Grasping Reality with Both Hands: The Semi-Daily Journal Economist Brad DeLong

Cleaning Up the Drafts File: Amanda Marcotte on the Falling Price of SUVs

From Pandagon:

Pandagon :: A land of unsaleable Canyoneros :: May :: 2008: I realize there are a lot of people on the internet who preen like they rarely make bad decisions, and when they do, they recant immediately, but you’ll see that such people rarely offer examples of how this has actually happened in their lives. We all get into the rationalization cycle, some more than others, but we all do it.... I bring this up, because if you know much about the rationalization spiral, then the fact that America’s reaction to increasing evidence of both peak oil and global warming would be to reduce our average gas mileage was entirely predictable. Some... [of us] presented with the evidence, were likely to get more efficient vehicles or start taking more public transportation/walks/bicycles... the truth is mostly that we weren’t that invested in car culture to begin with.... But for people who really like cars and driving, it was entirely predictable that they’d be eager to rationalize it to themselves not only by denying that we were facing sustainability problems, but that they’d double down by halving their gas mileage.

Which is why I agree with Tim F. that singing “I told you so” isn’t that fun after all.

I don’t feel particularly smug when I stand next to my Honda Fit watching some SUV owner near tears as she puts more than $100 of gas into a car she doesn’t need. It just feels sad to think about how long it’s been since it became obvious to anyone who cared to look that we won’t be able to scare off problems like fuel scarcity and climate change by closing our eyes and wishing. That lead time was an opportunity to make changes... [that] would [have] prevent[ed] huge numbers of honest Americans get caught with their pants down. Instead we blew it out the tailpipe of cars that average 15 MPG.... It’s simply unsustainable to live in suburban car country with a negative equity on the house, $6-7 gas... and expensive SUVs that nobody wants. The saddest thing for me was that most who will get fucked the worst had no idea this was coming. There was that one guy who warned us, but he had a snooty laugh.

On an individual level, it’s easy to feel superior to people who bought SUVs and are paying for it now. But that’s foolish, because we all rationalize our choices.... I’m going to suggest that the people who exploited this rationalization tendency hold the lion’s share of the blame... right wing pundits, car companies, and oil companies did all the hard psychological rationalizing work.... They painted critics as effeminate hippies... sanctimonious and nosy.... They gave people pseudo-scientific explanations they could latch onto.... It’s a P.R. strategy that only had to work on enough people, and it did.

Jimmy Carter on Energy: 1977

An historical document:

Jimmy Carter: Tonight I want to have an unpleasant talk with you about a problem unprecedented in our history. With the exception of preventing war, this is the greatest challenge our country will face during our lifetimes.... We must not be selfish or timid if we hope to have a decent world for our children and grandchildren.... By acting now, we can control our future instead of letting the future control us.

Two days from now, I will present my energy proposals to the Congress. Its members will be my partners and they have already given me a great deal of valuable advice. Many of these proposals will be unpopular. Some will cause you to put up with inconveniences and to make sacrifices.... Our decision about energy will test the character of the American people and the ability of the President and the Congress to govern. This difficult effort will be the "moral equivalent of war" -- except that we will be uniting our efforts to build and not destroy.

I know that some of you may doubt that we face real energy shortages. The 1973 gasoline lines are gone, and our homes are warm again. But our energy problem is worse tonight than it was in 1973.... [D]omestic production has been dropping steadily at about six percent a year. Imports have doubled in the last five years. Our nation's independence of economic and political action is becoming increasingly constrained....

Twice in the last several hundred years there has been a transition in the way people use energy. The first was about 200 years ago, away from wood -- which had provided about 90 percent of all fuel -- to coal, which was more efficient. This change became the basis of the Industrial Revolution. The second change took place in this century, with the growing use of oil and natural gas.... [W]e must prepare quickly for a third change, to strict conservation and to the use of coal and permanent renewable energy sources, like solar power....

[W]e do have a choice about how we will spend the next few years.... We can drift along.... Our cars would continue to be too large and inefficient. Three-quarters of them would continue to carry only one person -- the driver -- while our public transportation system continues to decline. We can delay insulating our houses, and they will continue to lose about 50 percent of their heat in waste. We can continue using scarce oil and natural to generate electricity, and continue wasting two-thirds of their fuel value in the process....

But we still have another choice. We can begin to prepare right now. We can decide to act while there is time.... [W]e can have an effective and comprehensive energy policy only if the government takes responsibility for it and if the people understand the seriousness of the challenge and are willing to make sacrifices.... [H]ealthy economic growth must continue... we must protect the environment... we must reduce our vulnerability to potentially devastating embargoes... we must be fair. Our solutions must ask equal sacrifices from every region, every class of people, every interest group.... [T]he cornerstone of our policy is to reduce the demand through conservation. Our emphasis on conservation is a clear difference between this plan and others which merely encouraged crash production efforts. Conservation is the quickest, cheapest, most practical source of energy.... [P]rices should generally reflect the true replacement costs of energy. We are only cheating ourselves if we make energy artificially cheap and use more than we can really afford.... [G]overnment policies must be predictable and certain.... [W]e must conserve the fuels that are scarcest and make the most of those that are more plentiful.... [W]e must start now to develop the new, unconventional sources of energy we will rely on in the next century....

I cant tell you that these measures will be easy, nor will they be popular. But I think most of you realize that a policy which does not ask for changes or sacrifices would not be an effective policy.... Whether this plan truly makes a difference will be decided not here in Washington, but in every town and every factory, in every home an don every highway and every farm.... There is something especially American in the kinds of changes we have to make. We have been proud through our history of being efficient people. We have been proud of our leadership in the world.... And we have been proud of our vision of the future. We have always wanted to give our children and grandchildren a world richer in possibilities than we've had....

I am sure each of you will find something you don't like about the specifics of our proposal.... We can be sure that all the special interest groups in the country will attack the part of this plan that affects them directly. They will say that sacrifice is fine, as long as other people do it, but that their sacrifice is unreasonable, or unfair, or harmful to the country....

Other generation of Americans have faced and mastered great challenges. I have faith that meeting this challenge will make our own lives even richer. If you will join me so that we can work together with patriotism and courage, we will again prove that our great nation can lead the world into an age of peace, independence and freedom.

Jimmy Carter, "The President's Proposed Energy Policy." 18 April 1977. Vital Speeches of the Day, Vol. XXXXIII, No. 14, May 1, 1977, pp. 418-420.

Market Forces at Work in Energy Conservation

And Tom Levenson is writing about what he thinks he ought to be writing about:

Updates on the 100 mpg car front: Way, way back when there was a Republican fight for the nomination, Mike Huckabee made a little splash by calling for a one billion dollar prize to encourage the production of a generally available care capable of 100 mpg. I ridiculed Mike... because (a) the billion bucks was such a wildly disproportionate reward given the X-prize being offered for the same basic goal seemed to think that ten million would do the trick, and... at least one production vehicle on the verge of release, the Tesla roadster, could already lay claim to the milestone.... But what I want to highlight here is the power of 4 buck a gallon gas to concentrate the mass market manufacturer’s mind.

Most immediately, it looks like the GM Volt is real as of 2010 — though at a higher price than originally proposed, 40K instead of around 30K. It will have an MPG equivalent of 150 mpg running on its electric motor, which will drop if the range-extending gasoline engine gets called into use. GM also has a Saturn Vue plug-in SUV project in the works. Toyota is working on its plug in response, with a current, very short range claim of 99.9 mpg.

