...by switching from the level of the impact into a reduced rate of annual growth. After all, two percent of global output in 2050 is a fantastic amount of income. To give a ballpark, in 2007, using the "purchasing power parity" approach, global GDP was about $66 trillion.
So if we conservatively assume that real global GDP (and yes we're ignoring all of the Austrian critiques about such a concept) grows at 3.5 percent annually, then MIT's estimate of the cost of fighting climate change works out to $5.8 trillion in the year 2050 alone. In other words, we're not talking about a one-shot cost here; we're saying the annual cost in the year 2050 will be $5.8 trillion (in 2007 US dollars). Somehow I think that if Dick Cheney suggested that fighting the global war on terror would "only" cost 2 percent of world output by 2050, Paul Krugman might raise more of a fuss.
Oh wait, Krugman has shown us how to deal with such alarming numbers. If we just shave 0.05 percentage points off of global GDP growth — for example, if the world economy grows at 2.95 percent per year, rather than 3 percent — then, as Krugman has already demonstrated, global GDP in the year 2050 will be 2 percent lower than it otherwise would have been.
The point:
Paul Krugman is a very sharp guy, conversant in many different fields. Yet his analysis of the economics of climate change is as wrongheaded as his analysis of depressions. Relying just on the IPCC "consensus" estimates as well as a leading model such as Nordhaus's, it is impossible to justify the draconian emission cuts in Waxman-Markey.
Partisans on both sides of the debate concede that if the United States imposes unilateral emission cuts, there will be a negligible effect on global temperatures. But, ironically, if the whole world were to foolishly follow us down this path, one of the leading mainstream models projects that the globe would be many trillions of dollars poorer for it — and that figure includes the alleged benefits of mitigating harmful climate change.
Read more at mises by Robert P. Murphy