Thursday, October 14, 2010

Memo to the Stimulus Gang

Environmental scientists warn that heavy use of fossil fuels, which produces greenhouse gas emissions, global warming, and disruptive climate change, threatens the planet and human existence itself. Dependence on fossil fuels will continue for several decades or longer until cost-efficient renewal fuels become more readily available.

A distinguished group of economists, including several with Nobel prizes, maintain that more stimulus, monetary and/or fiscal, is required to increase aggregate demand, thereby closing the output gap and putting millions of unemployed Americans back to work. Is this a wise course of action?

There is a side benefit to high unemployment, namely, reduced consumption of fossil fuels that ameliorates disruptive climate change. The U.S., with China and India, are the big three emitters of greenhouse gases. With a much higher standard of living in the U.S. than in China and India, perhaps the U.S. should do more than its proportional share of reduction in greenhouse gases. Moreover, the reported stagnation in middle-class incomes may also help to hold down emissions of harmful pollutants. A small but growing body of research suggests that more money does not yield greater happiness.

This might be an appropriate time to weigh the costs and benefits of increasing aggregate demand in terms of its environmental impact.

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