Artistic representation of government waste

"...the man‐and‐horse statue outside the FTC, which signifies the government’s heroic battle to strangle trade. " 

Link from Chris Edwards proposed museum of government failures. (The actual title, "Man controlling trade," is almost as good in an unintentional, new-Deal sort of way, but I like Chris' better. )

I was chatting with Chris and nominated the California high speed railway, which will soon be a massive Christo-scale installation, dedicated to the same cause. Imagine arching viaducts looming over the freeways, connected to nothing, like the ruins of Roman aqueducts, but unlike those never used. Like this one.   

San Joaquin River Viaduct

All it needs is a great set of plaques, installed by the new Libertarian governor of the state of Jefferson after secession, and title. "Ruins of the progressive state?" The Pont du Gard it's not, but perhaps the brutalist functionality is better for my artistic purpose. 

(Yes, California really has built expensive overpasses and viaducts before building the roadbed to which they connect, which it will likely never build.  

Question of the day: If California is going to ban internal combustion cars and trucks, just what is the point of the train? It must now be a net carbon producer.)

 

Smoke and Nukes

 I was driving in Northern California on Labor Day, contemplating the 1-2 mile visibility in thick smoke through the Central Valley, and listening to NPR, when an enticing story came along. 

Amna Nawaz:

For a closer look at what's behind that heat wave and what's fueling these fires, I'm joined by Leah Stokes, she's a professor and researcher on climate, energy and political policy at the University of California, Santa Barbara

Great, I thought. We're going to hear some real science and policy. What's the role of forest floor cleaning? Climate warming isn't the issue per se -- it's hot in Arizona but Arizona doesn't burn. It's a complex of moisture, growth human activity. And policy. Great. What do we do about the fact that so much burning land is federal, and the federal government isn't cleaning up its forest floor either. What's the budget history of fire fighters? Just what are the air quality numbers? 

I was, to put it mildly, disappointed. 

What if the private sector were responsible for California wildfires?

So we enter another week enveloped in smoke, here in California.

My thought for the day: Can you imagine the public and political reaction if this were caused by a private-sector activity?

Imagine for a minute that Jeff Bezos and Mark Zuckerberg had a many thousand acre ranch in Northern California, but for decades they refused to do any proper management and let kindling pile up. Suppose that when massive fires erupted every year, they relied on heroic volunteers and prisoners being paid a few dollars a day to go try to put out the flames. Suppose this happened every year, covering the state in smoke that make the bad old days of 1960s air pollution. Or, worse than Beijing

Suppose when questioned that Bezos and Zuckerberg said, well, there is nothing to be done about it because the climate is getting warmer. Or supposed they offered to build a high speed train and subsidize electric cars to reduce California's 0.1% contribution to carbon, so the climate will only get warmer 2.999 degrees rather than 3.00 degrees in the next century. Which you will pay for.

Imagine if any of this came from the private sector. Suppose one of the few remaining oil refineries were covering the state in smoke for a month at a time every year. Or if it were automobile exhaust.

I think the guillotine set up in front of Bezos' home recently is mild compared to what would happen. The state government would be launching lawsuits, draconian regulations, and long prison terms. Politicians and activists would be issuing daily denunciations of capitalism gone amok.  Bad air  hits poor, sick, and minorities harder, which they'd be screaming about.

This is the state that pioneered clean air after all. We have had our own special smog restrictions on cars for a half a century. Commenters on nextdoor go apoplectic if anyone turns on a gas leaf blower.

Yet the response so far is an amazing silence. If indeed it is climate change, dear fellow citizens, then that is ever more reason to do something about it. Climate change is a slow-moving predictable problem that will get worse. Even if the whole world takes up the whole green new deal, and even if that turns out to work, it only limits how much the climate gets warmer. If it's climate change, the only rational answer is to spend a lot more money to fix the problem, now. There are a lot of unemployed people in this state. They could be cleaning forests 11 months of the year. There is a huge amount of money in the state budget. It could be hiring firefighters, buying airplanes, and stopping this in its tracks.

Underlying it is the moralistic attitude. This is the price we must pay for our carbon sins, so we must pray to the carbon gods with useless virtue signals and endure, as our ancestors prayed to keep plague away. Even though we know the cause and effect here. To do anything about climate-induced problems is dreaded "adaptation," which does not involve the necessary self-flagellation.

But that attitude would change fast if the government were not completely responsible for this avoidable disaster. Hence my thought for the day.

School of sustainability

In a few recent posts, I was critical of university endowment practices. Why build up a stock of investment, rather than invest in faculty, research, or other core activities? Why wall that pile of assets from being spent, especially when budgets are cratering in a pandemic? When we see businesses with piles of cash, we infer they don't have any good investment projects, and the piles are ripe for diversion to bad ideas.

But universities are non-profits, and one major piece of being a non-profit is that the business is protected from the market for corporate control. If you see a business wasting money on bad investments, buy up the stock, fire management, and run it right. Repurchases were part of an earlier reform effort, to stop management from wasting money on aggrandizing projects.

