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Brooks Wilson's Economics Blog: April 2009

Tuesday, April 28, 2009


Many games, books and movies have themes of good guys versus bad guys.  Pirates were the bad guys.  Why then are they often romanticized?  Why did Disney build a ride, and an E ticket one at that, honoring villainous pirates?  Could someone really be a "good man and a pirate" as Captain Jack Sparrow suggests in "Pirates of the Caribbean"? 

Peter Leeson, an economist at George Mason University, has written extensively about 18 century pirates.  In an article entitled, "In Defense of Pirates (The Old Time Ones)," (NPR, April 10, 2009) he reminds us why pirates are bad but continue to hold our interest.
All pirates are thugs, and the world would be better off without them. But not all pirates are equal. Unlike their Somali successors, early 18th century pirates, men like Blackbeard, "Black Bart" Roberts, and "Calico" Jack Rackam, weren't only thieves. They were also early experimenters with some of the modern world's most cherished values, such as liberty, democracy, and equality.
The 16th and 17th centuries saw an increase in exploration, colonization and trade.  Merchants did not man their ships; they hired a captain and a crew.  This organization created a principle-agent problem.  The captain and crew did not have incentives to care for the ship nor its cargo.  Merchants overcame this problem by selling or granting a captain shares in the ship.  Unfortunately for the crew, the captain then had incentives to impose harsh discipline, docked wages, and cut food rations.  It increased his profit.

Seaman came from the lowest socioeconomic elements of society, and were often abused by merchant captains.  Piracy was an alternative career choice that gave some protection from predation and a chance at wealth.  Pirates owned their ships and operated them as a floating stock company.  They behaved democratically as shared owners.

Pirates still needed captains to find prey and make decisions in battle.  Experience made them wary of predation by their captains, and they limited it using several techniques common in today's governments.  The first was to democratically elect captains.  Leeson observes ("An-arrgh-chy: The Law and Economics of Pirate Organizations, Journal of Political, vol. 115, no. 6, 2007),
...pirates could and did democratically elect their captains without problem. Since the pirates sailing a particular ship were both the principals and the agents, democracy did not threaten to lead to captains who served the agents at the principals’ expense. On the contrary, pirate democracy ensured that pirates got precisely the kind of captain they desired. Because pirates could popularly depose any captain who did not suit them and elect another in his place, pirate captains’ ability to prey on crew members was greatly constrained compared to that of merchant ship captains.
Pirates further limited the captains power through divided authority, much as we do with separation of powers in a modern democracy.
The primary “other officer” pirates “constituted” for this purpose was the quartermaster. The way this office worked is straightforward. Captains retained absolute authority in times of battle, enabling pirates to realize the benefits of autocratic control required for success in conflict.  However, pirate crews transferred power to allocate provisions, select and distribute loot (there was rarely room aboard pirate ships to take all they seized from a prize), and adjudicate crew member conflicts/administer discipline to the quartermaster, whom they democratically elected...
To limit abuse by the quartermaster, pirates instituted articles of agreement or constitutions defining the rights and punishments of crews. 
Articles of agreement required unanimous consent. Consequently, pirates democratically formed them in advance of launching pirating expeditions. “All [pirates] swore to ’em,” sometimes on a Bible or, for one pirate crew, “upon a Hatchet for want of a Bible.” The crew forged its articles alongside the election of a captain, quartermaster, and occasionally other smaller officers. Pirates sought agreement on their articles (ex ante “to prevent Disputes and Ranglings afterwards” (Johnson 1726–28, 342). In the event a pirate disagreed with their conditions, he was free to search elsewhere for more satisfactory terms.
Finally, pirate crews were often more racially tolerant than government operating contemporaneously.
Some historical pirates even embraced racial tolerance before their legitimate counterparts. England didn't abolish slavery until 1772. In the United States slavery persisted until 1865, and blacks didn't enjoy equal rights as citizens, politically or in the workplace, until even later than this. Some historical pirates, however, extended suffrage to their black crewmembers and subscribed to the practice of "equal pay for equal work," or rather, "equal pay for equal prey," in the early 1700s.
Democratic social innovations by pirates does not make them good guys, but it does make them interesting.  Leeson has interested me enough in pirates that I am placing his book, "The Invisible Hook," on my summer reading list.

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Monday, April 27, 2009

Torture: Marginal Costs and Marginal Benefits

I support the interrogation/torture of detainees if what I have read is correct.  By world standards, the methods we employed were relatively mild, and I believe that any foreign outrage is feigned.

My opinion is purely normative, but in my estimation, saving American lives was worth the marginal costs to Americans involved in these activities.  I do not believe that the marginal costs are trivial.  I have taken a few quotes from an officer who participated in torture during Argentina's dirty war reported by Andrew Grahm-Yool in "State of Fear," Eland, London & Hippocrene Books, New York.  Argentina is not the United States.  The torture was more severe and applied more generously to a larger range of people by less trained interrogators, but I believe there are enough parallels to make the quotes suggestive of marginal costs to those in service to the United States.

On motives, in which the quote suggests that interrogators lost human sympathies, perhaps due to cognitive dissonance. 
Don't give me that nonsense about human rights.  That is just a political slogan.  We were the real defenders of rights.  We fought for a way of life, for society without subversives...
On torture,
...I never tortured.  Torture is inflicting pain for personal pleasure.  I dealt punishment to my enemy, under orders from my superiors.  And if you want to know, we all get to the stage when it becomes a game; the subversive knows that.  You are playing to get things out of him.  Time is on your side, but you cannot give him time, because then he will gain on you as you begin to realise what you are doing.  I am working to break him as quickly as possible.  You feel sorry to cause pain, but you work quickly.  You don't look a his face, even when you put the prods in the mouth; you keep their eyes covered.  The secret is not to look at their eyes.  The other secret is do not draw blood.
On the interrogators,
The younger men seemed to be much, much harsher.  They were given authority over the subversives, and they made it power over life and death.
On the age of the interrogators,
[They were] very young.  Conscription age boys who had signed on as regulars, young corporals...They had to be stopped from giving punishment, because they would have left the investigators with nobody to question...The young are all extremists--in their ideals, their violence, their moods.  They don't know caution or care.
On the cost to the interrogators,
Once, when I went to the military hospital, the doctor said that the army had employed 150 psychologists in 1978 and 1979 to treat young officers who had operated against the subversives.  I don't know if it is true.

But when you are told something like that, there is always a root of truth in it.  The young officers had to be taken care of, because not all could be allowed to leave the service.  Some had to be promoted. 
David Rivkin and Lee Casey, who served in the Justice Department under George H.W. Bush, and were U.S. delegates to the U.N. Subcommission on the Promotion and Protection of Human Rights, write of the care that interrogators took to protect the long term health of detainees ("The Memos Prove We Didn't Torture," Wall Street Journal, April 20, 2009). 
The four memos on CIA interrogation released by the White House last week reveal a cautious and conservative Justice Department advising a CIA that cared deeply about staying within the law. Far from "green lighting" torture -- or cruel, inhuman or degrading treatment of detainees -- the memos detail the actual techniques used and the many measures taken to ensure that interrogations did not cause severe pain or degradation.

Interrogations were to be "continuously monitored" and "the interrogation team will stop the use of particular techniques or the interrogation altogether if the detainee's medical or psychological conditions indicates that the detainee might suffer significant physical or mental harm."
I believe that the careful monitoring was of greater benefit to the interrogators than the detainees in reducing the psychological costs of interrogation.

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Murtha's Airport and the Stimulus Debate

Over the course of his congressional career, John Murtha has funneled nearly $200 into the Johnstown-Cambria Co-Murtha Airport.  The airport has three flights per day.  The FAA has approved an $800,000 "shovel ready" project to repave a crosswind runway that's used as a backup to the main landing runway (Jim Acosta and Janet Rodriguez.  "Remote Murtha airport lands big bucks from Washington," CNNPolitics .com, April 23, 2009 or the video link). 

The project illustrates differences between economists supporting and opposing the stimulus.  Economists supporting the stimulus argue that even bad projects create jobs now and replace a vicious cycle of market psychology in which bad news feeds retrenchment which engenders more bad news with a virtuous cycle.  Economists who support the stimulus might support the project if it employs mostly idled resources.  Economists opposing the stimulus argue that the government's inherent inefficiency in selecting good investment projects, the deadweight loss from taxation, and the high percentage of employed resources imply that few new resources will be employed and any recovery will be weak because of the size and scope of wasted resources.  Good investment projects would employ idled resources and have good long run return on investment.  This project would not pass their scrutiny.

