Krugman's Misleading Post on Coal

By David Henderson of EconLog.

"There used to be a lot of coal miners, but not any more -- strip mines and machinery in general have allowed us to produce more coal with very few miners. Basically, it's a job that was destroyed by technology long ago, with only a relative handful of workers -- 0.06 percent of the US work force -- still engaged in mining 

So what is this fight about? There's capital invested in coal and coal-related stuff, hiding behind the pretense of caring about the workers. And there's also ideology, of which more soon. But the war on coal already happened, it had nothing to do with liberals and environmentalists, and coal lost.

This is from Paul Krugman, "The War on Coal Has Already Happened," June 7, 2014.

 As I've noted earlier, Paul Krugman is clever and crafty. He will write something that, if you read quickly, you will take one way and think he made a mistake. But if you read it more carefully, you will see that he covered himself and simply wrote something that misleads the majority of his readers.

The quote above is such an example. A reader reading quickly might think that it's no big deal for Obama to restrict coal-fired utilities because there are so few jobs at stake in coal mining. But Krugman has covered himself by pointing out that there is capital invested in coal and owners of capital have a stake in producing coal.

But wait. Isn't there another important player in the coal market, namely utilities that buy coal and will now need to turn to a more-expensive fuel? Don't they stand to lose and lose big time? Potentially, yes. So why didn't Krugman talk about them? Actually, he did. At least, I think he did. I think he was getting at coal-burning utilities when he referred to capital invested in "coal-related stuff." "Coal-related stuff" is not exactly a technical term. A reader would have to pause over that term before figuring out that it means coal-burning power plants.

And there definitely is one group that Krugman does leave out that many readers of his blog and of Econlog are probably in: namely, people who get electricity from utilities that burn coal. Isn't it interesting that this economist, who won his Nobel Prize for his contributions to understanding free trade, left out from his analysis a large group of beneficiaries of free trade, namely consumers?

The number of jobs in the coal industry is not the crucial variable. To see why, imagine that one person, working one very complex configuration of capital, could produce all the coal from one huge mine. Imagine that there are 500 such huge mines. Now imagine that the government bans use of coal. 500 people lose their jobs. Even if each of them is making a producer surplus of $20,000 a year, that's only a $10 million a year loss of producer surplus. But a huge amount of producer surplus, mainly in the form of gains to capital and gains to owners of the coal, would be lost and a huge amount of consumer surplus would be lost. This is what I'm getting at with Pillar of Economic Wisdom #8: "Creating jobs is not the same as creating wealth."
Note: I'm assuming, in the paragraph directly above, that when the government bans the use of coal, it doesn't get produced. In fact, of course, much of it would still be produced--and shipped to Germany or China or somewhere else"