Perhaps restrictions on endowment spending serve a somewhat parallel function for universities. Perhaps I was wrong to criticize so harshly.

These thoughts are brought to mind by Stanford's announcement of a new school "focused on climate and sustainability." A "school" is bigger than a center, an institute, a department, a division. Stanford has seven "schools," Business, Education, Engineering, Humanities & Sciences, Law, Medicine, and, yes, Earth, Energy & Environmental Sciences.

Why a new school? It will

"amplify our contributions in education, research and impact further by aligning people and resources more effectively.

Says university President Tessier-Lavigne. Vice Provost Kathryn Moller will

"lead an inclusive process designing the school’s structure....consult with key internal and external stakeholders to develop a school organization that amplifies faculty and student contributions to address the most urgent climate and sustainability challenges." 

creating an

"impact-focused community, with new opportunities to enhance the impact of their work on the issues they deeply care about,” 

"Impact" and "amplify" repeat quite a few times.

Off the Deep End: Navigating the Climate Crisis & Eco-Distress

No, it's not a joke, or the Babylon Bee, it's a real website at a real top university, which a number of readers of this blog have probably graduated from or donate money to.

Dialogue Circle: Navigating the Climate Crisis 

The climate crisis has been impactful and many have turned to activism and supporting environmental justice movements. This is very meaningful work and can also create a sense of despair, burnout, anger, hopelessness, and other distressing emotions. CPS counselors will help to facilitate a conversation and create a supportive space to process such experiences.  

Mindfulness and Eco-Anxiety 

Eco-anxiety is the fear we feel (sometimes acutely, sometimes as an underlying dread) about the climate crisis. Join in a discussion of how you experience eco-anxiety, and how mindfulness can help us respond to it. We’ll discuss managing worry loops, staying compassionate with difficult feelings and purpose-based coping, as well as practice a mindfulness meditation.  

Forest Therapy 

Forest therapy provides a chance to connect, slow down, and cope with the stressors of life, including eco-distress and other emotional experiences related to the climate crisis.

The jokes write themselves. An alternative suggestion: Spend some time learning and listening before activisting. Bjorn Lonborg's website is a good place to start.  You'll be just as upset, but for different reasons. In the meantime, where is the safe space for traumatized libertarians or people who wish for basic facts in public policy? 

***
Update: I seem not to be able to post comments to my own blog. A response to JZ who disparages Bjorn Lonborg, and praises the impartial science of the IPCC. Here are some choice quotes from the latest IPCC report. "Confidence" means scientific confidence that the quoted steps are necessary to reduce global temperatures

D3.2. ... adaptation projects can.. increase gender and social inequality... adaptations [must i] that include attention to poverty and sustainable development (high confidence).

D6. Sustainable development supports, and often enables, the fundamental societal and systems transitions and transformations that help limit global warming... in conjunction with poverty eradication and efforts to reduce inequalities [high confidence]….  

D6.1. Social justice and equity are core aspects of climate-resilient development pathways that aim to limit global warming to 1.5°C...  

D7.2. Cooperation on strengthened accountable multilevel governance that includes non-state actors such as industry, civil society and scientific institutions, coordinated sectoral and cross-sectoral policies at various governance levels, gender-sensitive policies.... (high confidence).  

D7.4. Collective efforts at all levels, ... taking into account equity as well as effectiveness, can facilitate strengthening the global response to climate change, achieving sustainable development and eradicating poverty (high confidence)

Don't you love all that a-political, hard-nosed, reproducible, quantifiable, always skeptical science?

Boot Camp

The Hoover Institution will host another "Policy Boot Camp" August 16-22. See here for details and how to apply. It's a one-week survey of serious policy analysis.

The program includes  economists such as John Taylor, Ed Lazear, Amit Seru, Caroline Hoxby, Erik Hurst, and yours truly. Learn about international affairs from H.R. McMaster, Jim Mattis and  Condoleezza Rice. Niall Ferguson on Nationalism vs. Globalism and Bjorn Lomborg on climate should be worth it all on their own. And many more.

It's designed for "college students and recent graduates," but I think that is a bit elastic. Food and lodging free.

Update: in response to a commenter. Yes, PhD students and even those a year or two out are welcome. 

Ferguson and the billionaires at Davos

In my last post, I commented on Joe Stiglitz view, heading to Davos, that billionaires and corporate leaders are anxious to pollute the air.  In my wealth tax series I reported on the popular view on the Warren Sanders Saez Zucman view that corporate leaders and billionaires represent a regressive right wing political force, that must be stopped by any means including expropriation of their wealth, even if that means destroying the businesses that make them rich.

My colleague Niall Ferguson reports from Davos what seems actually to be on billionaires' minds: 

Take the World Economic Forum (WEF), the gathering of billionaires, millionaires, world leaders, do-gooders, busybodies and journalists that takes place each January in the Swiss resort of Davos. The overwhelming majority of people attending this year’s conference would, I have no doubt, affirm their commitment to reducing carbon dioxide emissions to avert catastrophic climate change, even while on board their Gulfstreams and in their Range Rovers.