I believe that most economists see a need for airport expansion (Paul Joskow, Deregulation, AEI Event, February 10, 2009, Minutes 29:50-32:45.  The link provides a link to the audio of the lecture).  The lack of airport expansion, particularly the building of new hubs, is a factor limiting the success of Carter era price deregulation.  I would guess that most economists would not like the rate of return on the Murtha airport project.  As of March 2009, Pennsylvania's unemployment rate was 7.8%. 

Brad DeLong who supports the stimulus and Kevin Murphy who opposes it are typical of the debate.  DeLong failrly summarizes Kevin Murphy's arguments against it and his support for it ("Best Anti-Stimulus Argument: from Kevin Murphy, Brad DeLong's Semi-Daily Journal.)
I think he [Murphy] overstates the deadweight loss effect and is working with the wrong conception of “efficiency” for these purposes when he claims that government is inefficient, so the odds of a stimulus being successful therefore aren’t as bad as he indicates. And this doesn’t change the fact that I haven’t heard any better ideas than doing a big stimulus. But this is a sobering reminder that a big stimulus doesn’t guarantee success—very hard work needs to be done on making sure that stimulus funds target genuinely idle resources rather than diverting non-idle resources while leaving the idle ones as idle as ever.

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Saturday, April 25, 2009

Cap-and-Trade is a Tax

Representative John Dingell, questioning former vice president, Al Gore said,
"Nobody in this country realizes that cap-and-trade is a tax -- and it's a great big one," Rep. John Dingell (D-Michigan) said Friday.


Dingell compares the efficiency of a cap-and-trade tax to an energy tax and finds it wanting.  He should invite Greg Mankiw to provide testimony to the House and consider joining the Pigou Club.

Al Gore favors both taxes.
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Friday, April 24, 2009

Labor Unrest in France

Do we really want more unions?  (HT Drudge) From TIMESONLINE, "EDF strikers cut power to French homes,"
At an electricity substation on a bleak industrial estate north of Paris a masked union militant is preparing to deprive a neighbourhood of power.

His colleague is outside, dragging nervously on a roll-up cigarette while keeping a lookout for police or security guards. “Get a move on,” he says. “And then let’s get out of here.”

A switch is pulled down, the door of the sabotaged transformer is locked and the two activists — employees of EDF, the French state electricity supplier — drive off.

In their wake hundreds of houses and a handful of businesses in Montigny-lès-Cormeilles are left without electricity for much of the morning.

It was the second time in a week that blackouts had hit the Paris region as striking gas and electricity workers adopted radical tactics to support their call for a 10 per cent pay rise and an end to outsourcing of jobs.

They are denounced as industrial saboteurs by the Government and face disciplinary action and prosecution, but say they are determined to press ahead with what they portray as a struggle against free-market forces.

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My Earth Day Speech

I lived in a community that kicked off a campaign to stop teen drinking with a cocktail party.  The teens saw the double standard.  (HT Drudge) Mark Knoller hit the just the right tone in "Obama Earth Day Flights Burned More Than 9,000 Gallons Of Fuel," CBS NEWS, April 24, 2009. 
It happens every time a president leaves town to make an Earth Day speech. Reporters scramble to point out how much fuel was expended so the President could talk about conserving energy and using alternative fuels.

President Obama could have saved at least 9,116 gallons of fuel by giving his speech at the White House – but no wind turbines are manufactured here.
President Obama called for a new era of energy exploration promoting his administration's plan to develop and promote renewable and alternative fuels.  I wish the president would have delivered a different speech.  Overlooking a national park, it would begin, 
Americans remain grateful to leaders like Theodore Roosevelt for preserving land as parks, creating a refuge for flora and fauna.  As a nation, we have made great progress lowering pollution levels and providing the public goods of clean air and water.  There is room for progress.  In attempting to protect our forests from fire, we have allowed dense underbrush to accumulate, making fires when they occur larger and more dangerous.  I am announcing a public program to clear our forests of the accumulated underbrush, restoring them to a more natural order.  Once achieved, forest fires will be smaller and less dangerous.  They will be allowed to burn unless endangering human life.

Our economy is built on the strength, creativity and efficiency of Americans working through markets.  Problems of rising energy prices will largely be resolved in the private sector.  The government will assist by funding basic research and the legal and institutional framework that recognizes that increases in our welfare have been and will be linked to increasing energy consumption, but no more. 

Enjoy the beauty of the country that God has placed under our stewardship and be wise stewards so that future generations will enjoy an even cleaner and more beautiful environment. 

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Thursday, April 23, 2009

Fidel Castro Interprets Raul Castro's Remarks

Raul Castro responded to President Obama's modest policy changes that lift some restrictions on Cuban-Americans visiting families and remittances (Fabian Cambero.  "Cuba ready for U.S. talks on rights, prisoners," Reuters UK, April 17, 2009.
We have sent messages to the U.S. government in private and in public that we are willing to discuss everything, whenever they want.  Human rights, press freedom, political prisoners, everything, everything, everything they want to talk about.
Fidel Castro made similar overtures in a written response in a Cuban newspaper to a letter signed by 12 senior retired military officers under the direction of the New America Foundation and the National Security Network ("Fidel Castro: Soldiers with Correct Opinions,", April 16, 2009 )("Cuba's Raul Castro: Let's talk," Foreign Policy, April 17, 2009).
...- the debate of ideas; we believe in our convictions and with them we have known how to defend and continue defending our homeland.

A group of high-ranking retired U.S. military were urging President Barack Obama to ‘support and sign’ a law to end the prohibitions on travel to Cuba by all U.S. citizens, arguing that the embargo against the island is of no use for political purposes or for Washington’s security.
Secretary of State Hillary Clinton interpreted the remarks in a manner supportive of the administrations goals, and responded positively to the Castro's remarks ("Clinton Receptive to Castro Overture to Discuss 'Everything',, April 17, 2009).

We have seen Raul Castro's comments and we welcome this overture. We are taking a very serious look at it, and we will consider how we intend to respond.  We are continuing to look for productive ways forward, because we view the present policy as having failed. Engagement is a useful tool to advance our national interests.
Parenthetically, I would not have referred to past U.S. policy that was maintained through many administrations, including her husband's, as failed.  Although she is technically correct, it did not bring down the communist regime, it sounds like she is blaming the U.S. for Cuba's problems.  Cuba's biggest problem is its brutal, nasty communist government.  Instead I would have said that the policy needed to be amended with changing circumstances.  I imagine that the policy objective remains unchanged, to see Cuba evolve into a democratic, market oriented society with both political and economic freedom. 

Fidel Castro knows the dangers of opening trade and other relationships with the U.S.  The regime seems to want someone to blame for its failures more than it wants to improve the lives of its citizens through more interactions with the U.S.  As President Obama was leaving the Summit of the Americas, he asked Cuba to free political prisoners and reduce taxes on U.S. remittances.  Castro responded (Fidel Castro.  "Obama and the blockade," Digital Granma International, April 22, 2009)(AP.  "Fidel Castro says Obama misinterpreted his brother's remarks" Los Angeles Times, April 22, 2009).
Without any doubt, the president misinterpreted Raúl’s statement.

On affirming that Cuba is prepared to discuss any issue with the president of the United States, the president of Cuba stated that he has no fear of approaching any issue whatsoever. That is a demonstration of courage and confidence in the principles of the Revolution.
The Obama administration should be even more dynamic in offering to improve relations with Cuba; we should end the trade blockade.  The more we offer, the less they will take, and the more apparent it will become that Cuba's failed economy is a product of its own policy and not the U.S. blockade.  This is the worst outcome that we would achieve.  If the Castro regime accepted trade it would secure friends within the government of Cuba and between citizens in both countries.  Trade would result in a larger comparison between the two country's laws and institutions.  It is a comparison that we cannot fail to win.  Trade, even the threat of trade, and the Castro's would view it as a threat, would weaken the communist regime. 

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Wednesday, April 22, 2009

Loven and Tapper on the Budget Cuts

Jennifer Loven questioned Robert Gibbs about the miniscule $100 million in budget cuts ("Today's Qs for O's WH - 4/20/2009, abcnews).  Gibbs tried to give a flippant answer and was called on it.  I have pulled out a couple of paragraphs.
JENNIFER LOVEN, AP:  The $100 million target figure that the president talked about today with the Cabinet, can you explain why so small?  I know he talked about -- you know, you add up 100 million and 100 million, and eventually, you get somewhere, but it would take an awfully long time to add up hundred million (inaudible) in the deficit.  Why not target a bigger number?

