Thursday, August 31, 2017

On climate change 2

Now that 30 days have passed I can post the full Wall Street Journal climate change oped with David Henderson. The previous post has more commentary. A pdf is here.

By David R. Henderson and  John H. Cochrane
July 30, 2017 4:24 p.m. ET

Climate change is often misunderstood as a package deal: If global warming is “real,” both sides of the debate seem to assume, the climate lobby’s policy agenda follows inexorably.

It does not. Climate policy advocates need to do a much better job of quantitatively analyzing economic costs and the actual, rather than symbolic, benefits of their policies. Skeptics would also do well to focus more attention on economic and policy analysis.

To arrive at a wise policy response, we first need to consider how much economic damage climate change will do. Current models struggle to come up with economic costs commensurate with apocalyptic political rhetoric. Typical costs are well below 10% of gross domestic product in the year 2100 and beyond.

That’s a lot of money—but it’s a lot of years, too. Even 10% less GDP in 100 years corresponds to 0.1 percentage point less annual GDP growth. Climate change therefore does not justify policies that cost more than 0.1 percentage point of growth. If the goal is 10% more GDP in 100 years, pro-growth tax, regulatory and entitlement reforms would be far more effective.

Wednesday, August 30, 2017

Yellen at Jackson Hole

Fed Chair Janet Yellen gave a thoughtful speech at the Jackson Hole conference.

The choice of topic, financial stability and the Fed's role in financial regulation and supervision, says a lot. Financial regulation, supervision, and other tinkering, is much more centrally a part of what the Fed is and does these days than standard monetary policy. Whether overnight interest rates go up or down a quarter of a percentage point may be the subject with the greatest ratio of talk to action, and of commentary to actual effect, in all of economics. Interest rates are likely to stay around 1% for the foreseeable future. Get used to it. But the Fed is deeply involved in running the financial system, and all the talk points to more. 

Rather unsurprisingly, she did not give the speech I might have given, or that some of the others campaigning for her job have given, bemoaning the current state of affairs. She's been in charge, after all. If she viewed the Dodd-Frank act as a grossly complex Rube Goldberg contraption, and the Fed only following silly rule-making dictates to comply with the law, she would have said so loudly long before this. Whether with an eye to reappointment, to write the first draft of history, or -- my sense of Ms. Yellen -- out of forthright Jon Snow-like irrepressible honesty, one should not have expected a stunning critique.  Moreover, her speech is dead-center of the world in which she lives, that of international policy and regulatory organizations. It would be a lot to expect a Fed chair to lead intellectually and to strike out far from the consensus of the bubble.

Still, I am disappointed. Even accepting her view of the crisis, and the current slow growth era, there are far more "Remaining Challenges" than her three paragraphs. There are far more questions to be asked, paths to choose, and fundamental choices to be made.

Which deregulation?