I doubt if a single chief executive present at the WEF last week would dare publicly to challenge the view that a modern corporation should rigorously measure and regulate its behaviour in terms of its environmental and social impact, as well as its quality of governance (ESG, for short). As the US Business Roundtable declared last August, firms must now be run not only for the benefit of their shareholders but also for all their “stakeholders”: customers, employees, suppliers and communities. Milton Friedman is dead. Long live Klaus Schwab — founder of the WEF — who pioneered this notion of stakeholder capitalism.

“ESG-omania” (or “ESG-apism”) meant Davos 2020 was an orgy of virtue-signalling on climate change and diversity. To walk down Davos Promenade, the main drag, was to run a gauntlet of uplifting corporate slogans: “Sustainable solutions for Earth, for life”; “A cohesive and sustainable world starts with data”; “Let’s bring sea level and C-level together”.

Each year the WEF’s global risks report tells us what the business elite is most worried about. Ten years ago, the top five risks were “Asset price collapse”, “China economic slowdown”, “Chronic disease”, “Fiscal crises” and “Global governance gaps”. This year? “Extreme weather”, “Climate action failure”, “Natural disasters”, “Biodiversity loss” and “Human-made environmental disasters”.

(Related, the Wall Street Journal reported last week that Goldman Sachs will no longer fund fossil fuel development in the Arctic, or any US company that does not have women or "diverse" board members. And Jan 27, quotes "Salesforce chairman and co-CEO Mark Benhoff that "capitalism as we have known it is dead, and this obsession that we have with maximizing profits for shareholders alone has led to incredible inequality and a planetary emergency." ) 

In public, at least. In private, 

In quiet corners of the Davos congress centre you could hear Europeans wishing they could have at least a piece of this American action [Trumpian growth]— and complaining that Greta’s demand for “zero carbon now” was a recipe for zero growth.

... you say one thing in public and another in private. It was once the basis of life in communist systems all over the world. It turns out to be something capitalists can do just as easily, ...

Business people adopt whatever public views are convenient. And their public virtue-signaling means that winds now blow from the left. 

If Davos Man has come around to Trump — enough to expect, if not quite to hope, for his re-election — it is no guarantee that he will win on November 3. If January 2016 is anything to go by, you should probably bet against the Davos consensus and have a flutter on Bernie Sanders.

Niall organizes his thoughts around  "cognitive dissonance." Good old-fashioned "Hypocrisy" might be a more apt word. As in 

Do you give speeches about climate change at international conferences, having flown there by private jet? Do you ever sit in a big black car in a traffic jam, when you could quite easily have walked, despite knowing that this, too, is adding yet more carbon dioxide to the atmosphere?

Exhibit A: 

In this green new world, Davos Man must now prostrate himself before Stockholm Girl: 17-year-old Greta Thunberg, who delivered her latest tirade on Tuesday morning. “We don’t need a ‘low-carbon economy,’ ” she declared. “We don’t need to ‘lower emissions’. Our emissions have to stop. ...

I love Greta Thunberg, because she exposes the immense hypocrisy of the political climate establishment. When she went to school, she received the same alarmist pablum handed out to children around the world -- the climate is a crisis. Civilization is going to end. The world will be a red hot cinder in your lifetime. We have exactly 11 years to stop it. The other children, like those in communist countries including China today, understood the game. Mouth the pieties, get a good grade on the test, don't argue, and go out to play. Greta, who describes herself as neuro-diverse, took it seriously and literally. Well, if the planet is going to fry in exactly 11 years we darn well had better do something about it, and not just virtue-signal in our PR statements and buy some phony carbon offsets when we fly the Gulfstream back from Davos.

Niall's last point is excellent:

In the same way, if it’s climate change the WEF-ers are most worried about, you should probably brace yourself for a coronavirus pandemic. Talking of cognitive dissonance, what the hell were we all doing at a massive global conference last week? Fact: at least three of the WEF attendees were from — you guessed it — Wuhan.

What are the really big risks in the next 10 years? Pandemic, nuclear war, civil war, government collapse. The ones very few people are paying any attention to. The big ones are never the ones conventional wisdom sees coming a hundred years away.

Update:

On reflection, hypocrisy is not a good word either. What do you call the behavior, of mouthing platitudes that you know to be meaningless or false, from good old self interest? You know a Warren or Sanders presidency is a good possibility, and they will use the regulatory and judicial machinery ruthlessly. So let's get those public statements and virtue signals out fast -- support for "stakeholder" capitalism, climate crisis, "ESG" metrics or whatever it takes. You know that social climbing at Davos, your nonprofit boards,  (your hope to become dean someday, in academia) or just avoiding the twitter mob demand conformity. So you mouth the harder and harder to pronounce words, or even convince yourself of the worthiness of it all.  There must be a good word in  Russian, the art of getting along under a communist regime.  We say "virtue-signaling" but that does not cover the self-interest of going along with the crowd. I welcome suggestions for a good word.

