from 1790 to 1949 in the US, and discusses business cycles in the UK. In that period the US had 47 business cycles. The economy recovered relatively quickly after each depression until the Great D, the first time the state decided to rescue us.

Hayek has a section in PII that talks about the effects of monetary and fiscal stimuli on the Ricardo Effect which I think does a good job of explaining why this recovery, and the Great D, lasted so long:

Monetary pumping shortens the expansion by encouraging rapid growth in capital goods investment. That's why I think we have had mini booms and busts over the past three years.

Fiscal stimuli cut short the expansion by causing price inflation, which makes labor cheaper, so consumer goods producers quit buying capital goods and the capital goods sector collapses.

But as Estey wrote, not Hayek, downturns with a housing crisis tend to last longer and produce anemic expansions because housing and related businesses are such a huge part of the economy. Downturns that happen when real estate is rising (2001) tend to be short and the expansions longer. All of the worst depressions have included real estate crises. Real estate and banking crises tend to go together.

"The quick conversion does point to something else we should consider: that despite heterogenous capital, re-allocation of resources can be quite fast when allowed to occur."

Isn't this confusion? Coal has not declined because gas is so much cheaper. It has declined because the EPA and the Obama people want to destroy the coal industry. Shale gas producers have sold most of their product under $4.00 per Mcf while their all-in cost is more than $7.50. That is not the foundation of a sustainable trend, which is why the gas rig count if falling.

Hooray for geologists and economics!

What Daniel Kuehn said. Plus I think a lot of folks worried about climate change already have an appreciation for market processes - look at all the calls for a Pigouvian tax or cap & trade scheme to push relative prices in one direction or another.

- look at all the calls for a Pigouvian tax or cap & trade scheme

And look at how well it has been implimented and how well it has worked.

In Europe, there is (was) much moralizing about the issue, but despite the individual EU member goals of CO2 reduction, the trend line for CO2 emmissions in every western European country is busting through the reduction targets like they were not even there. This despite the 2008 crash and subsequent EU financial and debt crisis.

At the end of the day, climate engineering turns out to be a problem of social engineering. If we learned anything from Hayek, it is that social engineering is a fools errand. We do not have the ability to know whether our social engineering will end up being completely counterproductive to our goals.

The only hope of actually reducing CO2 emmissions (which I concede could be problematic for humanity long term, but is especially problematic for the biogeochemistry of the oceans) rests on the spontaneous order of the market driven by science and innovation motivated by profit, but governed by organically arising local and regional rules for the usage of common pool resources, and which consider the broad dynamic spectrum of changes and threats to these resources (we deal with highly non-linear systems). Elinor Ostrom has described this sort of potential emergence of rules for other common pool resource usage.

I have criticized some of Ostrom's late rather naive views of the European green movements and the big global treaties, but there is much to be learned from her research into the way rules governing the commons can emerge.

What are your thoughts on the possibly of global production reach peak oil and its impact on CO2 emissions? It almost seems that as $/barrel keeps ticking upwards and the associative energy costs will slow production down enough to pull back CO2 produced.

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