But what caught my eye today was... the British Motor Show’s latest offerings of cool to cute electric, energy efficient cars. The headliner? The four-seconds-to-60/10 minutes to recharge Lightning GT. 300 large, I’m afraid, so this is another pure fantasy. But taken all in all, and never forgetting the 350 mpg personal transportation available in the form of this electric scooter, it looks like the use of market mechanisms to control green house gas emissions is, pace the McCain campaign’s whispered walk-back on the issue, is working just as the econ 1 textbooks tell you it should.

Ken Rogoff Puzzles Paul Krugman

Paul writes:

The Rogoff doctrine - Paul Krugman: Ken Rogoff is one of the world’s best macroeconomists, so I take whatever he says seriously. But — you know that’s the kind of statement that is followed by a “but” — I’m having a hard time understanding his demands for a world slowdown. Ken tells us that

The huge spike in global commodity price inflation is prima facie evidence that the global economy is still growing too fast.

And then he calls for

a couple of years of sub-trend growth to rebalance commodity supply and demand at trend price levels

Um, why? Basically, the world is employing rapidly growing amounts of labor and capital, but faces limited supplies of oil and other resources. Naturally enough, the relative prices of those resources have risen — which is the way markets are supposed to work. Since when does economic analysis say that the way to deal with limited supplies of one resource is to reduce employment of other resources, so that the relative price of the limited resource returns to “trend”?

Presumably there’s some implicit argument in the background about why a sharp rise in the relative price of oil is more damaging than leaving labor and capital underemployed. But that argument isn’t there in Ken’s recent pieces. Model, please? I agree that

Dollar bloc countries have slavishly mimicked expansionary US monetary policy

and that’s a real issue: the Fed is pursuing very loose policy to deal with a US financial crisis, and that’s inflationary in countries that are pegged to the dollar without facing our problems. But that’s an argument for breaking up Bretton Woods II; it’s not an argument for tighter Fed policy.

Since this is coming from Ken Rogoff, I assume that there’s some deeper analysis here. But I can’t infer it from the articles I’ve read. Please, sir, can I have some more?

Atlantic Monthly Death Spiral Watch (Marc Ambinder Edition)

Why oh why can't we have a better press corps? Marc Ambinder doesn't just bury the lead, he omits the story completely:

Marc Ambinder: No Orleans: ALLENTOWN, PA -- Sittin' on the tarmac waitin' for the candidate. But -- surprise -- we're headed to Columbus, Ohio instead of New Orleans. No oil rig photo op in hurricane weather. No meeting wtih Gov. Jindal either.

Michael D. Shear of the Washington Post has the story:

McCain and the Safety of Offshore Drilling: Sen. John McCain says at every campaign stop that offshore oil drilling is safe, playing down the risk of environmental accidents, even when faced with the power of a hurricane. "I'm aware that off the coast of Louisiana and Texas there are oil rigs, as we well know, and those rigs have survived, very successfully, the impacts of hurricanes, Hurricane Katrina, as far as Louisiana's concerned," McCain said at a town hall in Michigan last week. In an energy speech recently, McCain said that: "As for offshore drilling, it's safe enough these days that not even Hurricanes Katrina and Rita could cause significant spillage from the battered rigs off the coasts of New Orleans and Houston."

In fact, Katrina and Hurricane Rita caused damage to oil rigs and storage facilities in the Gulf, according to press reports and government studies. The hurricanes totally destroyed 113 oil rigs, according to the government's Minerals Management Service, and damaged 457 pipelines. The resulting oil spills were large enough to be seen from space, according to several reports....

McCain had planned to tour oil rigs off the coast of Louisiana tomorrow as he visited with Gov. Bobby Jindal, a rising political star who is rumored to be on McCain's short list to be the vice presidential nominee. The campaign canceled the trip late Wednesday, saying the threat of Hurricane Dolly in the Gulf made a helicopter ride to the rig impossible.

It may not have helped things that a 600-foot tanker loaded with oil and a barge collided Wednesday in the Mississippi River in New Orleans, leaving a 12-mile long oil slick in the river and closing a 29-mile stretch of the river.

Television stations reported the stench of diesel fuel wafting across the French Quarter.

Todd Gitlin Reports on Meet the Press

Todd Gitlin says that Meet the Press is vastly improved now that Tom Brokaw has replaced Tim Russert as its moderator:

CJR: Sunday Watch 7-20-08: Imagine! Almost an entire installment of Meet the Press devoted to an interview with a private citizen who is not running for office—who receives the attention not only because he is famous but because he…knows something... Al Gore...

Tom Brokaw sat still for this rampant seriousness. He did not force Gore to debate a crackpot from cloud-cuckoo-land who is still waiting for the evidence to arrive about human sources of radical climate change....

Brokaw broached a doubt: cost. “Let’s talk about the cost.”... The cost question is legitimate, as is the question of how those costs will be paid. Brokaw rightly inquired.... Brokaw could have nitpicked around the edges. To his credit, he didn’t. So, for a change, we got a TV talk show for grown-ups, where a burning issue of our time was discussed without a single gotcha moment, a single accusation of flip-flopping, a single objection from a representative of the Flat Earth Society. Hallelujah.

New York Times Death Spiral Watch (Energy/Speculation/Journalism/Internet Timothy Egan Edition)

An unexpected mental collision, as my reading and thinking about speculation crashes into my reading and thinking about "why oh why can't we have a better press corps?"

Let me back up. Back in 2001, Paul Krugman hit the point that deliberate and illegal market manipulation--artificial supply restrictions--were the principal factor driving California's energy crisis no less than seven times in less than five months. As he deservedly patted himself on the back last month:

Various notes on speculation: During that whole period, I was pretty much the only voice in a major news outlet even suggesting that market manipulation might be a central factor...

And indeed, market manipulation somehow escaped mention in the very same section of the very same paper he was writing for--in articles written by news-division reporters like Joseph Kahn and Tim Egan that I can find. Maybe it's the fault of the NYTimes search engine, but all it finds is reporters like Kahn and Egan giving "he said-she said" accounts--charges of market manipulation by PUC Chairs balanced by claims from energy companies that they simply "played by the rules" with no way for non-expert readers to evaluate them.

Exhibit A: New York Times reporter Timothy Egan in May 2001 on the California energy crisis:

Timothy Egan, May 11: Many Utilities Call Conserving Good Business: Hundreds of miles to the south [of Seattle], the city-run utilities in Los Angeles and Sacramento, have generally managed to avoid the rolling blackouts of recent months by opting out of the state's deregulation experiment and promoting conservation with near-religious fervor.... When Vice President Dick Cheney said last week that conservation could not be a centerpiece of energy policy, he left some utilities -- those that have spent 20 years trying to prove just the opposite -- feeling as though their efforts had been undermined. In his speech, he said, "Conservation may be a sign of personal virtue, but it is not a sufficient basis for a sound, comprehensive energy policy."...

These guys in the Bush administration are doing this manly stuff, putting their horns on to make it sound like conservation is for sissies," Mr. Royer said. "But we know from experience that conservation equals generation. They are the same." Other utilities, even some that embrace conservation, agree with the Bush administration that the nation cannot conserve its way to energy independence....

S. David Freeman, the man named by Gov. Gray Davis to oversee the state's response to its power crisis, said that conservation remained a way not only to get through the difficult summer ahead but also to meet long-term energy needs.... Tom Eckman, the conservation manager of the Northwest Power Planning Council, which was created by Congress to guide major power decisions in this region. "It's common sense. If you can get something for 10 cents, why pay a dollar for it?"...

Mr. Cheney said that the Bush administration would oppose any measure based on a premise that people should do more with less. His remark was echoed this week by Ari Fleischer, the White House spokesman. Asked on Monday if Mr. Bush believed that Americans should change their lifestyles in the face of a power crisis, Mr. Fleischer dismissed the idea of people using less energy as one solution. "That's a big no," said Mr. Fleischer. "The president believes that it's an American way of life, and it should the goal of policy makers to protect the American way of life. The American way of life is a blessed one. And we have a bounty of resources in this country"...

