tag:blogger.com,1999:blog-582368152716771238.post8198936704693581504..comments2024-03-28T02:34:12.891-05:00Comments on The Grumpy Economist: Unintended consequencesJohn H. Cochranehttp://www.blogger.com/profile/04842601651429471525noreply@blogger.comBlogger22125tag:blogger.com,1999:blog-582368152716771238.post-9245794999162896002021-01-13T22:49:51.010-06:002021-01-13T22:49:51.010-06:00One has to appreciate a blogger that pokes fun at ...One has to appreciate a blogger that pokes fun at a term widely recognized as refering to the various risks associated with climate change, only months after being engulfed by smoke, and watching their local utility file for bankruptcy due to factors directly related to climate change.<br /><br />It was unfortunate to read the claim that, "There are a few still who recognize, say, that fracking for natural gas has lowered US carbon emissions dramatically"<br /><br />On the contrary, "a recent study by the Environmental Defense Fund found that 3.7% of natural gas produced in the Permian Basin leaked into the atmosphere. That’s enough to erase the greenhouse gas benefits of quitting coal for gas in the near term." (https://www.scientificamerican.com/article/methane-leaks-erase-some-of-the-climate-benefits-of-natural-gas/)<br /><br />Going back to the main thesis, and the final paragraph - how is the power of the government 'untrammeled' in a democracy in which politicians are held accountable for their policy decisions, as we are seeing in this very moment in time?Palo Alto 'native'noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-70189703177277176322021-01-07T10:46:36.976-06:002021-01-07T10:46:36.976-06:00This slipped into fantasy:
"Try to get a fin...This slipped into fantasy:<br /><br />"Try to get a financial run going ahead of time to avoid a risk that doesn't exist."<br /><br />I think the point is simply to tax fossil fuels by raising oil company's borrowing costs. It's a very indirect way of going about it, but clever, as you say.dmhttps://www.blogger.com/profile/08456275109578471779noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-37930597047596092132021-01-02T21:55:17.557-06:002021-01-02T21:55:17.557-06:00Except "Global Warming" is by definition...Except "Global Warming" is by definition a global phenomenon and there is no global government (or taxing authority for that matter). How do you expect the moronic elected government officials of the world to make the best decisions for the world. (Only if it impacts their prospects for reelection I guess).FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-23736781703622088642021-01-01T23:33:19.303-06:002021-01-01T23:33:19.303-06:00Using govt to discourage the investment in fossil ...Using govt to discourage the investment in fossil fuels and other activities that threaten the viability of - our coastal cities, the state of Florida, and lake-adjacent cities - makes total sense. How would you expect the moronic free market to figure it out and make the best decisions for the long run interests of our nation and the world. (Only if it impacts next quarter earnings I guess.) DoDealshttps://www.blogger.com/profile/03771077157351067426noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-12939082860772864782021-01-01T11:27:14.682-06:002021-01-01T11:27:14.682-06:00"The consensus is about the most efficient wa..."The consensus is about the most efficient way of internalising a known external cost."<br /><br />The cost of greenhouse gas emissions is known and quantifiable? Really? How much GDP was lost last year because of greenhouse gas emissions? How many deaths were directly contributed to greenhouse gas emissions?FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-49974771802319336502021-01-01T02:49:48.986-06:002021-01-01T02:49:48.986-06:00You're confusing issues. The "consensus&q...You're confusing issues. The "consensus" is about the most efficient way of internalising a known external cost. Pigou's claim is about the difficulty of identifying where these costs exist ex ante. In the case of carbon emissions, that problem's been "solved", so the quote is irrelevant.<br /><br /> Cokerhttps://www.blogger.com/profile/02631288439451432057noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-41967656708812887322020-12-31T21:32:28.800-06:002020-12-31T21:32:28.800-06:00Arthur Pigou himself has said: "It must be co...Arthur Pigou himself has said: "It must be confessed, however, that we seldom know enough to decide in what fields and to what extent the State, on account of [the gaps between private and public costs] could interfere with individual choice."<br /><br />"Some Aspects of the Welfare State" - AC Pigou, 1954<br /><br />In other words, the economist's blackboard model assumes knowledge they don't possess – it's a model with assumed givens which are in fact not given to anyone."<br /><br />If Pigovian taxes are indeed little more than a blackboard exercise, then perhaps the "consensus" should step away from their blackboards and take a look outside the window.FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-53659298583932368762020-12-31T11:11:52.577-06:002020-12-31T11:11:52.577-06:00"The carbon tax as a mechanism to internalize..."The carbon tax as a mechanism to internalize the cost of emission should be revenue neutral (if otherwise it would also be a tool to increase tax revenue)."<br /><br />If the whole point of a carbon tax is to dissuade greenhouse gas emissions, how would it ever be revenue neutral?<br /><br />Carbon tax is introduced in year one collecting X dollars of revenue.