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Costs Are Not Benefits

Here’s a letter that I sent yesterday to the New York Times:

Paul Krugman makes the astonishing claim that “a commitment to greenhouse gas reduction would, in the short-to medium run, have the same economic effects as a major technological innovation: It would give businesses a reason to invest in new equipment and facilities even in the face of excess capacity” (“An Affordable Salvation,” May 1).

Technological innovations benefit society not by giving firms “a reason to invest in new equipment and facilities,” but by reducing costs – not by making resources scarcer (by artificially increasing demands for them) but by making resources go farther in their capacity to satisfy human desires.

If “a reason to invest” were sufficient to restore economic vigor, then war and natural disasters would do the trick even better than would government restrictions on greenhouse-gas emissions.

Donald J. Boudreaux