State support for nuclear power

Tyler Cowen responded with an interesting  post to my query,

"I don’t see just why nuclear power needs “state support,” rather than a clear workable set of safety regulations that are not excuses for anyone to stop any project."

 (Tyler, originally wrote,

"State Capacity Libertarians are more likely to have positive views of infrastructure, science subsidies, nuclear power (requires state support!), ...," 

I interpreted "state support" as  massive subisdies to be added to the massively regulated system we have now, adding nuclear to (say) windmills, rooftop solar, and housing. Tyler had something quite different and interesting in mind:

"in general American society has become far more litigious, and it is much harder to build things, and risk-aversion and infrastructure-aversion have risen dramatically....So the odds are that without a Price-Anderson Act [which starkly limits nuclear company's liability exposure] America’s nuclear industry would have shut down some time ago, with no real chance of a return. "

A society that allows its lawyers to nearly bankrupt Toyota and Audi over non-existent auto defects, and now is shutting down Bayer over completely unscientific claims that Roundup causes cancer, is obviously going to quickly destroy any nuclear company over harms real and imagined.  If we're going to have nuclear, we need some limitation on this kind of adventurism, along with the legal and regulatory knots that make it almost impossible to build any infrastructure in the US today.

I file this in the "lack of state capacity" department. A good (adjective) Libertarian wants clear property rights, and a sensible tort system that pays some vague attention to scientific evidence.  That is part of state infrastructure. When we say "infrastructure" people envision roads, but good courts, laws, regulations, property rights, and so forth are perhaps the most essential state-provided infrastructure.

Tyler went on a bit, to comments that made a bit less sense to me:

I am not sure which level or kind of liability should be associated with “the free market,” especially when the risks in question are small, arguably ambiguous, but in the negative scenarios involve very very high costs.  Which is then “the market formula”? 

The free market does involve property rights and payment for actual damages. Airlines, drug companies, car companies, all can function in a free-market property-rights libertarian view (another good adjective!) Of all the problems of nuclear, especially the promising small scale new technolgy nuclear, properly bonding and paying for actual (as opposed to imagined) harm does not seem impossible.

But now we're falling in to another libertarian trap, that of discussion which cloud of libertarian nirvana is better. We're pretty far away from designing tort law for free-market property-rights society.

Climate clarity

The  carbon elephant in the room: (Data from EIA)

Bans on fracking and nuclear power

If you want evidence that climate policy has become unhinged from science and quantification, becoming more like a religious cult, look no further than the recent Democratic presidential candidates' proposals to ban fracking immediately and nuclear power soon.

From Michael Cembalest at JP Morgan

I'm not a denier. Yes, carbon is a problem, warming is a problem, and a uniform carbon tax, vast expansion of nuclear energy, more renewables, lots of R&D on them, GMO foods, and geoenginnering are solutions. (If indeed warmer weather is an existential crisis, and if indeed $2 billion of soot in the upper atmosphere solves it, that should at least be on the table.) Actual, quantitative, scientific solutions. They don't atone for our carbon sins.

A ban on fracking and nuclear are not solutions, and will raise carbon emissions.  The US is doing better on carbon reduction than other countries, because of fracking and natural gas.  Unlike Germany, who has followed these policies, we cannot rely on Eastern European coal and Russian gas.

I am delighted to see that despite my fears of how extensive discretionary regulation will silence dissent, Mr Cembalest can still write such a note, with the JP Morgan imprimatur. We'll see how long such heresy  survives more intense financial regulation and "stakeholder" control of corporate boards.   "Eco-authoriarianism" and a "coercive green new  deal"  are already openly advocated, here for example.

Real estate ups and downs

In a delightfully YIMBY "Americans Need More Neighbors" the New York times gets it almost all right.

Housing is one area of American life where government really is the problem. The United States is suffering from an acute shortage of affordable places to live, particularly in the urban areas where economic opportunity increasingly is concentrated. And perhaps the most important reason is that local governments are preventing construction.

It goes on, even noting flagrant progressive hypocrisy

Increasing the supply of urban housing would help to address a number of the problems plaguing the United States. Construction could increase economic growth and create blue-collar jobs. Allowing more people to live in cities could mitigate inequality and reduce carbon emissions. Yet in most places, housing construction remains wildly unpopular. People who think of themselves as progressives, environmentalists and egalitarians fight fiercely against urban development, complaining about traffic and shadows and the sanctity of lawns. 

It noticed the sordid racial past of zoning restrictions

... many residents said they were surprised to learn that single-family zoning in Minneapolis, as in other cities, had deep roots in efforts to enforce racial segregation. Cities found that banning apartment construction in white neighborhoods was an effective proxy for racial discrimination, and the practice spread after it was validated by the Supreme Court in 1926. 

Heavens, it even allows for the freedom to spend money, as long as it's not subsidized

People should be free to live in a prairie-style house on a quarter-acre lot in the middle of Minneapolis, so long as they can afford the land and taxes. But zoning subsidizes that extravagance by prohibiting better, more concentrated use of the land. 