GIBBS:  (Smiling) Well, I think only in Washington, D.C. is a hundred million dollars...

LOVEN:  The deficit's very large.  It's not a joke...
TAPPER:  You were talking about an appropriations bill a few weeks ago about $8 billion being minuscule -- $8 billion in earmarks. We were talking about that and you said that that...

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Fat People Blamed for Global Warming

Scientists in England have accused fat people of contributing to global warming (Ben Jackson, "Fatties cause global warming," The Sun, April 21, 2009). 

Each fat person is said to be responsible for emitting a tonne more of climate-warming carbon dioxide per year than a thin one. It means an extra BILLION TONNES of CO2 a year is created, according to World Health Organisation estimates of overweight people.

The scientists say providing extra grub for them to guzzle adds to carbon emissions that heat up the world, melting polar ice caps, raising sea levels and killing rain forests.  The environmental impact of fat humans is made even worse because they are more likely to travel by car — another major cause of carbon emissions.

If I had a bent toward conspiracy, I would believe that the oversight was intentional, and that scientists don't like fat people.  I can see what is coming: taxes on weight and per capita consumption, and punitive parking permits forcing fat people to park in the back of lots.  Maybe fat people will have to pay for more of their health costs.  In short, public policy will be designed to make their life a living hell. 

Let's assume that scientists are really concerned with fat people's health, and more importantly to them, carbon emissions.  In that case, scientists missed the BIG picture.  Athletes and big people emit more carbon than couch potatoes and small people.  Take Michael Phelps for example.  He is a big person who consumes 12,000 calories per day.  He swims in pools from the USA to China.  I wonder if he buys carbon offsets for all the miles he flies. How many calories does Shaq consume each day?  How many miles does Tiger fly? 

We should do all we can to make people smaller starting with a tax on big people.  Let's measure big by weight.  It doesn't maker if a 250 pound person has 6% or 60% body fat; they are big.  They emit more carbon.  We could tax size at a progressive rate.  People who weigh less than average pay no tax.  Those who weigh less than 75% of average pay a $1,000 more in taxes.  The top 10% of weight would pay $5,000 more, and the top 1%, $25,000.  This would be hard on big poor people, but it would increase incentives to shrink. 

This may not be enough.  We may need to limit the rights of big people to reproduce.  Only the bottom 90% of the population would be permitted to breed.  Only the bottom 50% could have more than one child.  Big people who want children could adopt.  The effects would be immediate and measurable within one year of birth.  In 21 months, we could check the growth charts to see if the policy was working. 

We could reduce average size by 20% 20 years, and 50% in three generations!  Mankind's carbon footprint would be cut in half.  Not only would we eat less, our houses would be half as big.  A compact car would seat nine.  Smaller cars would mean narrower lanes.  Narrower lanes would translate to more lanes on existing streets.  Congestion and its carbon imprint would decline.  Our carbon footprint would decline with our stature. 

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Tuesday, April 21, 2009

Castaneda on U.S. and Cuban Relations

Jorge expresses his views on policy that the U.S. should pursue towards Cuba in a Wall Street Journal article, "The Right Deal on Cuba."  The byline identifies Castaneda as a professor at New York University, a fellow at the New America Foundation, and Mexico's foreign minister from 2000 to 2003.  He believes, as I, that the U.S. should unilaterally lift the trade embargo on Cuba.  He argues that this action would pressure political leaders from Brasilia, Santiago and Mexico City to strongly promote to Castro the democratic ideals they quietly profess. 
It begins with a unilateral end to the embargo: Nothing is expected from Cuba. But in exchange for eliminating the embargo, key Latin American players would be expected to commit to actively seeking a normalization process between Washington and Havana, and to forcing Cuba to establish representative democracy and respect for human rights...

Would Brasilia, Santiago and Mexico City go along? Perhaps not, but nothing is lost by trying. All Mr. Obama would be asking is for moral consistency on the part of Latin leaders -- to uphold the values enshrined in their own constitutions and treaties.

Would the Cubans buy into this plan? While Fidel lives, it's unlikely. If they don't, Mr. Obama will have relinquished what many wrongly consider America's only leverage with nothing to show for it. And the Latin Americans could always wash their hands of the affair, arguing they tried their best.

But on the other hand, the pressure on Mr. Obama to unilaterally lift the embargo may become irresistible anyway. By shaming Latin leaders to stand up for their professed ideals, no one could pretend that the blame for the conflict still lies in the north. And in itself, the end to the embargo -- unlike what occurred in Vietnam and China -- may force Cuba to open its society.
I agree with Castaneda that Cuba would not open to U.S. trade while the Castro's live, but I also believe that attempts to open trade would benefit the U.S. and pressure the monarchic communist regime to reform.  Tirades against the U.S. would seem empty.  If trade opens, the first beneficiaries in Cuba are likely to be communist officials, both in the military and out.  We would gain a pro-United States interest group at the highest levels of the regime.  If Castro refuses to lift trade restrictions, communist officials will know that they have a potential to profit from trade when it opens.  We will still gain a pro-United States interest group within the regime.

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Monday, April 20, 2009

Budget Cuts and Opportunity Costs

When I originally read about President Obama convening his Cabinet to identify $100 million for budget cuts, I read it as $100 billion.  It is only three percent of the massive budget, but still an impressive total.  I then read Greg Mankiw's post "Fiscal Responsibility," and realized my error.  Mankiw describes the magnitude of the cuts.
Just to be clear: $100 million represents .003 percent of $3.5 trillion.

To put those numbers in perspective, imagine that the head of a household with annual spending of $100,000 called everyone in the family together to deal with a $34,000 budget shortfall. How much would he or she announce that spending had been cut? By $3 over the course of the year--approximately the cost of one latte at Starbucks. The other $33,997? We can put that on the family credit card and worry about it next year.
Rather than working on reducing spending by .003%, I would rather have the administration recall that time is money, it has an opportunity cost, and focus on spending $3.5 trillion carefully. 
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The EPA and the Carbon Tax

Los Angeles Times reporter, Jim Tankersley, writing in "Obama administration declares greenhouse gases a threat to public health," on April 17, 2009 reports that the Obama administration has declared green house gasses a threat to public health.  A two-year old Supreme Court ruling gives the EPA the right to regulate carbon emissions. 
The Obama administration today declared greenhouse gases a threat to public health, marking a major step -- both practically and symbolically -- toward federal limits on the carbon dioxide emissions scientists blame for global warming.

The move by the Environmental Protection Agency was prompted by a 2-year-old Supreme Court decision. It paves the way for the White House to regulate emissions from vehicles and effectively force the U.S. auto fleet to be cleaner and more efficient -- a plan the administration is expected to put in place soon.

"This finding confirms that greenhouse gas pollution is a serious problem now and for future generations," EPA Administrator Lisa P. Jackson said today.
Carbon will probably be regulated through a cap-and-trade system, a tax that will be paid by carbon users.  Knowing that the tax will be impressive, the administration would like the Congress to share the heat by passing new environmental legislation.  Now I will take a cheap shot at all who site every record high temperature as evidence of anthropogenic global warming (AGW).  The announcement setting the stage for carbon regulation came as a late spring snow storm dumped up to 24 inches of snow on Boulder, Colorado (Steven Goddard posting for Watts Up With That?), and another storm dusted Los Vegas.

A poll in Rasmussen Reports ("Energy Update: Only 34% Now Blame Humans for Global Warming," explains why the Obama administration would like to share the responsibility with Congress (Another HT to Watts Up With That?).
Just one-out-of-three voters (34%) now believe global warming is caused by human activity, the lowest finding yet in Rasmussen Reports national surveying. However, a plurality (48%) of the Political Class believes humans are to blame.

Most Democrats (51%) still say humans are to blame for global warming, the position taken by former Vice President Al Gore and other climate change activists. But 66% of Republicans and 47% of adults not affiliated with either party disagree.

Sixty-two percent (62%) of all Americans believe global warming is at least a somewhat serious problem, with 33% who say it’s Very Serious. Thirty-five percent (35%) say it’s a not a serious problem. The overall numbers have remained largely the same for several months, but the number who say Very Serious has gone down.
I wonder why a smaller percentage of the population now blames humans for AGW.  Is it that they have read more science and find AGW less likely, or a like touch of cognitive dissonance?  Most people say that they care about the environment and most do not like to pay taxes.  Do some now believe that natural climatic variation is driving warmer temperatures because they want to feel good about themselves?