Exhibit B: Paul Krugman writing thirteen days before on the California energy crisis:

Paul Krugman: The Real Wolf: [E]vidence has convinced Mr. Wolak that "power generators use forced outages strategically to withhold capacity from the market."... [The FERC's] emergency price caps are full of loopholes, offering extensive opportunities for what Mr. Wolak calls "megawatt laundering" -- selling power to affiliated companies that for one reason or another are exempted from the price controls (for example, the controls do not apply to "imports" from neighboring states), then selling it back into the California market. Severin Borenstein of the University of California Energy Institute adds that because the allowed price depends on the cost of generation at the least efficient plant, generators will have a clear incentive to produce inefficiently: "I predict we will find some plants we never heard of before that are suddenly operating again, and they will be pretty inefficient."... [T]his is not a serious plan. There are serious proposals to mitigate the crisis out there -- indeed, last fall Mr. Wolak submitted a proposal that was well received by other experts -- but FERC has ignored all of them. The charitable interpretation is that FERC still doesn't get it.... The uncharitable interpretation is that last week's action was meant to fail. The Medley Report, an online newsletter, calls the FERC plan "a grand exercise in posturing without substance... a very clever temporary move by the Bush administration to deflect any political fallout"...

Exhibit C: Today New York Times reporter Timothy Egan is very angry on his weblog about energy market manipulation in 2001:

Timothy Egan: [T]he West Coast... phony energy crisis of 2000 and 2001... the great energy heist... an extended bad dream, part “Twilight Zone” and part “Chinatown.”... The price of energy spiked — tenfold, a hundredfold — despite low demand. Californians became the most efficient users of power in the nation, and still suffered through dozens of rolling blackouts. None of it added up. And into the worst energy crisis since the Arab oil embargo of 1973 came Vice President Dick Cheney, blasting conservation as a sissy virtue and saying the nation needed to build a new power plant every week for the next 20 years...

Exhibit D: Today New York Times reporter Timothy Egan is very angry on his weblog at the assembled weblogs of America:

Save the Press: [A]nyone who cheers the collapse of the newspaper industry should consider... the larger principle of healthy democracies needing informed citizens. Last week, almost 1,000 jobs were eliminated in the American newspaper industry... layoffs and buyouts is edging toward closures and bankruptcies....

[O]nline advertising accounts for only about 10 percent of total ad revenue, newspapers are hemorrhaging money.... [T]he Web format will never generate enough money to keep viable reporting staffs.... [T]here’s plenty of gossip, political spin and original insight on sites like the Drudge Report or The Huffington Post... built on the backs of the wire services and other factories of honest fact-gathering.... Web info-slingers will find that you can’t produce journalism without journalists....

And just how much do most contributors at the The Huffington Post make? Nothing!... [T]he Brentwood bold-face types who grace HuffPo’s home page can afford to work for free, but it’s un-American, to say the least.... If any of those guys on the docks heard that I was now part of a profession that asked people to labor for nothing, they’d laugh... then probably shut The Huffington Post down.... We could be left with a national snark brigade, sniping at the remaining dailies in their pajamas, never rubbing shoulders with a cop, a defense attorney or a distressed family in a Red Cross shelter after a flood.... [P]erhaps a nation can function without newspapers. But it would be a confederacy of dunces.

And when Exhibits (A)-(D) combine inside my brain, they collide. And my first and instinctive reaction is: Karma.

Egan could have given Paul much more backup in 2001. Indeed, he could have called Frank and Severin, et cetera, and put something like Exhibit (B) high up in his Exhibit (A) article. He didn't.

This is, I think, a huge problem for the New York Times's--in fact, its biggest problem. I know that the people writing for the Huffington Post are smart people trying their best to tell it to me as they see it. I don't know that about the New York Times. I'm pretty sure that they know or suspect important things that they are not telling me, or are soft-peddling for internal bureaucratic or external source-maintenance reasons. I see: New York Times. I think: Judy Miller, Elizabeth Bumiller, Sheryl Gay Stolberg, Maureen Dowd, David Brooks, William Kristol, John Tierney, Adam Nagourney, Ben Stein, Bill Keller, David Shipley, Jim Rutenberg.

Thus the Wheel of Karma turns. The suspicion that reporters like Tim Egan identified with the New York Times brand know important things about the issues they are writing about that they are not telling me is a huge hurdle in today's world: a world in which electrons are cheap, attention is scarce, and reputation is valuable.

And the Wheel of Karma grinds fine, for the way for Tim Egan to have reputation now is for him to have, back in 2001, provided Paul Krugman with extra backup when Paul was trying to tell the California energy crisis story wie es eigentlich gewesen. Egan didn't. And today time machines are scarcer than attention...

---

Appendix: Egan "he said-she said" California energy stories from 2001:

• http://query.nytimes.com/gst/fullpage.html?res=9D00E3DA1031F932A25751C0A9679C8B63&sec=&spon=&pagewanted=print
• http://query.nytimes.com/gst/fullpage.html?res=9F07E1D7103BF932A25756C0A9679C8B63&sec=&spon=&pagewanted=print
• http://query.nytimes.com/gst/fullpage.html?res=9F0DE6DB143AF936A25756C0A9679C8B63&sec=&spon=&pagewanted=print
• http://query.nytimes.com/gst/fullpage.html?res=9806E4DA1739F937A35752C1A9679C8B63&sec=&spon=&pagewanted=print

Jim Hamilton Assumes the Role of Dr. Doom

Jim Hamilton writes:

Econbrowser: Recession and the oil shock of 2008: [T]his seems to be unfolding according to [the] script. The dramatic abandonment of gas guzzlers by American consumers continues, with last month's sales of domestically manufactured light trucks (which includes the once almighty SUV category) down 28% from June 2007. Sales of imported SUVs, which had been holding up better, plunged even more dramatically. For the lighter car category, sales of domestics fell 13%, while imported cars, which tend to get better mileage, eked out a 4% gain....

The shift is a necessary change in the long run, but in the short run will definitely put additional strains on the U.S. economy, as it's precisely this kind of disruption in domestic spending that appears to be responsible for the contribution that historical oil price shocks have made to previous U.S. economic recessions. FT conveys some of the gloom:

The US car market is heading for its worst year in more than a decade as Americans turn their backs on large, gas-guzzling vehicles, according to June sales data due out today.

The figures come as the big US carmakers scramble to adapt to the dramatic shift in demand to more fuel-efficient cars and crossover vehicles. Chrysler yesterday said it would close a US minivan assembly plant and cut one of two shifts at a pick-up truck site. Chrysler's move will result in 2,400 job losses at the plants, both in St Louis. There are even dark murmurs that GM, once the biggest company in America, could conceivably be forced into bankruptcy...

This makes me think that is time to start sending out more stimulus checks--advances on next April's refund checks.

The Solar Taxi Is Coming!

In my inbox:

Solar Taxi: Around the World to Promote Alternative Energy

Monday, July 14
290 Hearst Memorial Mining Building, UC Berkeley
10:30 a.m. lecture
11:30 a.m. demonstration and rides

Come win a chance to ride in the Solar Taxi! If you would like to get on the group's agenda, please send mail to citriseditor@citris-uc.org.

For the first time in history, a solar-powered car is driving around the world without any carbon emissions. Swiss adventurer Louis Palmer is taking a small blue environmentally-friendly taxi around the world. The solar-electric two-seat taxi with attached trailer is an attempt to call attention to global warming while providing solutions for oil independency.