Usually I would expect the NYT to jump on the opposite bandwagon and prohibit such houses.  The NYT even realizes that more market-rate apartments is the best way to provide more low priced housing

OK, the Times being the Times, it has to argue for some vast new subsidy,

 Governments need to provide subsidized housing for people who cannot afford market-rate housing. 

But here too, it gets a lot right. The bulk of the long oped is not about repeating the disaster of public housing projects, or more "affordable housing" mandates. It's just about build -- move the supply curve to the right. Berating its own a little more, it recognizes substitution and depreciation

...advocates for affordable housing should be jumping up and down and screaming for the construction of more high-end apartment buildings to ease demand for existing homes. Those new buildings are filled with people who would otherwise be spending Saturdays touring fixer-uppers in neighborhoods newly named something like SoFa, with rapidly dwindling populations of longtime residents.

Today’s market-rate apartments will gradually become more affordable, just as new cars become used cars. 

Meanwhile, in progressive political reality, and lest you get too optimistic, the Wall Street Journal, in a spectacularly mis-titled article, covers New York State's new rent control law. The title is "New York Passes Overhaul of Rent Laws, Buoying Wider Movement to Tackle Housing Crunch"  It's not an overhaul, it's a massive expansion, and it will not tackle the housing crunch, but it will make it spectacularly worse.

The New York legislation brings increased power to tenants in roughly one million rent-regulated apartments in New York City. It makes it more difficult for the owners of those apartments to increase rents, while enabling more tenants to sue landlords for rent overcharges. Also, tenants around the state will have more protections against eviction.

Proposals to limit rents are advancing in a number of state legislatures, including in California, where a statewide cap on rent passed the California Assembly in May, and in Oregon, which passed the nation’s first statewide rent control in February, limiting annual rent increases to 7% plus local inflation.

The times will probably get its way on housing subsidies, already a popular idea here in California. Imagine a subsidy for any house or rent above 30 percent of your income, plus a continued block on new construction.

It's interesting that economists spend a lot of attention on the minimum wage, and less on rent control plus housing supply restrictions. I guess nobody has made a big stir with a diff in diff regression claiming that rent control doesn't shrink housing supply. Perhaps someone should, just to ge the outrage going.

And, if you're wondering about the wealth tax, it's here. A limit on rents is a pure tax on the landlord's  property, transferring its value to the current renter, but destroying much of that value along the way.

Ip on carbon tax

Over the weekend, Greg Ip at WSJ wrote a  nice piece on the carbon tax.

Greg addresses some common objections.

This urge to stop at nothing to find an effective solution is understandable. How can you put a price tag on the future of the planet?

..Green New Deal backers make another powerful argument: Global emissions levels are still rising, and to reverse them, carbon prices would have to be so high they’d be politically toxic. Better, the activists argue, to simply go straight to a massive, government-directed transition. 

This attitude is common. But there is no evading economics. Either you have visible economic damage (carbon tax) of $1,000 per ton or invisible economic damage of $10,000 per ton.  Prices are better than restrictions because you can see where you're wasting $10,000 per ton, which money could reduce 9 times as much carbon properly deployed.

There is also a political judgment here that people will not stand for a visible tax, but will stand politically, or perhaps be too stupid to notice, the much larger shadow price of direct controls. They won't pay $5 at the pump for gas, but will stand for banning cars. I don't think that's true. I don't think the left thinks it's true either. The way the Green New Deal and even the IPCC reports now bundle carbon reduction with a vast left-wing political agenda, and a rather Orwellian drive to silence criticism confirms it.

Carbon tax update

An interesting question emerged from some discussion surrounding my last carbon tax post. How big will the tax be? The letter says $40 a ton, but then rising. But how far? And in response to what question?

It occurs to me that the two obvious targets lead to radically different answers.

1) The social cost of carbon. This is what economists usually think of as the appropriate Pigouvian tax. In order to pollute, you pay the cost you impose on others by your pollution.

Even the worst-case scenarios now put the cost of carbon emissions at 10% of GDP in the year 2100. Discount that back, divide by all the carbon emitted between now and then, and, you're going to get a pretty small tax.

2) Temperature or quantitative guidelines. Or, "whatever it takes to stop the global temperature from rising more than 1.5 degrees C." Such a tax has to be high enough to basically stop us  from using fossil fuels. It would be radically higher, and impose economic costs far higher than 10% of GDP.

When you set a goal of a quantity with no attached price, the price can get pretty high.

I see now some of the back and forth chatter. Anti-carbon types warn that any tax "won't be enough." Now I know what they mean.

So who sets the tax, and on what basis, are important issues we're all fudging over.

Of course, a cynic would take the view that the tax will be set to

3) Maximize government revenue.

Given the behavioral elasticities, that is likely to be a good deal less than #2, as to high a tax will quickly erode the tax base.

PS: to my may CO2-is-not-a-problem commenters. If (or perhaps when) it's all proved to be a hoax, a carbon tax is a lot easier to undo than the alternative regulatory approach!