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Sunday, April 19, 2009

Christopher Dodd as Darth Vader

Holdup occurs when one party to a contract alters it to his or her advantage after the other party has taken an irreversible action called for by the contract.  Darth Vader's treatment of Lando Calrissian illustrates holdup.  Vader wants to lure Luke Skywalker into a trap using Han Solo as bait.  He must first capture Solo.  Vader makes a contract with Calrissian in which he will free Solo's and Calrissian's friends, Princess Leia and Chewbacca, once Solo is captured.  The scene portraying the holdup is brief.
Imperial Officer: Skywalker has just landed, my Lord.

Vader: Good.  See to it that he finds his way here.  Calrissian, take the princess and the Wookie to my ship.

Lando: You said they'd be left in the city under my supervision.

Vader: I am altering the deal.  Pray I don't alter it any further. 
The fear of holdup causes economic agents to forego mutually beneficial contracts.  The problem is overcome through contracts enforced by an independent third party, usually the government.
A short time ago, in the nation's capital not too far away we witnessed a similar episode of holdup--the BONUS WARS.  Christopher Dodd (Vader), wants Jake DeSantis' (Skywalker) bonus.  DeSantis has worked for AIG for $1 over the past year to remake the company and has never participated in credit default swaps or other activities that caused the company's demise.  Edward Liddy (Lando Calrissian) is the government picked CEO of AIG.  The other executives who were to receive bonuses collectively play the roles of Princess Leia and Chewbacca.  The scene portraying the holdup is brief.
Sergeant-at-Arms: DeSantis has just written the New York Times, Senator.

Dodd: Good.  See to it that he finds his way here.  Liddy, take the workers' bonuses.

Liddy: You said they'd be left to the workers under my supervision according to contract.

Dodd: I am altering the deal.  Pray I don't alter it any further.
CEO's of financial institutions and their employees will view the government with less trust and avoid contracts that may be mutually beneficial increasing the cost of the bailout and the length of time necessary to resolve the financial crisis. 

The dialogue from Star Wars and the idea to apply it to economic hold up was taken from the back cover of the Journal of Political Economy, Vol. 114, No. 2, April 2006.  I love the back cover of the JPE!

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Saturday, April 18, 2009

Mixed News on the Economy

Bob Willis and Shobhana Chandra write in "U.S. Economy: Jobless Claims Fall, Housing Stabilizes (Update2)," for Bloomberg on April 16, 2009 report that initial claims for unemployment fell.
Initial jobless claims decreased by 53,000 to 610,000 in the week ended April 11, the fewest since January, the Labor Department said today in Washington...

Initial claims were projected to rise to 660,000, according to the median forecast of 37 economists in a Bloomberg News survey. Estimates ranged from 635,000 to 700,000.
(HT to James Hamilton of Econbrowser post, "Initial unemployment claims and the end of recessions").  In a March 28, 2009 Wall Street Journal article titled "Economy Raises Tentative Hopes a Trough Is Finally in Sight," the authors report on research by Robert J. Gordon.  The Journal writes that,
"There's growing evidence supporting the optimists' view, and I am surprised at that," said Robert J. Gordon, an economist at Northwestern University and a member of the National Bureau of Economic Research committee that is the official arbiter of when recessions begin and end. "I was sort of in the pessimists' camp until I started looking at things."

He points to one indicator in particular with a remarkable track record: the number of Americans filing new claims for unemployment benefits. In past recessions, it has hit its peak about four weeks before the economy hit a trough and began to grow again. As of right now, the four-week average of new claims hit its peak of 650,000 in the week ended March 14. Based on the model, "if there's no further rise, we're looking at a trough coming in April or May," he said, which is far earlier than most forecasts currently anticipate.
Noting the fall in initial jobless claims in a post titled, "Update on the latest economic indicators," Hamilton writes, claims for unemployment compensation were reported today to have fallen by 53,000 in the week ending April 11, bringing the 4-week average down by 8,500 from what the revised numbers show to have been the recent peak the week before. If April 4 ultimately proves to be the peak for the entire year, and if this recession behaves like each of the previous 6 recessions, we could expect the NBER eventually to declare that the economic recovery began within 6 weeks of today.
The unemployment rate tends to be a lagging indicator of economic recovery.  Even though initial jobless claims fell, the current level of 610,000 is still high, suggesting that the unemployment rate will not improve in 2009. 

Willis and Chandra also report that the housing market may be bottoming out.
Total housing starts fell 11 percent to a 510,000 annual rate, lower than economists surveyed projected. The drop was led by a 29 percent plunge in work on multifamily homes, such as townhouses and apartment buildings, which fell to an annual rate of 152,000 after surging 62 percent in February.

Construction of single-family homes, the biggest part of the market, has been little changed since January...

In another sign the housing slump may be nearing a bottom, the National Association of Home Builders/Wells Fargo’s confidence index rose this month to the highest level since October, the group said yesterday. Record-low mortgage rates and falling prices started to stir demand.

Read more!

Taxes and Tea Parties

My first thought was to ignore the tea parties held on tax day, a national day of mourning and lamentation full of wailing and gnashing of teeth, but a Wall Street Journal op-ed and a statement by President Obama changed my mind.  The tax parties may be more spontaneous than I believed, and there is a deepening chasm between the intense beliefs of tax protesters and President Obama's vision for America. 

The op-ed is titled, "Tax Day Becomes Protest Day: How the tea parties could change American politics," (April 15, 2009) and was written by Glenn Harlan Reynolds, the author of "An Army of Davids: How Markets and Technology Empower Ordinary People to Beat Big Media, Big Government, and Other Goliaths" (Thomas Nelson, 2006)."  I believed that the tea parties were an outgrowth of the Republican party.  He convinced me that new technology empowered diverse individuals to organize spontaneously.  I do not profess profound knowledge of voting models, but many try to measure intensity of belief of an issue as well as how widely it is held.  The spontaneity of the events suggests intensity of belief.  The use of new technologies to organize also suggests that intensity of belief may be easier to express in the future than it was in the past. Reynolds writes,
Today American taxpayers in more than 300 locations in all 50 states will hold rallies -- dubbed "tea parties" -- to protest higher taxes and out-of-control government spending. There is no political party behind these rallies, no grand right-wing conspiracy, not even a 501(c) group like

So who's behind the Tax Day tea parties? Ordinary folks who are using the power of the Internet to organize. For a number of years, techno-geeks have been organizing "flash crowds" -- groups of people, coordinated by text or cellphone, who converge on a particular location and then do something silly, like the pillow fights that popped up in 50 cities earlier this month. This is part of a general phenomenon dubbed "Smart Mobs" by Howard Rheingold, author of a book by the same title, in which modern communications and social-networking technologies allow quick coordination among large numbers of people who don't know each other...

The protests began with bloggers in Seattle, Wash., who organized a demonstration on Feb. 16. As word of this spread, rallies in Denver and Mesa, Ariz., were quickly organized for the next day. Then came CNBC talker Rick Santelli's Feb. 19 "rant heard round the world" in which he called for a "Chicago tea party" on July Fourth. The tea-party moniker stuck, but angry taxpayers weren't willing to wait until July. Soon, tea-party protests were appearing in one city after another, drawing at first hundreds, and then thousands, to marches in cities from Orlando to Kansas City to Cincinnati.

As word spread, people got interested in picking a common date for nationwide protests, and decided on today, Tax Day, as the date. As I write this, various Web sites tracking tea parties are predicting anywhere between 300 and 500 protests at cities around the world. A Google Map tracking planned events, maintained at the Web site, shows the United States covered by red circles, with new events being added every day.
According to Reynolds, the organizers of the tea parties "aren't especially friendly to the GOP," despite intense disagreement with Obama administration policy.  I could not find a survey of the demographics of the attendees.  Were they all Republicans or were some Democrats as well?  What percentage of the protesters voted for candidate Obama?  I would imagine the percentage is very small, but even five percent could be significant, sending a strong message to candidates in swing districts.  To ultimately influence policy they must somehow join the decision making process defined by the constitution.  Although expressing angst is part of that process, I don't think it will be sufficient.     

On the same day, in another part of the Wall Street Journal, Henry J. Pulizzi wrote, "UPDATE: Obama Vows To Rewrite, Simplify 'Monstrous' US Tax Code," describing President Obama's plans to change the tax code.  Pulizzi quotes President Obama,
We will make it quicker, easier, and less expensive for you to file a return, so that April 15 is not a date that is approached with dread each year.