<br />Emissions fall by half (as a result of the tax) and as such revenue falls by half.<br /><br />If a carbon tax is successful at reducing greenhouse gas emissions, tax revenue should fall as a consequence. Ronald Coase argues that any Pigouvian tax should NOT be revenue neutral, but instead fixed below:<br /><br />See https://en.wikipedia.org/wiki/Pigovian_tax<br /><br />"Ronald Coase argues that the tax placed on an industry creating a negative externality should not be changed after it is implemented. The crux of his argument is that all social costs are reciprocal in nature. Coase argues that a factory emitting smoke is not entirely responsible for the social harm of smoky air. If the factory were not there, no one would suffer from smoky air, and if the people were not there, no one would suffer from smoky air. Because of this reciprocity of harm, Coase argues that neither party bears sole responsibility for the social harm, so neither party should pay the full cost."FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-81328374831803653932020-12-31T10:12:30.414-06:002020-12-31T10:12:30.414-06:00One delightful example of John’s point is the Euro...One delightful example of John’s point is the European 750 billion recovery plan, "Next Generation EU", approved this summer to "support investment in the digital and green transitions".<br /><br />On October 14th, 8 different European countries announced the introduction of a Digital Services Tax and 3 others will be implementing it soon.<br /><br />I just hope Arthur Pigou is not watching.<br />El emperador desnudohttps://www.blogger.com/profile/16816517303218671146noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-57949189338876893142020-12-31T08:21:03.087-06:002020-12-31T08:21:03.087-06:00The carbon tax as a mechanism to internalize the c...The carbon tax as a mechanism to internalize the cost of emission should be revenue neutral (if otherwise it would also be a tool to increase tax revenue).<br /><br />And if a big chunk of the emissions is left out of the mechanism it would not be optimal but still would be far better than a government industrial planning effort “design by a special Congress Commission”.<br /><br />I don't see how the fact that the government is a big polluter affects the consensus.<br /><br />But I agree with you: you cannot trust the government in the administration of such a scheme. It would be inviting lobbying efforts for exceptions and free rights (like the ones allocated to big consumers in Europe). And the lobbyist will be successful, the political will in climate change would be put to the test and would fail, when the economic impact in entire sectors of the economy reach the media.<br /><br />What the government need is a solution that can be sold to the public as a double win: tackling the climate change by shutting down the “carbon economy” while fostering growth thru investments in the green economy by developing a plan of capital allocation designed by Congress and implemented by Bureaucreats.<br /><br />This “alternative plan” has the same conceptual basis than the Great Leap Forward and the “Zafra de los 10 millones” in Cuba. <br />El emperador desnudohttps://www.blogger.com/profile/16816517303218671146noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-13626090450370600362020-12-30T19:31:31.586-06:002020-12-30T19:31:31.586-06:00El Emperador,
"1.- there is a significant co...El Emperador,<br /><br />"1.- there is a significant consensus among economist that Pigouvian carbon taxes (or the equivalent market for emission permits) are the most efficient way of internalizing this cost."<br /><br />See: https://theconversation.com/us-military-is-a-bigger-polluter-than-as-many-as-140-countries-shrinking-this-war-machine-is-a-must-119269<br /><br />How exactly does having the federal government collect carbon taxes and then using those taxes to fund a large greenhouse gas emitter (like the U. S. military) accomplish anything?<br /><br />I presume that the federal government is the issuer of carbon permits and does not need to purchase permits of their own?<br /><br />Perhaps the consensus needs to rethink things a bit?FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-89064211621656720522020-12-30T17:24:26.370-06:002020-12-30T17:24:26.370-06:00Misguided risk concerns also have the unintended c...Misguided risk concerns also have the unintended consequence of forestalling new investment. In 2010 we had pledges of $100,000,000 for a hedge fund start up. When The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was passed, our compliance officer asked counsel for legal opinion as to how the act affected hedge funds. Alas, it was determined the D-F was so ambiguous, contradictory and arbitrary we decided not to move forward because we were uncertain, Knightian uncertain, we could generate risk adjusted market returns. How many other start ups will never be born because of this nonsense? David Seltzernoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-71284407875808300302020-12-30T17:09:58.763-06:002020-12-30T17:09:58.763-06:00All of this micro regulation is nothing short of c...All of this micro regulation is nothing short of creeping nationalization of the banks. Here in Australia it has got to the stage that the regulator APRA has even demanded a seat on the Board of Directors to oversee the "culture". When working for one of the Australian banks the first question about any new deal was "What will APRA" think about it". Mark