Economists' letter on carbon

The "Economists’ Statement on Carbon Dividends" in the Wall Street Journal this week is a remarkable document. It's short, sweet, and signed by, as far as I can tell, every living CEA chair, every living Fed Chair, both Democrat and Republican, and most of the living Nobel Prize winners. (Thanks to a commenter who corrected an earlier count.)

It offers four principles 1. A carbon tax, initially $40 per ton. 2. The carbon tax substitutes for regulations and subsidies and (my words) the vast crony-capitalist green boondoggle swamp, which is chewing up money and not saving carbon. 3. Border adjustment like VAT have 4. "All the revenue should be returned directly to U.S. citizens through equal lump-sum rebates."

That the carbon tax is better than regulations and subsidies in choosing technology gets a lot of press. Yes, should we have rooftop solar cells or utility cells in the desert? Is it better to have battery powered cars or high speed trains? Do we really have to have washing machines that no longer actually clean clothes? And the only way to actually save lots of carbon -- nuclear -- has a much better chance under a carbon tax than hoping our political system will allow it.

But most people forget what economists know best -- that a carbon tax is the only way to change behavior. The answer to energy savings isn't as much new technology as in old behaviors. Turn the lights off. Take fewer trips. Turn the heat down. Move nearer your work. Carpool. Without a carbon tax there is no way for the average bleeding heart Palo Alto climate worrier to realize that one trip to Europe is like driving a car for 10,000 miles. (Planes get about 80 passenger miles per gallon -- but it's a lot of miles to Europe.) Twenty years ago, my then 8 year old daughter, reading about fuel economy standards, piped up "if they make cars more fuel efficient, it will be cheaper to drive. Won't people just move further away?" Indeed.

I try to sell a carbon tax deal to friends who are climate skeptics. Well, our government is going to do something. Given that fact, the carbon tax will cause much less damage than ever increasing regulations and subsidies. And I try to sell it to carbon warrior friends too. The tax instead of the regulations and subsidies, in our political system, is going to save you a lot more carbon.

The last proposal is, I think, the most contentious. Optimal taxation theory, as several of the signatories pointed out in other contexts, says that the carbon tax should go to reduce other distorting taxes. This will create more economic growth. As Holman Jenkins  put it,

A tax reform that included a carbon tax to replace taxes that depress work, saving and investment would be an incentive to do everything in a less carbon-intensive way, bringing forth new technologies 

Here the authors step back from benevolent-planner optimums and think politically. Well, we live in a political system.

But there is a bright side. One big point of the dividend is to guarantee that revenues will not go to financing ever larger green boondoggles like the California high-speed train to nowhere, or to subsidize a Tesla in every VCs driveway. Carbon dividend means no "green new deal." The view that the tax system is what it is, and a major new source of revenue will not go to reducing marginal tax rates in a growth-oriented reform sounds quite realistic to me. If our Congress were interested in growth-oriented tax system it would already look a lot different than it is today.

A flat dividend is also immensely progressive. It is, effectively a universal basic income. And casual observation on ownership of large houses and jet travel suggests wealth people spew a lot more carbon than poor ones. I guess that is an effort to get Democrats to give up some of their cherished regulations and subsidies to get these long sought goals. (Like any UBI, it's going to make immigration a tougher issue, but we won't go there today.)

Tyler Cowen disagrees with the dividend.

"It strikes me as economists thinking they know what makes good politics, something which economists are rarely good at."

Well, he has a point, and I also think economists should emphasize more when they have expertise and when they don't. On the other hand, I don't see anybody else having much better idea what makes good politics these days, and the list of "economists" that created and signed the letter, starting with George Shultz, have immense political experience.

The dividend may not be the economically most efficient thing to do, but it will guarantee a lifetime of political support for the carbon tax! Hamilton figured this out with the assumption of national debt.

It has taken me some time to come around, as attached as I am to reducing marginal tax rates, but the political advantage that out keeps the money from being spent on boondoggles, and creates a constituency in favor of the tax and against spending the results on boondoggles, is strong.

I also worry about the wide range of environmental issues that have been forgotten in the Great Carbon War. Butterflies and Frogs are disappearing. The pacific garbage patch grows. Rhinos and Elephants will be gone long before climate bothers them. Take your pick, if we passed the carbon tax, and if this issue could disappear as one of the issues uniting partisanship and sweeping up the entire environmental movement, it would be a lot better for life on the planet.  Once upon a time, there were Republicans in the Sierra Club, Audubon Society, Greenpeace, and other formerly non-partisan organizations. Put carbon behind us, and it could be so again.

"Big Names Bake a Climate Pie in the Sky" complained Holman Jenkins. His complaint, largely, is that the deal won't be kept -- we'll get the tax and regulations, and the dividend promise will disappear into the bowels of Washington.

Besides, since we face a “climate emergency,” wouldn’t the money be better spent on speeding up deployment of wind and solar? As for existing mandates and subsidies, sure, we might expend additional political energy to repeal these. And pigs might fly. 