We need to stop giving tax breaks to corporations that stash profits or ship jobs overseas so that we can invest in job creation at home. And we need to end the tax breaks for the wealthiest 2% of Americans, so that folks like me are paying the same rates that the wealthiest 2% of Americans paid when Bill Clinton was President.
I doubt that many of the protesters were strong Obama supporters, and I doubt that the President's remarks were intended to pacify their concerns, but President Obama's comments seem out of context given the spontaneous rise of tax protests.  These people are worried about rising tax rates that the huge budget deficits portend, not about tax complexity.  Simplifying the tax code by removing their deductions will not quiet their descent.   

Their desire to avoid high taxes may be a function of greed as President Obama has insinuated, but greed is bipartisan.  The tax problems of Obama nominees Geithner and Daschle appear to spring from an effort to avoid high taxes.  One might reasonably conclude that the desire of President Obama to transfer resources from the private sector to the public is a greedy attempt to enact his personal vision of America. 

Tax protesters seem concerned with taxes where the tax burden will fall, not with who writes the check to the government.  Most realize that in the long run, a business must make a normal profit, and that costs will be passed on to consumers.  They also realize that a cap-and-trade system is a tax on carbon based fuels that they will pay.  Members of Congress seem in a rush to pass new spending mandates, but slow to increase taxes to pay for them.  This creates two issues for the opponents of President Obama: a much larger government measured as a percentage of GDP and large, possibly unsustainable budget deficits.

Read more!

Wednesday, April 15, 2009

Oregon's New Beer Tax

There is a fine article in the today's Wall Street Journal titled, "This Tax Is for You: A Levy on Joe Six Pack." Politicians in Oregon are attempting to close a $3 billion state budget deficit caused in part by a 27.9% increase in spending with a 1,900% increase in the beer tax. The sin tax on beer will go to the righteous purpose of drug treatment. Recognizing that the demand and supply are probably inelastic, the tax will minimize deadweight loss and maximize tax revenues, but that may be the only good thing about the tax increase. It is a regressive tax, meaning that the tax rate as a percentage of income goes down as income goes up, placed on the working class by one of the two major parties that profess to admire and represent them. I do have to wonder about the effectiveness of the tax. Will wine, hard liquors, marijuana or other illegal drugs be good substitutes for beer? If so, part of the revenues for drug treatment may be spent on workers who acquired drug habits avoiding the beer tax.

About the broader economic impact, the author writes,
If it passes, Oregon will overnight become the most taxing state for suds, one-third higher than the next highest beer tax state, Alaska. The state may do this even though Oregon is the second largest microbrewery producer in the U.S. The beer industry and its 96 breweries contribute 5,000 jobs and $2.25 billion to state GDP. Kurt Widmer of Widmer Brewing Co. says the tax would "devastate our company and small breweries throughout the state." Adds Joe Henchman, director of state projects at the Tax Foundation, "This microbrewery industry has gravitated to Oregon in part due to low beer taxes.

Read more!

Monday, April 13, 2009

A New Global Reserve Currency

Before the G20 meetings, representatives from Russia, China and Kazakhstan argued that the dollar needed to be replaced by a new reserve currency.  Christopher Beam, writing for Slate in "World Wad," does a good job of explaining some issues involved with a new currency, including where it might originate, and how it might trade.  Beam begins by explaining the role of a reserve currency.
It [a reserve currency] serves as a standard unit for international payments, and it protects your own currency against shock. If demand for yen drops, for example, Japan can use their extra U.S. dollars to buy up the unwanted yen, thereby propping up its value. At the same time, though, the country whose currency is held in reserve—in this case, the United States—is more vulnerable to shock, since so much of its currency is in foreign accounts and therefore inaccessible to the United States. Transitioning to a hybrid reserve currency would therefore protect both weaker economies, which are usually vulnerable to another single country's ups and downs, and stronger ones, which would have more ability to control and stabilize their own currencies.
Beam notes that nobody is forced to use the dollar as a reserve currency.  It was their choice.
Countries aren't required to keep their reserves in dollars—they do it because they want to. (The dollar's "primary reserve currency" status is more de facto than official.) But if China dumped its reserve of dollars it would jeopardize its relationship with the United States, and other countries wouldn't necessarily do the same. Any systematic overhaul would have to be done cooperatively and a switch to the SDR requires approval from the IMF, which is controlled by the United States.
As an additional observation, China has other assets denominated in dollars, U.S. treasuries for example.  If they dumped dollars, they would lower its value and the value of dollar denominated assets. 

The new reserve currency would probably be a market basket of world currencies. 
Medvedev, the Chinese economic minister, and other would-be reformers want to create an accounting unit based on a "basket" of other currencies—a sort of hybrid. Instead of countries holding billions of U.S. dollars in their reserves—which makes them vulnerable if the dollar drops suddenly—they would hold a new unit, composed of, say, the dollar, the pound, and the Euro. The value of each component currency might fluctuate, but if one drops, the others can serve as "hedges."

The most prominent example of such a basket is the Special Drawing Rights—or SDR—overseen by the International Monetary Fund. The value of the SDR is composed of 44 percent U.S. dollar, 34 percent euro, 11 percent yen, and 11 percent British pound. So if the U.S. dollar loses half its value, the SDR declines by 22 percent. Today, one SDR is worth 1.49 U.S. dollars. You can't withdraw SDRs at the ATM, but you can use them for accounting transactions. Some countries, such as Syria, peg their currencies to the SDR. (This role earned the SDR the nickname "paper gold.") Zhou proposes making the SDR the new reserve unit but suggests expanding it to include all other major currencies as well.
Proponents of a new reserve currency include more than countries with a possible axe to grind.  It includes heavy-weight economists like Nobel Prize winners Edmund Phelps and Robert Mundell, the intellectual father of the Euro ("Kazakhstan, Eurasia take heart from G-20 measures to control global meltdown," Thaindian News, April 4, 2009).  Mundell believes that the dollar should represent about 40% of the market basket of currencies compared to the current 45% ("Mundell: China's economic growth expected to reach between 7 and 8 percent," People's Daily Online, April 9, 2009). 

Read more!

Saturday, April 11, 2009

A CARB Free Diet

Martin Zimmerman, writing for the Los Angeles Times, in "Up to Speed," explains how CARB nearly proposed and did withdraw a plan to outlaw dark colored vehicles as a way to reduce green house emission.
The purported black car ban was said to be part of the “cool cars” initiative being cooked up by the air board, which is looking for ways to follow the legislature’s mandate to reduce greenhouse gas emissions in California. Greenhouse gases are a cause of global warming, and automotive tailpipe emissions are a major source.

One solution: lower the temperature inside parked cars, thereby reducing the amount of air conditioning — and engine power and gasoline — needed to keep the occupants cool and comfortable.

CARB looked at two possible ways to achieve this: mandating the use of reflective paints that reduce the amount of solar heat absorbed by a vehicle, and requiring manufacturers to install glass with reflective coatings to achieve the same purpose.

When word got out that CARB couldn’t find a reflective version of deep black paint that suited its needs, auto enthusiast blogs and conservative commentators smelled another “kooky California” story — or “out-of-control government” expose, take your pick — and jumped in with relish.
Zimmerman offered two possible explanations for CARB's change of heart.  He notes that conservative radio hosts had latched onto another kooky California regulatory scheme, citing a transcript of Rush Limbaugh, “Tyrants Want to Ban Black Cars,” as an example of right wing outrage.  He also explained that CARB ultimately concluded that banning dark cars would not achieve the goal of carbon reduction.  Drew Winters writing for in "California ‘Cool’ Paints Initiative Ugly, Lazy," was not as kind as Zimmerman opining that,
Some California rules are problematic because they are utopian and unworkable. This legislation is flat-out lazy. It’s a cut-and-paste job from the state building code that ignores smarter, more-effective automotive solutions already in production or on the way, such as more efficient AC units and solar-powered ventilation fans that work automatically when a car is parked in the sun.
Zimmerman ends by letting the reader decide if CARB killed the proposal because of an outraged citizenry or technical infeasibility.  I hope that CARB is more interested in listening to a citizenry that is protecting its freedoms and fear that it is the technical infeasibility of the proposal.

Read more!

Thursday, April 9, 2009


In a Rasmussen Reports article titled, "Just 53% Say Capitalism Better Than Socialism," the authors write,
Only 53% of American adults believe capitalism is better than socialism.

The latest Rasmussen Reports national telephone survey found that 20% disagree and say socialism is better. Twenty-seven percent (27%) are not sure which is better.