With a full component of batteries, the Solar Taxi has an autonomy of almost 200 miles. With additional energy from the solar cells on a sunny day, it can travel almost 260 miles. The vehicle has a top speed of 60 miles an hour and needs no gasoline at all.

By the time the Solar Taxi travels the Earth, it will have been to 40 different countries upon five continents, including the United States.

Read more about this project at http://www.solartaxi.com/mission/.

http://www.citris-uc.org/solartaxi

Differences Between Obama and McCain...

Paul Krugman:

Baselines, shmaselines: Wise words from the Tax Policy Center:

There is an easy way to cut through this palaver. Forget the baseline. Just think about three numbers: How much would either candidate collect in taxes as a share of the Gross Domestic Product? How much is government likely to spend? And, how much would they have to cut that spending to keep the national debt from ballooning.

TPC estimates that in 2013, Obama would collect revenues of 18.2 percent of GDP. McCain would bring in about 17.8 percent. Spending that year would be about 19.5 percent, according to the Congressional Budget Office, assuming the Iraq war will be winding down.

The key point, again: because of all those middle-class tax cuts in the Obama plan, he collects only 0.4% of GDP more in taxes than McCain. The tax collection comes from different people: lower and middle-income Americans would be substantially better off under the Obama plan. But where is the money for health care reform?

This is why I think that Obama ought to be proposing a big oil tax, with substantial parts of it used to pay for people's FICA and extend the EITC phaseout range. This:

• raises revenue, and puts us in a much better position for long-run growth
• improves national security by reducing our long-run dependence on foreign oil from unstable parts of the world
• helps on the global warming front
• makes America a less unequal country

I think that that the Democrats ought to offer America a choice between:

• Paying higher gasoline prices but also paying less in Social Security taxes

• Continuing to leave our national and economic security hostage in the hands of unstable political-military events in the Middle East--which requires that we spend a fortune continuing to project a huge amount of military power into the Persian Gulf for essentially forever.

This seems like a no brainer to me.

The Environment: What Can We Do? (Megan McArdle Unleashes Her Inner Hayek Edition)

Megan writes:

Megan McArdle: The great, great Tom Lee on the ineffable problems of trying to lower your environmental footprint:

Doing this stuff is impossibly difficult, as is amply demonstrated every time someone tries to figure out the comparatively narrowly-defined problem of biofuels' net energy balance. This is the first problem: literally every human endeavor consumes energy — and of course, it's very hard to reduce any action in civilization to just one step. It's tough to figure out how much energy something took, very tough to accurately guess, and nearly impossible to know how much carbon it took to generate that energy.... There are unambiguous things, of course: don't leave the water running when you brush your teeth, and minimize electricity use, and don't leave your car idling. Although sometimes even those wind up ambiguous: I've heard that restarting a car takes about as much gas as running it for a minute. But then, I probably heard that from someplace like Wired. So who knows? This is the real problem... the only people with an incentive to really figure this out are academics... the only people with an incentive to talk about it are those who sell ad space to people targeting an audience that likes green content or an audience that likes counterintuitive content.... And the press is more than comfortable enough with their anecdotes and innumeracy to continue publishing hunches they had while shopping at Whole Foods, as if a half-day's worth of googling and algebra was sufficient to untangle the world's unimaginably complicated economic and energy-use web...

Oh, no, seasoned readers are already saying to themselves; I see a Hayek fit coming. Yes, my friends, you are right, like those dogs that can sense an epileptic seizure minutes before it actually appears. It is too late to force the pills down my throat; you'll just have to hang on and hope I don't hurt myself. Hayek on why prices are so, so great compared to command-and-control:

Fundamentally, in a system in which the knowledge of the relevant facts is dispersed among many people, prices can act to coördinate the separate actions of different people in the same way as subjective values help the individual to coördinate the parts of his plan. It is worth contemplating for a moment a very simple and commonplace instance of the action of the price system to see what precisely it accomplishes. Assume that somewhere in the world a new opportunity for the use of some raw material, say, tin, has arisen, or that one of the sources of supply of tin has been eliminated. It does not matter for our purpose—and it is very significant that it does not matter—which of these two causes has made tin more scarce. All that the users of tin need to know is that some of the tin they used to consume is now more profitably employed elsewhere and that, in consequence, they must economize tin. There is no need for the great majority of them even to know where the more urgent need has arisen, or in favor of what other needs they ought to husband the supply. If only some of them know directly of the new demand, and switch resources over to it, and if the people who are aware of the new gap thus created in turn fill it from still other sources, the effect will rapidly spread throughout the whole economic system and influence not only all the uses of tin but also those of its substitutes and the substitutes of these substitutes, the supply of all the things made of tin, and their substitutes, and so on; and all his without the great majority of those instrumental in bringing about these substitutions knowing anything at all about the original cause of these changes. The whole acts as one market, not because any of its members survey the whole field, but because their limited individual fields of vision sufficiently overlap so that through many intermediaries the relevant information is communicated to all. The mere fact that there is one price for any commodity—or rather that local prices are connected in a manner determined by the cost of transport, etc.—brings about the solution which (it is just conceptually possible) might have been arrived at by one single mind possessing all the information which is in fact dispersed among all the people involved in the process.

This, of course, leaves us with the problem of setting a price. But as long as we are sure--and I think we're pretty sure--that the price of greenhouse emissions ought to be higher than it is, a modest start will be adding valuable new information to a system that is very good at handling information.... [I]t's probably best for the government to do something--as long as that something is raising the price of carbon--rather than rely on individual guesses.

There is one thing you can [individually] do, if you care about global warming: eat lower on the food chain.... But will you do it? In most cases, no you will not, because chicken legs are tasty.... [The other individual thing] you can do right now is not complain so much about gas prices.

Energy Costs as a Share of Spending

From Spencer of Angry Bear:

Oil and Speculation

As best as I can determine, Paul Krugman is right.

Paul Krugman says that either the price of a storable commodity can be determined by supply-and-demand on the spot market, with no stored reserves held off the market for speculative purposes:

Or the price can be determined by speculators, with them holding enough of the commodity off the market in their speculative inventory in order to drive the current spot price up to a level where it no longer pays for speculators to take even more of the current supply off the market:

In which case the current and the futures price of the commodity should be in contango: the future price should be higher than the current price by the cost of storage plus the interest rate. Since we don't see either large inventories of tanker cars filled with oil on the sidings or futures prices for oil above spot prices to make storing marginally profitable, he concludes that speculation is not driving oil prices today:

http://www.princeton.edu/~pkrugman/Speculation%20and%20Signatures.pdf [H]ere’s the thing: the actual data we have on crude oil don’t show the signatures of a market driven by speculative demand. Inventory data don’t show a big accumulation; and the market has mostly been in backwardation, not contango. It made news when, late last month, a slight contango developed – because until then there had been backwardation. Maybe I’m misinterpreting what the advocates of a speculative story are thinking. But in that case, what are they thinking? I’m curious.

And:

Various notes on speculation: Right now I see well-trained economists getting caught up in an equivalent fallacy — the doctrine of immaculate hoarding? — because they’re getting hung up on the financial relationships between spot and futures. Whatever you say about the futures market, it can only drive up the spot price by causing physical hoarding of physical goods.... [S]ome readers have asked me why my inventory argument didn’t apply to the housing bubble. The answer is that a house is a durable good, which unlike oil, which you have to burn, isn’t used up by the consumer; what we consume are housing services — in effect, consumers rent houses, from themselves if they happen to be homeowners. To see the equivalent in housing of what the oil bubble types think they’re seeing in oil, we’d have to have seen a sharp rise in rental rates. It didn’t happen....