This is an important point. As reducing marginal rates and removing deductions sounds nice, our tax reforms (especially the last) reduce marginal rates but don't remove deductions. The VAT with no income tax is a much better system, but many free market economists don't favor it because they don't trust the deal. Trusting the deal, carbon tax in return for no regulations, is a stretch.

However, I can hope that a deal could be struck, carbon tax in return for no new regulations and subsidies, or subsidy extensions -- no "Green New Deal."  If we give up that deals can ever be struck and kept, we might as well give up on democracy.

Of course, in the 5th week of a shutdown, over a completely symbolic issue, with great deals on the table that benefit both sides, if only each could let the other have a symbolic victory, is not a great time to advance such hope. But even here, once you realize the shutdown has nothing to do with immigration, you see hope. This is a battle to the end over the Trump presidency. If he backs down, his presidency is finished. The Democrats think they can achieve that, and if they back down their left wing takes over. There is no way out of that one -- and reason to hope that when Washington is bargaining over actual policy and not over a symbolic but life-and-death battle, that they can do it.

Cause, effect, and carbon

“As fires rage up and down the state of California, costing our taxpayers billions of dollars and threatening our families’ health—- the need for California to move to 100% clean, renewable energy could not be more urgent,” said Mr. de León in a statement.

Sen. Kevin de León, a Democrat who is waging a long-shot run for a U.S. Senate seat against incumbent Dianne Feinstein.

Reported in the Wall Street Journal

The context is

California passed legislation Tuesday that would make it the first large state to mandate completely carbon-free electricity generation, with a target of 2045.

My understanding is that nuclear does not count as "carbon free."

Just to belabor the obvious, the central part of our state has been living under a blanket of smoke most of the summer. Smoke causes an immediate and local pollution problem, which is a direct threat to human health -- fine particulate matter.  Yet the state has cut its firefighting air fleet and budget over the past few years, and also let fuel accumulate in forests over the winter.

California contributes maybe 1% of global carbon emissions. Guesstimate for yourself how much California carbon-free energy by 2045 will do to reduce wildfires in your grandchildren's lifetime.  "Urgent?"

If you think global warming is real, and that it will increase wildfires, it seems you would be rushing to spend money on putting out fires.

Instead, our state government seems to regard wildfires as punishments for our carbon sins, that only praying to the Temple of Carbon with largely symbolic billions of dollars can salve. Actually doing something about problems the West has always had -- wildfires -- that may be moving north a bit due to global warming seems to be regarded as an immoral act.

I am also interested by the fantastical cause-and-effect thinking going on here, and the flight from any vaguely quantifiable dollars per unit of effect. And this from the self-described "party of science."

EPA, the nature of regulation, and democracy

My Hoover colleague Richard Epstein posted a revealing essay on the nature of environmental regulation last week, with environmental regulation as a particular example. The contrast with "Environmental Laws Under Siege: Here is why we have them"  in New York Times  and the New Yorker's  Scott Pruitt's Dirty Politics is instructive

Epstein's point is not about the raw amount of or even what's in the regulation, but the procedure by which regulation is imposed:

As drafted, NEPA [National Environmental Policy Act of 1970 ] contains no provision that allows private parties to challenge agency decisions in court. Instead, the NEPA approval process is a matter for internal agency consultation and deliberation that takes into account comments submitted by any interested parties. 

One year after its passage, NEPA was turned upside down in a key decision by Judge J. Skelly Wright of the D.C. Circuit Court of Appeals... Wright read the law as giving private parties the right to challenge government actions. Indeed, Wright welcomed such challenges, writing (admiringly) that the change, “promises to become a flood of new litigation—litigation seeking judicial assistance in protecting our natural environment.”

Giving private parties the right to challenge an agency decision grants enormous leverage to the private parties most opposed to letting projects go forward. In the case of nuclear power, delay became the order of the day, as the D.C. Circuit on which Judge Wright sat arrogated to itself the power to find that any EA or EIS was insufficient in some way, so that the entire project was held up until a new and exhaustively updated EIS was prepared—which could then be duly challenged yet again in court.

Two on energy subsidies

The WSJ has two good and related opeds on energy and transport subsidies recently, Randall O'Toole on Last Stop on the Light-Rail Gravy Train and Lee Ohanian and  Ted Temzelides write on energy and transport subsidies

O'Toole:

Last month, Nashville Mayor Megan Berry announced a $5.2 billion proposal that involves building 26 miles of light rail and digging an expensive tunnel under the city’s downtown. Voters will be asked in May to approve a half-cent sales tax increase plus additions to hotel, car rental and business excise taxes to pay for the project.

Just in time for self-driving Ubers to arrive.

I love trains. But we have to admit practicalities. One transportation economist summed all there is to know about transit with "Bus Good. Train Bad." (With a few exceptions, such as Manhattan.)  And light rail, worse. Trains are expensive, and once built, immobile. If people want to go somewhere else, tough. Rolling stock lasts around 50 years, meaning they bake in technical obsolescence. Trains carry far fewer people per lane-mile than busses. And a fleet of self-driving Ubers linked by computer will be able to use bus lanes.