Adults under 30 are essentially evenly divided: 37% prefer capitalism, 33% socialism, and 30% are undecided. Thirty-somethings are a bit more supportive of the free-enterprise approach with 49% for capitalism and 26% for socialism. Adults over 40 strongly favor capitalism, and just 13% of those older Americans believe socialism is better.

Did the drum beat of right wing talkers calling President Obama's policies socialistic cause this sad result, or are Americans just that ignorant of socialism's deplorable history?
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Pragmatism and Anthropogenic Global Warming

“U.S. to be pragmatic on Climate Issue,” is the headline that Roger Harrabin chose for his BBC article describing the Obama administration's policy on reducing carbon emissions. A pragmatic stance depends on the consequences of possible actions. If I am a smoker concerned with my health, a pragmatic response is to quit smoking. If a man in a neighboring community is a smoker who is knowledgeable about the health consequences and alternative programs to quit, a pragmatic response is to mind my own business. If my wife was an informed smoker, and her smoking affects my health, a joint solution is needed even if she is unconcerned with her health.  The final example describes an externality or spillover affect; a third party, me, the non-smoker, is affected by my wife's decision to consume tobacco.  It is the same problem caused by carbon emissions on an international basis; one country's consumption may affect other countries. 

There have been a great number of dire predictions of the climatic consequences of unabated carbon emissions.  The Stern Review is an important example of a document listing severe consequences.  The "Executive Summary" of the Stern Review estimates the cost.
The evidence shows that ignoring climate change will eventually damage economic growth. Our actions over the coming few decades could create risks of major disruption to economic and social activity, later in this century and in the next, on a scale similar to those associated with the great wars and the economic depression of the first half of the 20th century. And it will be difficult or impossible to reverse these changes. Tackling climate change is the pro-growth strategy for the longer term, and it can be done in a way that does not cap the aspirations for growth of rich or poor countries. The earlier effective action is taken, the less costly it will be.
War Chronicles estimates World War II deaths, both civilian and military, at 48 million, or approximately 2% of world population.  If the same percentage of deaths occurs, the approximate deaths would be 167 million assuming a population of 8 billion.  GDP losses would be of a similar magnitude, and would be caused by flooding, declining crop yields, deaths from malnutrition, heat stress, and vector-borne diseases.  Irreversibility of climate change is often called a tipping point.  The Stern Review states that annual emissions would have to fall by 80% to achieve a sustainable world climate. 

Harrabin interviews Jonathan Pershing, the head of the U.S. delegation to the United Nations meetings on climate change.  A few quotes from the article suggest that the administration assessment is in line with the Stern Review, but it pushes off much of the cost on future administrations.
But he [Pershing] said the US should not make promises for 2020 that it could not keep: "It is not the point in time in 2020 that matters - it is a long-term trajectory against which the science measures cumulative emissions.

"The president has also announced his intent to pursue an 80% reduction by 2050.

"It is clear that the less we do in the near-term, the more we have to do in the long-term. But if we set a target that is un-meetable technically, or we can't pass it politically, then we're in the same position we are in now… where the world looks to us and we are out of the regime...

Mr Pershing did promise that the US would help poor countries to fund clean technology. He would not mention figures but he hinted the sums would be much less than many developing countries demanded.

"The notion that the USA would transfer funds to pay for the entirety of the world's development is implausible. The characterisation often made in these meetings [from developing countries] is that we will only do actions that are paid for. That's a limited vision and we'd like to turn that round."

In "The Cost of Cap-and-Trade," I note that current implementation of a cap-and-trade system is estimated at $2 trillion over an eight year period, about 175% of the cost suggested by the Stern Review that would be necessary to reduce carbon emissions by 80%.   Congressmen who always seem ready to spend and reluctant to tax has voiced considerable opposition to the plan.  
There are methods of forcing reluctant countries to fund their own "clean" technology.  Some are discussed in a note by The United Nations Framework Convention on Climate Change.  The note lists negative and positive consequences for poor countries of carbon reduction policies by wealthy countries.  To be sure, the note envisions large transfers from wealthy countries to the poor, and expresses concern that lowering carbon emissions will be used as a pretext to impose protectionist policies.  The note also describes how tax regimes could force poor countries to fund carbon reduction technologies.  The numbers refer to the paragraph of the note.
21.  Carbon taxes or levies have been implemented in several countries, and have been proposed in many others.  They are generally based on the carbon content of the covered items, and tend to be focused on energy products such as fuels.  Imported fuels are also subject to the schemes, as the tax is typically levied at the point of domestic sale.  The key overseas consequences of such taxes would fall upon foreign exporters of relatively carbon-intensive energy products such as oil and coal, who could see their market share drop as the relative prices of their goods increased.  Conversely, foreign exporters of environmentally sound energy technologies would see increased market share...

34.  Border carbon adjustment:  Countries that take strong measures to address climate change often also consider parallel measures to address what they see as competitiveness and carbon leakage problems.  Among these measures are two types of border measures that have been widely proposed to impose costs on imports equivalent to that faced by domestic producers.  The first, usually considered as a complement to a carbon tax regime, is a tax adjustment, which imposes a levy on imported goods equal to that which would have been imposed has they been produced domestically.  The second, considered as a complement to a cap-and-trade regime, is a requirement to buy offsets at the border equal to that which the producer would have been forced to purchase had the good been produced domestically.  The impact of such schemes would be functionally equivalent to an increased tariff: decreased market share for covered foreign producers.  While border carbon adjustments would involve negative consequences for foreign producers, such schemes would not likely be implement in isolation, but would function as parallel initiatives to climate change action in the implementing state.  If they were implemented fairly, such schemes would leave trade and investment patterns unchanged, being aimed at just offsetting the competitiveness impacts of domestic policies such as carbon taxes or cap-and-trade.

My pragmatic response is somewhat different based on what I believe to be a possible overestimation of the cost of AGW based on a lower probability of extreme negative costs, the positive externalities of trade, negotiating complexities, and the negative tendencies of politicians to follow populist and badly reasoned trade policies.

After a review of the IPCC cited papers used to support claims of drastic climate change, Kesten Green and Scott Armstrong researched ("Global Warming: Forecasts by Scientists Versus Scientific Forecasts," Energy and Environment, Vol. 18, No. 7+8, 2007 ) conclude,
The forecasts in the Report were not the outcome of scientific procedures. In effect, they were the opinions of scientists transformed by mathematics and obscured by complex writing. Research on forecasting has shown that experts’ predictions are not useful in situations involving uncertainly and complexity. We have been unable to identify any scientific forecasts of global warming. Claims that the Earth will get warmer have no more credence than saying that it will get colder.
Green, Armstrong and Soon, ("Validity of Climate Change Forecasting for Public Policy Decision Making," International Journal of Forecasting, forthcoming) find that a model predicting no temperature change is as accurate in short range predictions, and more accurate in long range predictions than the .03 degree Celsius per year rate of change claimed by the IPCC. The policy implication is that government should not take action to reduce carbon dioxide emissions.

Beginning with Adam Smith, economists have stressed the good economic and moral value of trade.  Specialization through trade makes countries wealthier, and wealthy people demand a cleaner environment.  Trade results in shared ideas which are often converted into new production methods and products.  Finally, trade may result in a lower probability of war, as positive associations between people in different countries create an economic constituency for peaceful international relations--a sort of anti military industrial complex complex. 

Negotiations to reduce carbon emission are very complex.  The citizens of some nations would benefit from a warmer climate.  Others may not trust the science behind AGW.  Still others would cheat on agreements, viewing cheating as beneficial to them if others live by the agreement.  It is the prisoners' dilemma problem on an international stage, and peaceful enforcement of any agreement would be difficult.

Finally, politicians do what's best for them.  That may include continued employment and wealth as well as the public interest.  If their constituents want to seek in protectionist trade restrictions, they are likely to get them.  If inefficient "green" technologies benefit some constituents, we are likely to see impoverishing "green" technologies supported through law and tax subsidies.  Unless carbon emissions result in dire consequences, the cost of a global solution is likely to be higher than any associated benefit.

Read more!