Third, some people have asked what I said about the California energy crisis of 2000-2001, perhaps history’s greatest example of market manipulation.... During that whole period, I was pretty much the only voice in a major news outlet even suggesting that market manipulation might be a central factor. And here’s the thing: I applied pretty much the same reasoning to that crisis that I’m applying now. The only way market manipulators could have been driving up prices was by keeping physical supply off the market. And they were in fact doing just that: there was huge unused generating capacity, consistent with the idea of deliberate withholding. Some years later we would actually get hold of control room tapes in which Enron traders called plants and told them to shut down, and boasted about cutting off Grandma Millie’s power.

I’m still waiting for evidence that physical withholding is going on in the oil market.

Dangerous populists?: Dangerous populists? Martin Wolf calls for

abandonment of the silly idea that price jumps in oil or food are the result of wicked “speculation” – a fantasy promoted by dangerous populists across the globe.

Hmm. Who are these “dangerous populists”? Well, elsewhere in the FT there’s an article titled “U.S. senator seeks clampdown on speculation in oil markets”, which quotes Joe Lieberman saying that speculators are a:

significant contributing factor to the economic distress now being felt by American consumers every time they stand in the grocery store checkout line or pay for a fill-up at the gas pump

Joe Lieberman, the Huey Long of Greenwich! And let’s not forget those wild-eyed, shaggy-haired leftists at National Review, who have been telling us that high oil prices are a bubble that’s about to burst for more than 5 years. By the way, the FT article on Lieberman mentions that

Some observers say lawmakers have not explained how speculators or pension funds are boosting prices or why the prices of raw materials such as iron ore, rice or coal - in which speculators have limited access - are also booming.

I’m delighted at the promotion. I used to be one of Those Who; now I’m Some Observer...

And:

Confusions about speculation: I’m asking whether expectations of a higher future price and/or investment in the futures market by institutional investors are pushing up the current price. If the answer is yes, then we can ask whether there’s a bubble — that is, whether the expected future price is unreasonable. It’s quite possible to have speculation that isn’t a bubble.... [B]ut is speculation, rational or not, driving the price of crude?

Basically, it’s hard to reconcile the view that it is with two facts: for most of the recent runup, inventories were static or declining and the futures market was in backwardation, not contango. (Can the futures market pull up the spot price when the futures price is less than the spot price?)

OK, you can offer excuses. Maybe the oil inventories are being held in the ground; but do we have any evidence that oil producing countries are withholding output? (And for those who blame speculators, are Kuwait and Saudi on the other side of those futures contracts?) Maybe there’s a shifting liquidity premium that mucks up the relationship between spot and future. But this really is starting to sound like epicycles — an attempt to rescue the speculation hypothesis, which originally was supposed to be based on compelling evidence, by saying that there’s actually no evidence that could refute it...

David Pogue Tries to Buy a Second Prius

And fails:

Where Are All Those Priuses?: [the dealership manager] told me quite a tale. His dealership used to get, from Toyota Corporate, about 30 Priuses a month to sell. But starting in May, his allocations inexplicably dropped to about four cars--and base-model cars, at that. He said he’s actually calling people on the waiting list to offer them these stripped-down models, since the better equipped cars they wanted aren’t available—and they’re taking them!

So when might I get the new Prius? “We’ve got 50 people ahead of you on the waiting list,” he said. “And we’re getting about three or four cars a month. You do the math.” (As for the call I’d gotten that said they’d found the car I was looking for: the manager had no explanation. He said he’d look into it.)

But then came the punch line. “You’re not the only customer accusing us of selling your car out from under you,” the manager told me. “But you know what? I think Toyota’s selling our cars out from under us! They’re manufacturing the same number of cars, but we’re just not seeing ‘em. So I figure they’re selling them in Europe, where they can get much more money for them.”

Paul Krugman Critiques Guillermo Calvo on Commodity Prices

The fact that somebody has bought an oil futures contract means that somebody else has sold one--hence no effect on demand without real storage. Paul Krugman critiques Guillermo Calvo and others:

Calvo on commodities - Paul Krugman - Op-Ed Columnist - New York Times Blog: When I think about speculation, I always start from Paul Samuelson’s classic analysis in terms of intertemporal price equilibrium (a 1957 paper — and not available, as far as I can tell, online. Why isn’t Weltwirtschaftliches Archiv on JSTOR?). Speculation can affect spot prices because it takes physical stuff off the market. Argue, if you like, that the inventory data are unreliable, or that stuff is being held in the ground [or in gas tanks]; but don’t tell me that physical quantities are irrelevant.

Second, Calvo argues that inflation risks stem mainly from excess liquidity. He’s in good company there, but... I don’t trust hydraulic metaphors for monetary economics. And we are in a world where central banks target interest rates.... On a happier note, it’s great to see top-flight economists weighing in on the crucial issues of the day. It’s kind of like the Asian financial crisis of 1997-1998, which was bad for the world but a sort of golden age for policy-relevant theory.

Update: Some correspondents have asked me what I think about the Congressional testimony of Michael Masters, who told a Senate subcommittee that “index speculators” — institutions that buy commodity futures as an investment — are responsible for the price surge. The short answer is that I think his testimony is just stupid. Here’s what he says:

Index Speculators’ trading strategies amount to virtual hoarding via the commodities futures markets. Institutional Investors are buying up essential items that exist in limited quantities for the sole purpose of reaping speculative profits.

That quote pretty much epitomizes what’s wrong with a lot of what people say about speculation. Buying a futures contract for oil does not reduce the quantity of oil available for consumption; there’s no such thing as “virtual hoarding”. And Masters really is confused about the difference between paper contracts and physical stuff. He compares the growth in the futures market with increased consumption from China, and says

The increase in demand from Index Speculators is almost equal to the increase in demand from China!

Again, the fact that someone bought a futures contract (which means that someone else sold one) doesn’t reduce the amount of oil available to consume. I’m willing to listen to serious arguments about how speculation might be affecting the price, but you do see a lot of dumb stuff. And this is really, really dumb.

Richard Green Says $4 per Gallon Gasoline Raises the von Thunen House Price Gradient by $3,000 a Mile

His math looks good to me:

Richard's Real Estate and Urban Economics Blog: $4 per gallon gasoline and the urban land market: Over the past six years, the price of gasoline has risen about $2 per gallon. What does this mean for relative urban land prices?

Let's say the average household makes five one-way trips per day--for work, shopping, entertainment, etc. Let's also say that the average car gets 20 mpg in city driving. Each mile of distance to work, shopping, etc. is therefore now 50 cents per day per household more expensive than before. A household living immediately adjascent to work and shopping should then be willing to pay $5 per day more in rent than a household 10 miles away compared with six years ago, all else being equal. This becomes $150 per month, or $1800 per year. Assuming a five percent cap rate for owner occupied housing, this translates to $36,000 in relative change in value. Given that the median house price in the US is about $220k, this is kind of a big deal.

The assumptions here are pretty crude (particularly the ceteris paribus assumption), but if gas remains at its current real price, we will see the shape of US cities change.

Very good free ice cream. But I want more: how much more Europe-like will our cities become, and how fast?

Washington Post Death Spiral Watch

Robert Samuelson:

A Vote for McBama: [Barack Obama's] actual agenda is highly partisan and undermines many of his stated goals. He wants to stimulate economic growth, but his hostility toward trade agreements threatens export-led growth (which is now beginning). He advocates greater energy independence but pretends this can occur without more domestic drilling for oil and natural gas.... Obama's clever campaign strategy would put him in a bind as president. Championing centrism would disappoint many ardent Democrats. Pleasing them would betray his conciliating image. The fact that he has so far straddled the contradiction may confirm his political skills and the quiet aid received from the media, which helped him by virtually ignoring the blatant contradictions...

