Krugman Slams “Latest Obama Cave-In,” Explains Why “Tighter Ozone Regulation Would Actually Have Created Jobs”

Krugman:  “It would have forced firms to spend on upgrading or replacing equipment, helping to boost demand. Yes, it would have cost money — but that’s the point! And with corporations sitting on lots of idle cash, the money spent would not, to any significant extent, come at the expense of other investment. Nobel prize-winning economist, Paul Krugman, had a great piece on his blog Saturday, “Broken Windows, Ozone, and Jobs.”

This was the same point I was (briefly) making in my Friday post on Obama’s dreadful decision: “The standard would not have any noticeable negative impact on the economy and, if anything, would have driven investment and innovation even in the short term.”

Krugman explains why this is especially the case in the severe economic downturn we are now in:

I’ve actually been avoiding thinking about the latest Obama cave-in, on ozone regulation; these repeated retreats are getting painful to watch. For what it’s worth, I think it’s bad politics. The Obama political people seem to think that their route to victory is to avoid doing anything that the GOP might attack — but the GOP will call Obama a socialist job-killer no matter what they do. Meanwhile, they just keep reinforcing the perception of mush from the wimp, of a president who doesn’t stand for anything.

No argument here.

Whatever. Let’s talk about the economics. Because the ozone decision is definitely a mistake on that front.

As some of us keep trying to point out, the United States is in a liquidity trap: private spending is inadequate to achieve full employment, and with short-term interest rates close to zero, conventional monetary policy is exhausted.

This puts us in a world of topsy-turvy, in which many of the usual rules of economics cease to hold. Thrift leads to lower investment; wage cuts reduce employment; even higher productivity can be a bad thing. And the broken windows fallacy ceases to be a fallacy: something that forces firms to replace capital, even if that something seemingly makes them poorer, can stimulate spending and raise employment. Indeed, in the absence of effective policy, that’s how recovery eventually happens: as Keynes put it, a slump goes on until “the shortage of capital through use, decay and obsolescence” gets firms spending again to replace their plant and equipment.

Krugman’s next paragraph is the one I started with and then he ends:

More broadly, if you’re going to do environmental investments — things that are worth doing even in flush times — it’s hard to think of a better time to do them than when the resources needed to make those investments would otherwise have been idle.

So, a lousy decision all around. Are you surprised?

Not any more.

19 Responses to Krugman Slams “Latest Obama Cave-In,” Explains Why “Tighter Ozone Regulation Would Actually Have Created Jobs”

  1. Mike Roddy says:

    Of course the Republicans lie about “job killing” environmental regulation, but this was never the issue for Obama. His team must be aware that the ozone regs would have created jobs, and saved lives, too.

    What we saw here was a craven and callous political decision, driven by a perceived need to please voters in swing states that burn a lot of coal- Missouri and Florida in particular. The other factor, of course, was deference to coal companies and utilities.
    Obama is either dazzled by the rich or beholden to him. Either way, this decision stunk up the whole world.

    We really need Paul Krugman and Joe Romm. Please continue to try to awaken the people, who will become a powerful force if it ever happens.

  2. Joan Savage says:

    Upgrading ozone treatment can be expected to bring a flush of engineering work and some manufacturing and technician jobs that stick around longer and add economic vitality.
    EPA administrator Lisa Jackson has committed to producing a revised draft of ozone standards by the end of the year. So that gives a revised time line.
    Writing as someone who was personally affected by the budget cuts Congress imposed on the EPA, I feel anxious about the EPA’s ability to come through, but the public outcry may help. With all the indignation, the EPA can now point to public opinion as a impetus to scrape the pockets of their limited funding and allocate to this important task. But make no mistake, the EPA is not adequately funded to fulfill all its regulatory mandates. Doing this may mean some other regulation is not getting advanced.
    The three month delay in promulgation of the ozone regulation is three months in which that part of the economy did not have to move.

  3. Leif says:

    I have been thinking about posting a petition on the White House web site. (0600 first draft)

    –We the people demand that capitalism and corporations be held responsible for their wanton pillage and destruction of the commons. In addition we demand that they cease and desist all active efforts that do not directly benefit environmental restoration first and foremost in business decisions. —

    Or something like that. Any input or alternatives? Lawyers want to weigh in?