Actually, even buses are more and more questionable. As I wait for the interminable lights on El Camino to cross to Stanford (on bicycle), I have taken to counting passengers on the well-subsidized bus line. The modal number is zero.

As Randy has pointed out elsewhere, the main beneficiaries of light rail are suburban largely white commuters with a nostalgia thing for trains. The main people paying for it are inner city minorities who don't get bus service anymore.

To pay for new light-rail lines that opened in 2012 and 2016, Los Angeles cut bus service. The city lost nearly four bus riders for every additional rail rider.

Congestion got you down? Real time tolling, adjusted minute by minute, will either cure traffic congestion forever, or will bail out indebted local governments with massive revenues, or both. Or, let people live somewhere near where they work!

Lee and Ted consider the transition from horse to auto and truck,

‘In 50 years, every street in London will be buried under 9 feet of manure.” With this 1894 prediction, the London Times warned that the era’s primary source of transportation energy—the horse—would soon create an environmental crisis. ...

The enormous demand for a cleaner and more efficient source of energy led to remarkable innovations in the internal combustion engine. By 1920 horses in cities had been almost entirely replaced by affordable autos and trucks...

And to be honest, horse manure replaced by auto exhaust -- but as bad as auto exhaust is, it's a lot better than horse manure.

Suppose governments in the 1890s, desperate to replace the horse, had jumped on the first available alternative, the steam engine. Heavy subsidies would have produced more steam engines and more research on steam technology. This would only have waylaid the development of the far superior internal combustion engine. 

Source: Obtainium works. 

(Actually, the government did subsidize railroads a good deal, and perhaps by doing so did stall the development of the truck.)

More than horse manure, I love the image of an alternate reality steampunk America...At left a cool  steampunk RV. (Image source)

Which brings us back, I'm afraid to the main force behind rail subsidies, which Randall has pointed out before: Nostalgia. Nostalgia for what seems like a simpler age. I understand that too. I love trains. But that doesn't make them practical, especially at billions of dollars per mile.

If we're doing nostalgia, how about doing it full time -- high speed stagecoach lines? Bring back the horse! It's all renewable!'

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.

On Climate Change

David Henderson and I wade in to perilous waters in the July 31 Wall Street Journal. We try to stake out a different and more productive conversation than the usual shouting match between alarmists and deniers.

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.

As usual, I have to wait 30 days to post the whole thing.

As economists, we both have a healthy skepticism of large computer based forecasting models. The famous 1972 club of Rome forecast that we would run out of resources, and the grand failure of large scale Keynesian models in the late 1970s are two humbling examples. The "climate" models also feature a lot of questionable economics. A crucial question -- how much carbon will the world's economies add on their own, without Paris-accord policies? That's economics, very questionable economics, and not meteorology.

That said, however, the point of the oped is to try to shift the debate away from climate science and mixed climate-economic computer models. Stop arguing about climate, and let us instead investigate costs and benefits of policies. That strikes us as a much more fruitful place for discussion. If you are wary of the climate policy agenda, the costs and benefits of those policies are more fertile ground for discussion than the science of carbon emissions and atmospheric warming. If you only argue about the climate, then you implicitly admit that if the models are right about climate, the whole policy agenda follows. Do not admit that point. They may be right about climate and wrong about policy.

Douthat and Feldstein on Euro

In case you missed it, this Sunday featured a creditable effort by the NY Times to look out of the groundhog hole. You have likely followed the explosion resulting from Bret Stephens' first column. Likewise, Ross Douthat tried to explain the attraction of Marine LePen.  I'm not a LePen fan, but appreciated his honest effort to explain how the other side say things.

I was interested in Douthat's views on the euro:

But on the other hand, our era’s “enlightened” governance has produced an out-of-touch eurozone elite lashed to a destructive common currency,..

There is no American equivalent to the epic disaster of the euro, a form of German imperialism with the struggling parts of Europe as its subjects... 

And while many of her economic prescriptions are half-baked, her overarching critique of the euro is correct: Her country and her continent would be better off without it.

Douthat does not pretend to be an economist, and I have no beef with his expressing such views. Because such views are commonplace conventional wisdom from our policy elite. And if the euro falls apart, they will bear a lot of blame for its passing. Be careful what you write, people might be listening.  No, when Germany sends Porsches to Greece in return for worthless pieces of paper, it is not Germany who got the better of the deal. And while you're at it, get rid of that silly common meter, and restore proper nationalism of weights and measures too. (Of course perhaps my admiration for the euro is wrong. Then they will deserve credit for the wave of prosperity that flows over Europe once it unleashes the shackles of the common currency dragging it down. )

As a concrete example, consider  Martin Feldstein writing in the Il Sole series on the Euro, (I don't mean to pick on Feldstein. He has been a consistent anti-euro voice, arguing the great benefits for Italy and Greece of periodic inflation and devaluation. But he is just a good sober example of the common view in Cambridge-centered economic policy circles.)