These are, as we all know, extremely weak examples of "high partisanship" and "blatant contradiction." Energy independence does not require subsidizing domestic drilling if it is a subordinate goal in the context of moving toward a less carbon-based economy. Whether we get export-led growth depends 100% on the value of the dollar and 0% on whether we conclude new trade agreements.

Samuelson knows that these are extremely weak examples of "blatant contradiction" and "high partisanship." But you try to delude your readers with the ammunition you have, not the ammunition you wish you had.

Why oh why can't we have a better press corps?

Jim Hamilton Becomes a Bear

He writes:

Econbrowser: The oil shock of 2008: Time to reassess the potential for recent oil price increases to contribute to an economic downturn.... [W]hen oil prices started to rise again five years ago, many of us suggested that... because the price was rising much more gradually... [it] should be less disruptive of consumer spending patterns [in the 1970s, and]... oil was still cheaper than it had been historically if you took into account inflation.... [N]either of those claims... [is] true [any longer]....

[E]nergy expenditures had fallen... significantly as a fraction of total income... that, too, is no longer the case... crude oil consumed as a fraction of GDP... fell as low as 1.1% in 1998, but is up to 5.2% so far in the first quarter of 2008.... We've reached the point where American businesses and consumers simply can no longer afford to ignore the price of fuel, and we're getting clear indications of real changes in behavior.... U.S. vehicle miles traveled fell 4.3% in March... gasoline consumption so far in 2008 has been 70,000 barrels/day lower than in the first five months of 2007.... Sales of light trucks manufactured in North America last month were 26% below the level of May 2007... the real value of U.S. motor vehicle production fell by $44 billion between 2007:Q3 and 2008:Q1.... GM this week announced plans to close 4 North American plants, idling an additional estimated 8,000 workers. Ford plans a 15% cut in its 24,000 salaried employees. Continental Airlines announced plans to cut 3,000 jobs in response to higher fuel prices, following similar announcements from United, Delta, and American....

We dodged a recession (at least through most of 2007) despite a dramatic housing downturn. The modern American economy could perhaps also continue to grow through the kind of effects we saw from the oil price spike of 1990. But what if we have to deal with both sets of problems at the same time?

I'm afraid we're about to find out.

Delong Smackdown Watch: Why Cap-and-Trade Beats a Carbon Tax

Felix Salmon writes:

Why Cap-and-Trade Beats a Carbon Tax: Brad DeLong reckons that the relative merits of carbon taxes and cap-and-trade "roughly offset each other". "To first order cap-and-trade and carbon taxes are the same," he says, but there are second- and third-order differences. Among the second-order differences are these, and you can see how he ends up with the "roughly offset" conclusion:

• Cap-and-trade runs the risk that the cap will be set at the wrong place and so the price will go damagingly above its social optimum value.
• Carbon taxes run the risk that the tax will be set too low and so the quantity emitted will go damagingly above its social optimum value.

These two considerations do not offset each other. The second risk is high and real; the first risk is low and politically much more unrealistic.

Given the hysteria over energy prices in general and gasoline prices in particular, it's easy to imagine how a carbon tax would be set too low. And it's true that no one really knows what the elasticities are in the energy market, which means that an aggressively-low emissions cap could indeed send prices into the stratosphere.

But, realistically, what would happen in such an event? Would Congress sit idly by as fuel-oil costs exceeded monthly mortgage payments? Would they tell their constituents that, sorry, nothing they can do about $15-a-gallon gasoline prices, we set our cap and now we have to stick with it? Of course not. They would tweak the cap-and-trade system in one of any number of ways: they might allow companies to borrow emissions credits from future years, or they might implement a "safety valve" allowing the government to auction off new emission credits at a certain price, or they might simply raise the cap. Alternatively, of course, they could take the unexpected excess revenue from the cap-and-trade auctions and start mailing large checks to everybody in the country, thereby helping to cancel out the ill effects of higher energy prices.

The one thing you can be pretty sure would not happen is that Congress would happily take the cap-and-trade windfall revenue and use it to, say, pay down the national debt. Although even that would have social value which would offset the negative social effects of higher energy prices.

But what of the scenario where emissions permits are auctioned off at a relatively low price, and then suddenly skyrocket in the secondary market, giving no windfall to the government? Well, for one thing, the value of next year's permits has just gone up, so the windfall will come. And for another thing, given that most people bought their emissions permits at a relatively low price, and that it's only the marginal permits which are expensive, the effects on actual energy prices would likely not be huge.

In other words, as I've said many times in the past, cap-and-trade is flexible. Once you've installed the mechanism, it can and will be tweaked over time. Changing tax rates, by contrast, is much harder. Which is why cap-and-trade is superior to a carbon tax.

Record Prius Parade!

Five--count them, five in a row, red, green, silver, silver, red--proceeding north on Oxford Street...

Ryan Avent on Tyler Cowen on Ryan Avent on Paul **Robert** Samuelson on Obama's Cap-and-Trade

Ryan Avent writes:

The Bellows » Am I Misleading?: [Robert Samuelson is] not saying [the Weitzman (1974) "Prices and Quantities" point] that we might accidentally set the cap too low and blow up the economy. He’s saying that consumers and producers won’t respond to price increases, that politicians will steadily and heedlessly lower the cap (or raise the tax) regardless of economic conditions, and that the real evil of the plan is that it increases the cost of dirty fuels. And there is seemingly no recognition that a carbon tax would, in fact, make energy more expensive, that it would “suppress” emissions, and so forth.

And if we’re willing to acknowledge that there are uncertainties about the location of the social optimum, elasticities, pace of technological development, and so on, then I think we should also be willing to acknowledge that the likelihood of a real-life political body setting a cap too low or a tax rate too high is quite low, and that furthermore, the likelihood that such an eventuality would be rapidly addressed through tax rate or cap adjustments is quite high. If we’re going to have reality, let’s have all of it.

But in Samuelson’s world, environmentalists are scheming, omnipotent economy destroyers, and cap and trade is nothing like a carbon tax. That’s just not so. In all the ways that matter to Samuelson, the two plans are identical. Neither will be particularly scrutable to voters, both offer considerable opportunities for industry giveaways, both will make energy more expensive, and both can be adjusted if we find that we’ve set a dial incorrectly.

As Mark Thoma says, it’s Samuelson who’s being misleading. Either that, or utterly confused.

It doesn't have to be either/or, Ryan. It can be both/and. Probably is.

Why oh why can't we have a better press corps?

Megan McArdle Moves the Ball Downfield on the Cap-and-Trade vs. Carbon-Tax Discussion

She interfaces with the knowledge base of the ancient Krell and writes:

Megan McArdle: Capped! Ryan Avent has been doing some great posting on cap and trade versus carbon taxes. With all information known, the two are theoretically identical. But in the real world they will differ; the question is how much.

One way to think about it is that we are choosing between two kinds of transparency: transparency to regulated companies, and transparency to voters. Politicians like cap and trade because the connection between the plan and higher energy prices will be less obvious to the voters. For that reason, a libertarian should generally prefer a direct tax.

On the other hand, cap and trade provides more certainty for companies, and a more direct relationship between their actions and profits. So the tax is not always a perfect slam dunk.

On balance I prefer taxes to cap and trade. However, politically, no one is going to enact a carbon tax with gasoline at $4.00 a gallon. Cap and trade is what we're going to get. In practice, that will mean that companies get subsidies to get them to go along (liberals who want cap and trade should concede on this issue to make it easier to pass), while prices rise somewhat. It's not clear to me how big a difference it will make in the long run.