Tuesday, April 7, 2009


This post discusses anti-Semitism, and only tangentially touches economics.  Anti-Semitism is an intellectually and morally bankrupt but enduring institution.  Carol Gould, writing for in "Major UK Muslim Group Wallows in Anti-Semitism," describes the virulent anti-Semitism of the Mulsim Public Affairs Committee of the UK.  I am not surprised that a Muslim group dislikes Israeli policy, but I am dismayed at how that dislike grows to hate and bleeds into animosity for Jews everywhere.  Its contagion infects non-Muslims, with whom they interact, dimming their perception of reality.  Gould describes hate-filled, anti-Semitic speakers at an event designed to celebrate peace "whipped up" hate and the cross contamination of hate between cultures.  I have maintained her links.
In December 2005 I decided to attend the Global Peace and Unity Event at the Excel Centre in Canary Wharf because it had been touted as a celebration of Islamic culture and food. What greeted me was a giant hall filled with some very angry young Muslims being whipped up by Micahel Mansfield QC, George Galloway MP, former Taliban hostage-turned-Islamist-activist Yvonne Ridley, and the retired cricketer Imran Khan. Keep in mind that this rally, sponsored by Western Union, the Metropolitan Police, and Emirates Airlines, occurred just five months after London’s Islamic terrorist attacks.

Ira Stoll, writing for the Wall Street Journal in "Anti-Semitism and the Economic Crisis," is also concerned about a rising infestation of anti-Semitism in the United States as well as abroad.  He writes,
There are ample indicators of current anti-Semitic attitudes. A poll conducted recently in Europe by the Anti-Defamation League found 74% of Spaniards believe Jews "have too much power in international financial markets," while 67% of Hungarians believe Jews "have too much power in the business world." Here in America, the Web site of National Journal is hosting an "expert blog" by former CIA official Michael Scheuer, now a professor at Georgetown, complaining of a "fifth column of pro-Israel U.S. citizens" who are "unquestionably enemies of America's republican experiment." And over at Yahoo! Finance, the message board discussing Goldman Sachs is rife with comments about "Jew pigs" and the "Zionist Federal Reserve."
Although I do not associate Jews with capitalism, and if I did, it would make me think more highly of them, others do and to them the association isn't good. 
In "The Road to Serfdom," Hayek wrote, "In Germany and Austria the Jew had come to be regarded as the representative of Capitalism." Thus, the response in those countries, National Socialism, was an attack on both capitalism and the Jews.
The current rise in hatred may have a foundation in economic crisis.
The causes of the First Crusade, in which thousands of Jews were murdered, are still being debated, but some historians link it to famine and a poor harvest in 1095. As for the expulsion of the Jews from Spain in 1492, the foremost historian of its causes, Benzion Netanyahu (the father of Israel's new prime minister), writes of the desire of the persecutors "to get rid of their debts by getting rid of their creditors." More generally, he writes, "it is an iron-clad rule in the history of group relations: the majority's toleration of every minority lessens with the worsening of the majority's condition."
After noting the forces aligned against Jews, including a nation, Iran, building a nuclear arsenal while threatening to annihilate Israel, Stoll concludes,
It may yet be that the Jews escape the current economic crisis having only lost fortunes. But if not, there will have been no lack of warning about the threat. When Jews gather Wednesday night for the Passover Seder, we will recite the words from the Hagadah, the book that relays the Israelite exodus from slavery in Egypt: "In every generation they rise up against us to destroy us." This year, they will resonate all the more ominously.

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Monday, April 6, 2009

The producers of "Who Killed the Electric Car" claim that corporate greed was largely responsible for its death.  GM claimed that the vehicles could not be produced at a low enough cost to be profitable.  Skip forward a decade.  GM is on the verge of bankruptcy spending heavily on an electric car, the Volt, and the government is aiding in its bailout.  The Obama administration gathered a task force to review the performance of the companies and their proposed strategic plans for renewal.  In their "Determination of Viability Summary" for General Motors, the task force describes the financial prospects of the Volt,
Product mix: GM earns a large share of its profits from high-margin trucks and SUVs, which are vulnerable to a continuing shift in consumer preference to smaller vehicles. Additionally, while the Chevy Volt holds promise, it will likely be too expensive to be commercially successful in the short-term...

GM is at least one generation behind Toyota on advanced, “green” powertrain development. In an attempt to leapfrog Toyota, GM has devoted significant resources to the Chevy Volt. While the Volt holds promise, it is currently projected to be much more expensive than its gasoline-fueled peers and will likely need substantial reductions in manufacturing cost in order to become commercially viable.
Well, maybe, just maybe, GM was telling the truth and the electric car was just not economically viable.  My fears are that the Volt and other "fuel efficient" cars will become "viable" at the taxpayers' expense, and I am a taxpayer.  The first paragraph notes that even now a large share of GM's revenues come from trucks and SUVs.  As limited by demand elasticity, the government use CAFE standards to force auto manufacturers to increase prices on profitable, gas guzzling models to lower prices on cars consumers would otherwise avoid.  But constraining profits by forcing commercially successful vehicles to subsidize commercially nonviable vehicles will cost taxpayers. 

Environmentalists need not worry.  The Obama administration is not constrained by market demand.  Jeff Green and John Hughes, writing for Bloomberg in "GM’s Volt Electric Said Still in Plans After Obama Orders Cuts," quote Jeff Smith, an alternative energy analyst at the Center for Automotive Research in Ann Arbor, Michigan, who states,
The reality is, the Volt doesn’t make sense economically in the short term, and it’s been made very clear that everything is on the table right now...But the Obama administration has put such a high priority on the electrification of the vehicle that it would be a very difficult policy decision to drop the Volt.

They also quote Rob Peterson, a GM spokesman, who said,
This thing is full steam ahead, nothing has changed. GM has asked the U.S. Department of Energy for $10.3 billion in funds to develop advanced- technology vehicles with better fuel economy.

Even if carbon emissions will produce catastrophic global warming that endangers human civilization, and reduced oil consumption improves national security by freeing military resources from the Middle East, subsidizing the manufacture of an electric car or imposing higher CAFE standards is much less efficient than increasing taxes on oil-based products. 

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TARP and Pay for Performance Act

Critics of current policy emanating from the Congress or the Obama administration overuse socialism as a description of its policies they disdain. They might recall that not all undesirable policies are socialist, and the economic system that it describes does not fit the policies that the administration pursues. Nor are the administration's policies yet well enough defined to properly tag them with existing definitions. The evolution of the TARP, formally known as the Emergency Economic Stabilization Act of 2008, illustrates the inchoate nature of policy. The House has voted to amend the Act with the Pay for Performance Act.

The language of the Pay for Performance rewrites current contracts which weaken property rights and this is bad. The pertinent language is in bold.
‘(1) PROHIBITION- No financial institution that has received or receives a direct capital investment under the Troubled Assets Relief Program under this title, or with respect to the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, or a Federal home loan bank, under the amendments made by section 1117 of the Housing and Economic Recovery Act of 2008, may, while that capital investment remains outstanding, make a compensation payment, other than a longevity bonus or a payment in the form of restricted stock, to any executive or employee under any existing compensation arrangement, or enter into a new compensation payment arrangement, if such compensation payment or compensation payment arrangement--
The act does not define how pay should be related to performance. Instead it establishes a committee to report back to the Congress.

‘(1) ESTABLISHMENT- There is hereby established a commission to be known as the ‘Commission on Executive Compensation’ (hereinafter in this subsection referred to as the ‘Commission’).

‘(2) DUTIES-

‘(A) STUDY REQUIRED- The Commission shall conduct a study of the executive compensation system for recipients of a direct capital investment under the TARP. In conducting such study, the Commission shall examine--

‘(i) how closely executive pay is currently linked to company performance;

‘(ii) how closely executive pay has been linked to company performance in the past;

‘(iii) how executive pay can be more closely linked to company performance in the future;

‘(iv) the factors influencing executive pay; and

‘(v) how current executive pay incentives affect executive behavior.

‘(B) CONSIDERATION OF PROPOSALS- The Commission shall consider, in addition to any recommendations made by members of the Commission or outside advisers, the effects of implementing increased shareholder voice in executive compensation.

Many experts who have studied executive compensation believe that current rules used by corporations are stacked in favor of executives and not shareholders. Rules that alter the balance of corporate control from the executives to the shareholder without dictating a salary range could improve corporate performance. Rules that set a salary range rob owners of an important right, determining compensation, and the new standards would be either codified, thus slowing market reaction to changing human resources, or entrust salary determination to a Congressional body with no proper interest in corporate.

Stuart Varney, a Fox business channel host, describes in a Wall Street Journal article ("Obama Wants to Control the Banks,") his misgivings about the amending act. He does not like it or the apparent heavy handed method being employed to implement it.
I must be naive. I really thought the administration would welcome the return of bank bailout money. Some $340 million in TARP cash flowed back this week from four small banks in Louisiana, New York, Indiana and California. This isn't much when we routinely talk in trillions, but clearly that money has not been wasted or otherwise sunk down Wall Street's black hole. So why no cheering as the cash comes back?