  4. Sailesh Rao says:

    Interesting, but what if the health care industry is based on the broken windows school of economic growth? Then, 12,000 lives saved annually is a lot of jobs and profits lost in that 2.4 trillion dollar a year industry. And, a very powerful constituency will be bending Obama’s ear.

    What if his economic advisors have crunched the numbers and have seen the Republican side of the argument? As the documentary, “Forks over Knives” asserts, some 70-80% of the health care economy in America is to treat completely avoidable diseases, to fix broken windows.

  5. Jeff Huggins says:

    Connecting Dots

    “The Obama political people seem to think that their route to victory is …”

    Funny thing is, we (most Demos, most environmentalists, most citizens concerned about climate change) allow Obama and his political people to think that we’ll vote for him no matter what he does or doesn’t do. “If I approve Keystone XL, no matter; my base will vote for me anyway.”

    We let them think that way, we teach them to think that way, and we usually (in the past) reward them for thinking that way.

    Put another way, a big part of the problem is how WE think about THAT.

    As much as I enjoy Krugman, it seems to me that on this issue he’s a great example of the problem. He’ll complain about Obama’s caving in. He’ll call what we’re getting “mush”. He’ll even admit that he doesn’t want to think about it. But will he say “enough!” and choose to support a third party candidate or, if necessary, help form a new party that makes sense? Will he even communicate a hard-and-fast condition to Obama and give Obama one last chance, along the lines of “President Obama, if you approve of Keystone XL, you’ll lose my vote.”?

    I haven’t heard Paul Krugman say (or write) any such thing.

    We’ve all trained the President, the professional political Dems, the President’s political people, campaign advisers, and so forth to assume, to think, and to feel nearly certain that we’ll put up with whatever they do or don’t do — and we’ll vote for them anyhow.

    As I’ve written before, I’ve already decided: I won’t vote for President Obama again if he approves Keystone XL. I hope the White House folks read this, because I’m not kidding. And I hope that thousands, tens of thousands, hundreds of thousands, and ideally millions of people take this stance and communicate it.

    I’d love to hear from Paul Krugman on this particular question. I’d love to hear from Bill McKibben on this particular question. I’d love to hear from Joe on this particular question. I’d also love to hear from James Hansen on this particular question: Based on what I’ve read recently, Dr. Hansen seems to be taking — or at least leaning this way — this position, but even he hasn’t been plainly explicit and crystal clear about it, as far as I can tell.

    We are going to get mush until we demand differently and make our votes conditional. This may be the vital lesson that we need to learn if we’re really going to eventually make REAL progress on ANY issue of major importance. My goodness: We haven’t achieved campaign finance reform because we keep voting for candidates who don’t deliver it — including those who say they will but never do, and never even try hard. We haven’t achieved major necessary change in any key area, really — not change that’s sufficient to the challenges — because we keep voting for candidates who don’t deliver it, and (again) don’t even seem to try very hard.

    I wonder if Krugman will address this question?

    Be Well,


  6. Joan Savage says:


    Let’s petition for redress, with both vigor and humility. Petition Congress as well as the White House. Constitutionally the government resides in Congress, though we tend to forget that nowadays.

    The complaints should be physically specific, have an obvious remedy and be framed by responsibilities of government.

    Our government is formed to “..establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity.”

    Failure to preserve suitable conditions for the general welfare of our posterity is a significant deficit of government regarding its constitutional instructions.

    I’m partial to the approach of Declaration of Independence. It listed factual charges against the British Crown of 1776. It drew attention to previous efforts at resolution, “In every stage of these oppressions we have petitioned for redress in the most humble terms.”

    With good cheer,

    PS Skip the conceptual stuff like “capitalism.”

  7. Peter Mizla says:

    The nemesis of the conservative Obama administration is back–

    Dr. Krugman continues to haunt and thwart the President’s dream of bringing compromise between ‘Red & Blue’ America- FDR knew this would not happen in 1936.

    Sorry BO- the stakes are far much higher then anytime in the past- have you missed something?- a whole culture and civilization are on the brink.

    And BO keeps hoping to preserve what Ronald Reagan did.

    Case closed.