I would say that to first order cap-and-trade and carbon taxes are the same, that there are five second-order differences:

• Cap-and-trade involves less redistribution because the losses of the losers are partially offset by their initial awards of tradeable permits.
• Cap-and-trade runs the risk that the cap will be set at the wrong place and so the price will go damagingly above its social optimum value.
• Carbon taxes run the risk that the tax will be set too low and so the quantity emitted will go damagingly above its social optimum value.
• Carbon taxes have the advantage that the government gets money that it can use for good--either to cut existing taxes that have large deadweight losses or to expand underfunded programs that have large social benefits.
• Carbon taxes have the disadvantage that the government gets money that it can use for ill, and that the recipients and beneficiaries of that ill-used money will then dig in and defend their rent-seeking gains beyond death itself.

and that there are two third-order differences:

• It's easier to get not-too-bright Republicans to vote against something that is actually in their long-run interest if you can demagogue it by calling it a tax.
• It's easier to get not-too-bright Democrats to vote for something that actually is not in their long-run interest if you can demagogue it by claiming that it's just a restriction on the behavior of corporations and not something that directly impacts people.

I don't have a dog in this fight: I think second- and third-order pluses and minuses roughly offset each other. But the substantive case for action seems very clear--and the fact that oil has risen above $100 a barrel without killing the economy just makes it more painful to think of what a hideous waste of opportunity our failure to take Al Gore's advice back in 1993 and put on a carbon tax that IIRC was going to max out at $10/barrel...

Cap-and-Trade Once Again: The Highly-Intelligent, Thoughtful, and Honorable Tyler Cowen Misreads Robert Samuelson:

Tyler reads this from Robert Samuelson:

Unless we find cost-effective ways of reducing the role of fossil fuels, a cap-and-trade system will ultimately break down. It wouldn’t permit satisfactory economic growth. But if we’re going to try to stimulate new technologies through price, let’s do it honestly. A straightforward tax on carbon would favor alternative fuels and conservation just as much as cap-and-trade but without the rigid emission limits. A tax is more visible and understandable. If environmentalists still prefer an allowance system, let’s call it by its proper name: cap-and-tax.

And writes:

Mark Thoma gets upset at this passage, here is Ryan Avent, Brad DeLong and Matt Yglesias, all upset.  Avent was the fount of the opposition:

Yowza. As any economist worth his or her salt will tell you, a cap and trade plan with auctioned permits is essentially identical to a carbon tax. That also happens to be exactly what Barack Obama is proposing. So, another way for Samuelson to have written this column would have been to title it, “Barack Obama has a good plan to reduce carbon emissions."

But Samuelson is correct here and Avent is misleading.  When there is uncertainty about the location of the social optimum, and uncertainty about elasticities, a carbon tax and cap-and-trade are by no means equivalent.  If you see very high costs from setting the binding cap too low and choking off growth -- as Samuelson mentions -- you should prefer the carbon tax.  The price of carbon is more certain and you bear less risk from uncertainty about how fast solar power and other technologies will develop.  Alternatively, you might say that risk is transformed into price risk rather than "you can't exceed this cap no matter what" risk.

Of course the postulated uncertainties are realistic in this context and you don't have to invoke uncertainty about the science of global warming. 

If there is very high environmental risk to having emissions above a certain level, and we are unsure about the relevant elasticities (again, uncertainty about the pace of technological development can drive this), that militates in favor of cap and trade.  It is then easier to ensure that emissions do not exceed a particular level.

You can see that we are comparing the "growth threshold problem" to the "environment threshold problem."  Samuelson is apparently more worried about the former than the latter.  Maybe he shouldn't be so sure he is focusing on the right problem, but on the economics he is on the mark in the criticized passage.

I think that Tyler Cowen has misread Robert Samuelson. First, let's give some more of the context:

Just Call It 'Cap-and-Tax': [C]ontrolling greenhouse gas emissions is... hard and perhaps futile.... One of the bad ways [to try to do it] is cap-and-trade.... [Cap-and-trade's] complexity... allows its environmental supporters to shape public perceptions in essentially deceptive ways.... [It's] a tax, but it's not described as a tax. It would regulate economic activity, but it's promoted as a "free market" mechanism.... [I]t would trigger a tidal wave of influence-peddling....

Cap-and-trade extends the long government tradition of proclaiming lofty goals that are impossible to achieve.... [T]he simplest way to stop [greenhouse gas] emissions is to regulate them out of existence. Naturally, that's what cap-and-trade does.... [But i]f we suppress emissions, we also suppress today's energy sources, and because the economy needs energy, we suppress the economy. The models magically assume smooth transitions.... [In] the real world, if... the supply of electricity doesn't keep pace with demand, brownouts or blackouts will result. The models don't predict real-world consequences. Of course, they didn't forecast $135-a-barrel oil....

The idea that higher fuel prices will be offset mostly by lower consumption is, at best, optimistic.... [C]ap-and-trade would tax most Americans. As "allowances" became scarcer, their price would rise, and the extra cost would be passed along to customers.... [G]overnment would expand enormously. It could sell the allowances and spend the proceeds; or it could give them away, providing a windfall to recipients.... Call this "environmental pork."... The program's potential to confer subsidies and preferential treatment would stimulate a lobbying frenzy. Think of today's farm programs -- and multiply by 10.

Unless we find cost-effective ways of reducing the role of fossil fuels, a cap-and-trade system will ultimately break down.... [I]f we're going to try to stimulate new technologies through price, let's do it honestly. A straightforward tax on carbon would favor alternative fuels and conservation just as much as cap-and-trade but without the rigid emission limits. A tax is more visible and understandable...

Tyler Cowen reads Samuelson as making a reasoned argument based on the brilliant Martin L. Weitzman (1974), "Prices vs. Quantities", Review of Economic Studies 41:4 (Oct.), pp. 477-491. Price-based tax regulation puts no limit on how high the quantity can go if we get the price signal wrong--and is to be avoided if having the quantity go too high above the social optimum is very expensive. Quantity-based cap-and-trade regulation puts no limit on how high the price can go if ew get the quantity target wrong--and is to be avoided in having the price go too high above the social optimum is very expensive. These, however, are second-order considerations. To first-order, as Ryan Avent carefully explains, they do the same thing. It is not the case that one way is "bad" and another way "good": the pluses and minuses depend on the balance of uncertainties and the cost of errors.

But this is not Samuelson. Every paragraph Samuelson writes criticizing cap-and-trade can be easily rotated into an alternate universe in which Samuelson criticizes tax-based global warming control plans on exactly the same grounds. For example this:

[C]ontrolling greenhouse gas emissions is... hard and perhaps futile.... One of the bad ways [to try to do it] is cap-and-trade....[Cap-and-trade's] complexity... allows its environmental supporters to shape public perceptions in essentially deceptive ways.... [It's] a tax, but it's not described as a tax [but as a control]. It would regulate economic activity, but it's promoted as a "free market" mechanism.... [I]t would trigger a tidal wave of influence-peddling...

Becomes this:

[C]ontrolling greenhouse gas emissions is... hard and perhaps futile.... One of the bad ways [to try to do it] is a carbon tax....[The carbon tax's] complexity... allows its environmental supporters to shape public perceptions in essentially deceptive ways.... [It's] a control, but it's described as a control but a tax. It would regulate economic activity, but it's promoted as a "free market" mechanism.... [I]t would trigger a tidal wave of influence-peddling...