Sheppardhttps://www.blogger.com/profile/15844888141521636845noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-35568372897306717512020-12-30T16:27:27.668-06:002020-12-30T16:27:27.668-06:00The main impact of such an initiative, as with emi...The main impact of such an initiative, as with emissions-reduction policies in general, would be to accelerate China's move towards world dominance - a much bigger threat than any possible negatives from further warming (which if it occurs might prove net beneficial).Michael Cunninghamhttps://www.blogger.com/profile/14933921928383382118noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-8440582406183258762020-12-30T16:18:52.049-06:002020-12-30T16:18:52.049-06:00"financial institutions have to get their mon..."financial institutions have to get their money by issuing equity and borrowing long-term in ways that cannot run" is correct. <br /><br />The present problem with long term borrowing is it is done in multiple tranches of different terms which are not fungible. Demand deposits are fungible through the payments system so a deposit at one bank can be exchanged $ for $ to another bank. This is major advantage (until there is a run) of this form of issuance and makes it "money" rather than just an investment. Most major investors in Money Market Funds also require par value.<br /><br />Long term debts can however now be made fungible if they are issued as truly floating rate so that their FMV remains at par. Traditional FRNs are not true floating rate as they reset too infrequently and have fixed margins over a benchmark like Libor (also dodgy). <br /><br />A fungible true floating rate CD requires a perpetual CD (with a option to convert to traditional term CD if the market fails) whose rate is set continuously over the web by competing bids from investors. This is quite different to Auction Rate Securities where market makers falsely claimed to maintain a market but then reneged.<br /><br />The technology now exists. This is a practical way for banks to match fund their assets and banish runs.Mark Sheppardhttps://www.blogger.com/profile/15844888141521636845noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-19974814632974343652020-12-30T14:48:03.235-06:002020-12-30T14:48:03.235-06:00Excellent point. The key to running a government i...Excellent point. The key to running a government is to simultaneously subsidize and regulate all goods. All must then come asking for favors. John H. Cochranehttps://www.blogger.com/profile/04842601651429471525noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-34037936109468323192020-12-30T13:07:55.162-06:002020-12-30T13:07:55.162-06:00What the Federal Government could actually do is e...What the Federal Government could actually do is eliminate the tax subsidies to the fossil fuel industry:<br /><br />https://www.taxpayer.net/wp-content/uploads/ported/images/downloads/TCS_ETR-Report.pdf<br /><br />or stop subsidizing the "free" (meaning not paying because you use them paying because you earn money) roads all over the country and inside de cities.<br /><br />Obviously, the US government is not alone in this schizophrenic hypocrisy. Even “climate virtue signaling” Europe opposes the closing of coal power plants.<br /><br />https://www.powermag.com/spanish-government-takes-steps-to-support-coal-fired-generation/<br /><br />But what puzzles me the most is that:<br /><br />1.- there is a significant consensus among economist that Pigouvian carbon taxes (or the equivalent market for emission permits) are the most efficient way of internalizing this cost (and "significant consensus among economist" is something relevant taking into account the extreme difficulties of achieving such a rare state).<br /><br />And 2.- The Sovereign rejects (time and again) the imposition of a Pigouvian carbon tax:<br />- The French government was forced to back track on the introduction of such a tax ("put your tail between your legs", was precisely invented to describe what Macron had to do on this topic)<br />- The Washington Sovereign rejected twice the introduction of a carbon tax<br /><br />https://www.reuters.com/article/us-climate-change-france-protests/frances-macron-learns-the-hard-way-green-taxes-carry-political-risks-idUSKBN1O10AQ<br /><br />https://www.vox.com/energy-and-environment/2018/9/28/17899804/washington-1631-results-carbon-fee-green-new-deal<br /><br />So, if the Sovereign rejects the most efficient way of dealing with the "carbon emission" externality, how on Earth, does the government agents think they have a mandate to tackle this problem in a way less efficient and convoluted way?<br /><br />And if they think they have a mandate to regulate the fossil fuel industry out of existence, why not doing so directly, instead of thru the regulation of the financial system that supplies funds to the industry?<br /><br />Are they, once again, showing off "the ingenuity and determination that political elites display in rendering their positions impregnable to evidence" (Tetlock)<br />El emperador desnudohttps://www.blogger.com/profile/16816517303218671146noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-10998919122478212662020-12-30T10:55:15.299-06:002020-12-30T10:55:15.299-06:00This comment has been removed by the author.Old Eagle Eyehttps://www.blogger.com/profile/05270080708077871311noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-16670186024895623802020-12-30T10:42:14.943-06:002020-12-30T10:42:14.943-06:00"This isn't serious, it isn't about c..."This isn't serious, it isn't about climate in any vaguely sensible cost-benefit way, it's about fossil fuels. It's about de-funding fossil fuels before alternatives are available at scale, by capturing the regulatory system because the people's elected legislators are not about to do it."