  8. Mike#22 says:

    I live in one of the counties where ozone exceedances are routine. The sources for ozone precursors are numerous and include such things as lawn equipment, cars, furnaces, coal plants, ag fertilizers, and natural sources. It is not clear to me how lowering the allowable ozone limits will magically translate to lower ozone levels, in that the current regulations have not been effected at the state and regional level.

    Yes, the EPA is legally required to create and effect regulations under the CAA, but imo what is currently lacking is the ability to effect these current regulations. Getting the ozone precursors down is not as simple as, say, reducing mercury. Saddling the EPA with a tougher reg, when the current one hasn’t been implemented, maybe not a winning strategy. Maybe a better immediate solution is to increase monitoring and communications 10X so that the public can be more aware of when they need to stay indoors, and definitely increase funding for the people working to get the precursors under control. None of this disagrees with Krugman’s position–the spending still needs to be done.

    Long term, of course, ditch the fossil fuels.

  9. BlueRock says:


    Joe, don’t know if you want to tackle this, but Mark Lynas has gone full [snip] in his quest to promote nukes:

    He’s arguing that it would make sense to evacuate people from downtown Tokyo to the evacuated radiation zones based on a collection of statistics he’s dredged up that appear to show you’re more likely to die from city centre pollution than radiation.

    Here’s the comment I left:


    A wonderful example of how someone with a simplistic grasp of a subject and an ideological obsession with it can pluck out a few peer reviewed papers and build a case that is wholly false.

    Internal emitters.

    That’s the only thing you need to read about to understand why the suggestion that a radioactive region around Fukushima is safer than central Tokyo is the ludicrously dangerous nonsense that it intuitively sounds.

    Why does Lynas think the Japanese have evacuated huge areas of their country? For fun?!

    The psychosis of the nuke cult gets more deranged by the day.


    * EPA: “There is no firm basis for setting a “safe” level of exposure above background for stochastic effects.”

    * NAS: “A preponderance of scientific evidence shows that even low doses of ionizing radiation, such as gamma rays and X-rays, are likely to pose some risk of adverse health effects….”

    * International Commission on Radiological Protection: “Overall, these animal tumor data tend to support a linear response at low doses and dose rates with no threshold.”

    * Very high mutation rate in offspring of Chernobyl accident liquidators. “These results indicate that low doses of radiation can induce multiple changes in human germline DNA.”

    The overwhelming scientific opinion is that there is no such thing as a “safe” increase in radiation over background and therefore:

    * “…cancer … risks are increased even with the smallest dose of radiation. The so-called permissible dose of radiation, for nuclear workers or for the public at large, represents only a legalized permit for the nuclear industry to commit random, premeditated murders upon the … population.”


  10. Susan says:

    Definitely too ideological. That’s the problem, to much ideology and not enough reality. If you want the White House or Congress to do something you have to tell them exactly what you want them to do and why. “We would like stronger ozone regulations” or “reduced CO2 emissions” or “investment in sustainable energy” and “by the way we don’t mind having the Bush tax cuts on the wealthy ended to help accomplish this” I know nothing about the correct wording.

    Government does reside in Congress which is why the ozone ruling was so frustrating. President Obama didn’t have to deal with Congress for this decision so it really doesn’t make sense.

    About the petition idea, when I first heard about the White House starting this web site (see link below) I just thought it was a campaign move but I now I think it may be a way to send a strong message. If groups with similar interests joined to create a petition and than used the power of the internet to get MANY signatures that go directly to the White House it MAY get some attention.


  11. Scott says:

    Let me pose a progressive heresy. Now is not the time for government spending. It is time for corporate spending. This article suggests that reminds us that corporations are sitting on all the money, so lets make them spend. Regulations such as ozone are good, but so are freebates. Now is a great time to drive expensive corporate spending. Put in a painful CO2 tax or freebate to drive wind and solar. A freebate from CO2 to renewables and efficiency is self limiting and predictable. Just the sort of situations businesses and investors can meaningfully adapt to and make money with. While government spending to get out of the ’30 depression was brilliant because no one else had money that is not the case here. Yes, even today it is a good investment, but there is cheaper money and that is the corporate piles of money. Driving their investment is cheap and in the long run businesses make more money then if we do nothing.