My answer: The government wants to control the banks, just as it now controls GM and Chrysler, and will surely control the health industry in the not-too-distant future. Keeping them TARP-stuffed is the key to control. And for this intensely political president, mere influence is not enough. The White House wants to tell 'em what to do. Control. Direct. Command.

His misgivings are a little premature, but given recent actions of Congress, they do have proper foundation.

Read more!

Saturday, April 4, 2009

Progess on Trade with Cuba

Laura Meckler, writing for the Wall Street Journal in "U.S to Lift Some Cuba Travel Curbs," notes that,
President Barack Obama plans to lift longstanding U.S. restrictions on Cuba, a senior administration official said, allowing Cuban-Americans to visit families there as often as they like and to send them unlimited funds.
The March 11, 2009 budget bill contained legislation for limited trade liberalization (see, "Obama on Trade: One Tiny Step Forward, Two Steps Back" and "Obama May Lift U.S. Travel Restrictions to Cuba, Official Says").  The administration is hanging tough on further liberalization. 
President Obama doesn't intend to call for lifting of the trade embargo against Cuba, which would require congressional action, nor is any specific diplomatic outreach contemplated, the official said.
There is some bipartisan belief that it is time to ease trade restrictions.  Doug Palmer, writing for Reuters in "U.S. senators move to end Cuba travel ban," reports that,
A bipartisan group of U.S. senators introduced a bill on Tuesday to allow U.S. citizens to travel freely to Cuba and predicted Congress would approve it as a step toward ending the five-decade-old U.S. embargo.

"I think there's sufficient votes in both the House (of Representatives) and the Senate to finally get it passed," Democratic Senator Byron Dorgan said at a news conference.

Dorgan... introduced the bill along with fellow Democratic Senator Christopher Dodd and Republican Senators Richard Lugar and Mike Enzi. Seventeen other senators also are sponsoring the measure. A companion bill introduced in the House earlier this year has 121 co-sponsors.
I support liberalization because it is humane to allow families to reunite, and because I believe that increased contact between the two countries will emphasize our prosperity, making it more difficult for the Castro regime to maintain power.  Unilaterally reducing trade barriers would probably do little to increase trade, Raul Castro understands its democratizing influence. 

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Thursday, April 2, 2009

Is an Organization of Anarchists an Oxymoron?

Traditionally, as the G20 meetings began, violent protesters hit the streets, breaking stopping traffic, throwing rocks, and breaking windows. Some were calling for the overthrow of the government in one of the freest, most prosperous countries in human history. One wonders, what type of government and economic system would emerge at their hands? Some hints were available. Groups of protesters shouted “death to bankers,” and carried signs calling for the end of money as if the financiers, following badly designed government incentives (at least in the U.S.), had not done enough to destroy money aggregates and wealth already. Environmentalist consumed carbon to protest pollution, and antiwar protestors battled police.

I wondered just who these protesters were. David Leppard and Steven Swinford writing for, who bills itself as an Internet-based progressive news and grassroots activism organization, founded in 1997, report some of the organizations involved.

London Anarchists: have appealed for people to join in "direct action" similar to that seen at previous anti-globalisation protests
Whitechapel Anarchists: London group which praised the attack on the home of Sir Fred Goodwin, the disgraced bank boss

Class War: veteran anarchists who are encouraging supporters to "burn a banker"

G20 Meltdown: A new organisation which will host a carnival at the Bank of England

Climate Camp: environmentalists behind direct action at Heathrow airport and power stations in North Yorkshire and Kent

Climate Rush: group against airport expansion who have "rushed" parliament

People and Planet: student network campaigning to end world poverty, defend human rights and protect the environment

Stop the War Coalition and CND: anti-war protesters against Iraq and Afghanistan wars
The first three groups on the list are organizations of anarchists. Isn’t that an oxymoron? I did a little surfing and found a few blogs or news articles about these groups or their members.

London Anarchists are described in the Sydney Morning Herald article “London calling as anarchists get ready to rumble,” of April 2, 2009.
Bone is probably Britain's best known anarchist, a veteran political activist, famously dubbed the country's most dangerous man by The Sunday People for his passionate commitment to violent action to overthrow the state.

He founded the newspapers Class War and later The Bristolian, remembered not only for their confrontational investigative exposes but for front pages including a picture of gravestones, with the headline, "We have found new homes for the rich", Margaret Thatcher with a hatchet buried in her head and the commemorative edition for the birth of Prince William complete with the headline "Another f---ing royal parasite".
Whitechapel Anarchists are described by Arthur Martin, who had infiltrated the organization, in the MailOnline article “Undercover with the anarchist mob: How the Mail infiltrated the group at heart of the violence.”

At each of these anarchist meetings, or 'war summits', the leader has stood up to announce the 'latest orders from Chris Knight'…

All spoke of such behaviour with a knowing grin as if many had personally carried out an act of random violence against the state - their sworn enemy - and it was their badge of honour.

On this evening, a middle-aged man called Martin was acting as chairman, lecturing to a dozen blank-faced disciples lounging on shabby sofas. Most seemed on edge and only when the discussion turned to violence did they perk up and then utter a communal 'Yeah, let's do it'.
Class War. Follow the link to their homepage.

Sounds like a great group. As I researched other groups at the protests, they did not appear as violent, but they did seem willing to be associated with the violent groups. The actions of all protesters, those who were violent and those who swelled the masses to make policing of more difficult, should cast doubt on their beliefs.

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Wednesday, April 1, 2009

Sebelius' Tax Woes

Like several Obama nominees before her, Kathleen Sebelius, the Health and Human Services nominee, has tax troubles. To prepare for her confirmation hearings, Sebelius hired an accountant to “scrub” her taxes. According to Erica Werner, writing for in “Sebelius admits errors, pays $7,000 in back taxes,” reported her mistakes.

Charitable contributions over $250 are supposed to include an acknowledgment letter from the charity in order for a deduction to be taken. Out of 49 charitable contributions made, three letters couldn't be found.

_Sebelius and her husband took deductions for mortgage interest that they weren't entitled to. The couple sold their home in 2006 for less than what they owed on the mortgage. They continued to make payments on the mortgage, including interest. But since they no longer owned the home they weren't entitled to take deductions for the interest. The same thing happened with a home improvement loan. Sebelius said they "mistakenly believed" the payments were still deductible.

_Insufficient documentation was found for some business expense deductions.

Her tax problems are yet another reminder of several problems. The confirmation process is brutal, exposing political disagreements and peccadilloes but not incompetence or character flaws. It seems mostly a game of political gotcha. The tax code is incredibly complex, and nobody understands it, not even employees of the IRS. Finally, and most importantly, taxes are so high that even people with means who favor them attempt to minimize their tax burden to the point of taking deductions that are questionable.

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G20 Unity

The G20 are meeting in London to identify methods for ending the world-wide recession. Some participants have expressed concern that the G20 will fail to reach a consensus (Edwin Chen and Hans Nichols. “Obama, Brown Urge G-20 to Unite to Combat Crisis (Update1),” Bloomberg, April 1, 2009). Reading news accounts written in advance of the meetings, I am impressed by the lack of cohesion among the participants. I might add that I do not believe that a “global” response will be of much value in speeding an economic recovery. It is a safe bet that all representatives of the G20 are playing to domestic constituencies. Perhaps they are relying on different economic models as the current crisis has opened challenged what had appeared to be a growing consensus on policy among macroeconomists.

President Obama, Prime Minister Brown of England, and Prime Minister Taro Aso of Japan want the G20 members to implement larger fiscal stimulus packages (Edwin Chen and Hans Nichols. “Obama, Brown Urge G-20 to Unite to Combat Crisis (Update1),” Bloomberg, April 1, 2009).

President Sarkozy of France and Chancellor Merkel of Germany want more fiscal discipline (Steven Erlanger and Nicholas Kulish. “Sarkozy and Merkel Try to Shape European Unity,” New York Times, March 30, 2009)and additional governmental oversight of the financial sector through new accounting norms, regulation of trader bonuses, a registry of hedge funds and a weakening of tax havens. President Sarkozy has threatened to walk out of meetings if the results are unsatisfactory. Merkel does not share Sarkozy’s flamboyance, and disapproves of a walkout (“France and Germany 'demand regulation at G20’,” AFP, April 1, 2009).

Russian and Chinese representatives have expressed interest in developing a new currency to replace the dollar. They have also expressed an interest in working with India and Brazil to work toward a developing country economic platform (“Russia, China cooperate on new currency proposals:,”, March 30, 2009).

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