<br /><br />This reminds me of an idea Hayek presented in "The Road to Serfdom." He explained how centralizing decisions is bound to cause resistance because the implementation of a plan requires that it be specific, but support for a plan dwindles as details are determined. A lot of people are concerned about managing carbon emissions. Fewer are interested in using nuclear power as a means of achieving this goal. Fewer still would be happy with a nuclear power plant built in their backyards. Therefore, either you give up on your plan, or you must commit to its imposition by force.<br /><br />He also explained how this sort of necessity created a perverse dynamic where the absolute worst people are bound to rise to the top in a movement towards centralized planning, the very sort of people to whom you would never want to give any sort of power in the first place.<br /><br /><br />Do you think that Democrats supporting Black Lives Matter has anything to do with a genuine concern for racism? I fail to see how activists burning down buildings in black communities or destroying public property is helpful to black people. Most of what I saw was another load of pasty white college educated upper middle class urbanites engaging in actions that destroyed the support their own movement had gained following the death of Floyd. <br /><br />I'm going to be far more cynical than you: The only reason they say Black Lives Matter is to be able to accuse any critique of believing blacks lives do not matter. Identity politics as a whole is just a rhetorical weapon intended to silence any critique by painting them as hate-mongering bigots. It's pretty clear: They paint individual, liberty and free markets as inherently prejudicial institutions. Stéphane Surprenanthttps://www.blogger.com/profile/12323914156735134263noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-40446809492108813892020-12-30T10:34:04.455-06:002020-12-30T10:34:04.455-06:00When words in a contract or in a piece of legislat...When words in a contract or in a piece of legislation are not specifically defined in the document, then words and phrases have their ordinary meaning. If there is ambiguity in a phrase or sentence in the document, then the court will determine its meaning in the context of the document.<br /><br />What could be more straight-forward? Thus, it is not necessary to define each and every word or phrase in a legal document. Old Eagle Eyehttps://www.blogger.com/profile/05270080708077871311noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-76668268068315311602020-12-29T18:37:28.870-06:002020-12-29T18:37:28.870-06:00When a government sells equity rather than dictate...When a government sells equity rather than dictates that it's currency is equity - you get risk taking by choice instead of risk taking by government mandate.<br /><br />See Milton and Rose Friedman - "Free to Choose"FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-69517375795105265942020-12-29T18:31:12.464-06:002020-12-29T18:31:12.464-06:00"It really goes back to 1933. After that bank..."It really goes back to 1933. After that bank run, the US chose not to follow the Chicago plan, narrow deposit taking and equity-financed banking, and instead chose the path of deposit insurance, and bank asset risk regulation."<br /><br />https://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf<br /><br />The economist Irving Fisher had this to say:<br /><br />"Fisher (1936) claimed four major advantages for this plan."<br /><br />1. First, preventing banks from creating their own funds during credit booms, and then destroying these funds during subsequent contractions, would allow for a much better control of credit cycles, which were perceived to be the major source of business cycle fluctuations.<br /><br />Response: Banks act in concert with private borrowers to create funds during credit booms. They don't create those funds willy nilly.<br /><br />2. Second, 100% reserve backing would completely eliminate bank runs.<br /><br />Response: NO IT WOULDN'T. It might alleviate a fear of loss among depositors, but if people want to withdraw their money from a bank all at the same time (for whatever reason), nothing about 100% reserve banking would prevent them from doing so.<br /><br />3. Third, allowing the government to issue money directly at zero interest, rather than borrowing that same money from banks at interest, would lead to a reduction in the interest burden on government finances and to a dramatic reduction of (net) government debt, given that irredeemable government-issued money represents equity in the commonwealth rather than debt.<br /><br />Response: NOPE. The presumption is that money should be a risk asset like any other form of equity. If the federal government sold equity that was separate and distinct from money, that would lead to a drastic reduction in the total government debt as well as stabilize the value of the currency.<br /><br />4. Fourth, given that money creation would no longer require the simultaneous creation of mostly private debts on bank balance sheets, the economy could see a dramatic reduction not only of government debt but also of private debt levels.<br /><br />And reducing private debt levels is a good thing because? As long as real GDP and incomes grow faster than the debt build up, why is constraining private credit growth necessarily the ultimate objective?FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.com