  12. Edith Wiethorn says:

    In this context, please check out this 1:53m video & tell me what you see President Obama doing? I think it’s right up there with holding a press conference on the grounds of the Seed Savers’ Exchange in IOWA after having permitted GMO/glysophate-dependent crops without regulation & never mentioning seeds or GMO topics at said press conference. And yes, glysophate does drive greenhouse gasses from industrial agriculture.

    Scholastic News Kid Reporters Interview the President (3/7): Challenges Facing America’s Youth
    Uploaded by TheScholasticChannel on Aug 31, 2011
    In this excerpt, the President discusses the greatest challenges facing this generation of American kids. Watch the rest of the video at!

  13. Jesse Hollister says:

    Hi all;

    this is my first time commenting on this blog, so I’ll start by saying: BRAVO, Joe!

    On another note, I’m generally quite impressed with the quality of comments on the blog. Out of curiosity, are you folks involved in any organizations making efforts to promote social/environmental justice? I ask because it seems clear that popular solidarity is a prerequisite for addressing climate change, among other things. This is far from an original opinion, but I think the obvious corollary is that greater communication and connectivity among like-minded individuals and organizations is extremely important here.

    Thoughts? Suggestions?

  14. Joan Savage says:

    “Government does reside in Congress which is why the ozone ruling was so frustrating. President Obama didn’t have to deal with Congress for this decision so it really doesn’t make sense. ”

    It does makes sense in the context of what Congress and the Bush administration did to the EPA in the last decade, shriveling the EPA’s funding. The EPA is nearly prostrate, and we want Obama to make it jump up and do calisthenics?
    As I wrote elsewhere I hope the public attention will help us get a better ozone standard that what was an incomplete recommendation back in 2007.

    Obama’s lack of institutional memory and insufficient forward messaging compounds the problem.
    But the behavior of Congress is the biggest factor.

  15. Mr B says:

    I like the idea of getting corporations to invest some of their massive cash reserves in the broader American economy, but how likely is that when government still seems to beholden to Wall Street? If they’re keeping profits up through some combination of cost cutting and gouging the consumer, AND they have lots of cash with which to buy back stock, that’s probably about as good as it gets. At least in an economy afflicted with generally tepid demand.

  16. To me the worst aspect of this decision by Obama isn’t the actual policy retreat. Instead it was Obama throwing basic principles under the bus.

    Obama did not define and defend the fact that clean air regulations are helpful to the economy, jobs and Americans’ basic happiness.

    He threw that principle under the bus and pig piled on the GOP scorched earth meme that clean air regulations cost Americans.

    The single policy set-back might only be a few months as Joan (#2) points out. But the attack on the principle of clean air regulations being good for Americans could bring decades of widespread damage to us all.

    Note to Obama: if you are going to cave on a good-for-Americans policy at least don’t drag basic good-for-Americans principle down with it. If you can’t defend clean air then step-aside and give the job to someone who will.

  17. MarkfromLexington says:

    Put your head vise on

    Revkin comes out in favor of Keystone XL

    “Overall, I think Obama should not stand in the way of the pipeline.”

  18. Dead patients make bad customers.

    Often, hospitals forgive final expenses at least in part. The susceptible people killed by this persistent lack of regulation would be ideal long-term customers. Those who are susceptible need care; those who are not susceptible need little care now; those who die will never need care again.

    Hospitals and the health industry should be pissed. Even insurance companies will lose rate payers that could have survived a long time: high costs of care get passed on in higher rates, but a dead customer reduces the size of the insurance pool.

    Even utilities would benefit from increasing their capital basis (when they have to invest in pollution-control equipment) on which state Public Utilities Commissions base their rate of return calculations. This decision benefits the fossil fuel extraction industry only.

    In fact, it benefits the Koch Brothers and Arch Coal specifically. The Koch Brothers are a principal source of funding for the Tea Partiers. The Keystone XL pipeline has a Koch Brothers connection, too. I feel some extreme cynicism coming on. I hope that it’s catching. And they say that Democrats promote Class Warfare!

  19. Bret says:

    The President is going to continue acting Republican until a Democrat runs against him. Are there no Democrats with the courage to challenge him?