And this:

Cap-and-trade extends the long government tradition of proclaiming lofty goals that are impossible to achieve.... [T]he simplest way to stop [greenhouse gas] emissions is to regulate them out of existence. Naturally, that's what cap-and-trade does.... [But i]f we suppress emissions, we also suppress today's energy sources, and because the economy needs energy, we suppress the economy. The models magically assume smooth transitions.... [In] the real world, if... the supply of electricity doesn't keep pace with demand, brownouts or blackouts will result. The models don't predict real-world consequences. Of course, they didn't forecast $135-a-barrel oil...

Becomes this:

The carbon tax extends the long government tradition of proclaiming lofty goals that are impossible to achieve.... [T]he carbon tax claims to be a "free market" mechanism, but its real purpose is to regulate greenhouse gas emissions out of existence. Naturally, that's what the carbon tax does.... [But i]f we suppress emissions, we also suppress today's energy sources, and because the economy needs energy, we suppress the economy. The models magically assume smooth transitions.... [In] the real world, if... the supply of electricity doesn't keep pace with demand, brownouts or blackouts will result. The models don't predict real-world consequences. Of course, they didn't forecast $135-a-barrel oil...

And this:

Unless we find cost-effective ways of reducing the role of fossil fuels, a cap-and-trade system will ultimately break down.... [I]f we're going to try to stimulate new technologies through price, let's do it honestly. A straightforward tax on carbon would favor alternative fuels and conservation just as much as cap-and-trade but without the rigid emission limits. A tax is more visible and understandable...

Becomes this:

Unless we find cost-effective ways of reducing the role of fossil fuels, a carbon tax system will ultimately break down.... [I]f we're going to try to restrict carbon emissions, let's do it honestly. A straightforward cap on carbon emissions with tradeable emissions permits would favor alternative fuels and conservation just as much as the carbon tax but without the risk that the tax gets set too high. A global cap on emissions is more visible and understandable...

The Weitzman (1974)-based discussion is worth having, and is important. But that's not what Samuelson is doing, is it? I don't see a single word of argument in there about how the risk that the price will go too high is more worth guarding against than the risk that the quantity of emissions will go too high. Do you? All I see are rants about how environmental controls are big government and big government is bad and we never should have passed the Clean Air Act or established the EPA in the first place.

Why oh why can't we have a better press corps?

Washington Post Death Spiral Watch (Robert Samuelson Edition)

Mark Thoma on Robert Samuelson: Economist's View: "His Readers are Now Dumber for His Efforts".

Matthew Yglesias makes the same catch:

Knowledge Not Required: One might think one would have to know what one was talking about to write an op-ed for The Washington Post but of course if that were the case then Robert Samuelson would be unemployed:

Unless we find cost-effective ways of reducing the role of fossil fuels, a cap-and-trade system will ultimately break down. It wouldn’t permit satisfactory economic growth. But if we’re going to try to stimulate new technologies through price, let’s do it honestly. A straightforward tax on carbon would favor alternative fuels and conservation just as much as cap-and-trade but without the rigid emission limits. A tax is more visible and understandable. If environmentalists still prefer an allowance system, let’s call it by its proper name: cap-and-tax.

We'll turn this over to Ryan Avent:

Yowza. As any economist worth his or her salt will tell you, a cap and trade plan with auctioned permits is essentially identical to a carbon tax. That also happens to be exactly what Barack Obama is proposing. So, another way for Samuelson to have written this column would have been to title it, “Barack Obama has a good plan to reduce carbon emissions."

This is, of course, also the view of Hillary Clinton, John Edwards, leading congressional Democrats, and all the main environmental groups. But of course Samuelson's the kind of guy for whom environmentalists and Democrats are always wrong, so we have to ignore the facts.

Here is Ryan Avent:

The Bellows » Robert Samuelson Drinks Deeply From the Cup of Stupid: Washington Post columnist Robert Samuelson has long impressed me as one of the most hackish economic columnists not associated with the Wall Street Journal and not named Ben Stein, but today’s piece on cap-and-trade is dismally, embarrassingly stupid. Its essential premise is that consumers and producers of energy don’t respond to price signals... even the dolt editors of the Post opinion section should have wondered what was up. Samuelson should be ashamed of himself. Let’s go to the videotape:

Carbon-based fuels (oil, coal, natural gas) provide about 85 percent of U.S. energy and generate most greenhouse gases. So, the simplest way to stop these emissions is to regulate them out of existence. Naturally, that’s what cap-and-trade does. Companies could emit greenhouse gases only if they had annual “allowances” — quotas — issued by the government. The allowances would gradually decline. That’s the “cap.” Companies (utilities, oil refineries) that needed extra allowances could buy them from companies willing to sell. That’s the “trade.”In one bill, the 2030 cap on greenhouse gases would be 35 percent below the 2005 level.... If we suppress emissions, we also suppress today’s energy sources, and because the economy needs energy, we suppress the economy. The models magically assume smooth transitions. If coal is reduced, then conservation or non-fossil-fuel sources will take its place. But in the real world, if coal-fired power plants are canceled (as many were last year), wind or nuclear won’t automatically substitute. If the supply of electricity doesn’t keep pace with demand, brownouts or blackouts will result. The models don’t predict real-world consequences. Of course, they didn’t forecast $135-a-barrel oil.

As emission cuts deepened, the danger of disruptions would mount. Population increases alone raise energy demand. From 2006 to 2030, the U.S. population will grow 22 percent (to 366 million) and the number of housing units 25 percent (to 141 million), the Energy Information Administration projects. The idea that higher fuel prices will be offset mostly by lower consumption is, at best, optimistic. The Congressional Budget Office has estimated that a 15 percent cut of emissions would raise average household energy costs by almost $1,300 a year...

Unless we find cost-effective ways of reducing the role of fossil fuels, a cap-and-trade system will ultimately break down. It wouldn’t permit satisfactory economic growth. But if we’re going to try to stimulate new technologies through price, let’s do it honestly. A straightforward tax on carbon would favor alternative fuels and conservation just as much as cap-and-trade but without the rigid emission limits. A tax is more visible and understandable. If environmentalists still prefer an allowance system, let’s call it by its proper name: cap-and-tax.

Yowza. As any economist worth his or her salt will tell you, a cap and trade plan with auctioned permits is essentially identical to a carbon tax. That also happens to be exactly what Barack Obama is proposing. So, another way for Samuelson to have written this column would have been to title it, “Barack Obama has a good plan to reduce carbon emissions.”... But apparently, Samuelson thought the best way to inform his readers was to significantly misrepresent the details of a cap and trade plan, en route to advocating a different solution which is nearly identical and in some ways inferior to cap and trade. His readers are now dumber for his efforts.

Why oh why can't we have a better press corps?

Yuck!!

Theodore Roosevelt is not a good role model for a Democratic politician. And "take on" does not mean cutting and raising taxes in such a way as to leave oil companies' finances unchanged.

The Wall Street Journal's Washington Wire watchesthe continuing train wreck:

Washington Wire - WSJ.com : Clinton: Teddy Would Take On Big Oil: Hillary Clinton, trying to catch up to Barack Obama in the hunt for the Democratic nomination, continues to press a long-shot plan to put the federal gas tax on hiatus and make up for lost revenue with an additional tax on oil companies’ profits.

In recent days, the New York senator has begun stressing some of the more symbolic aspects of the plan, even nodding to a certain turn-of-the-20th-century, macho-man Republican: Theodore Roosevelt.

“It’s not only that I want to give you some immediate relief,” she said during a town-hall style Q&A at a Portland television station Friday night. “I want to begin to lay the groundwork for people to understand what Teddy Roosevelt understood … You’ve got to have the oil companies in some way, reigned in, because they are all-powerful. They have too much control over our economy and over what everything costs in the economy. So I think both in terms of immediate relief and in terms of laying down some markers about going after the oil companies, I have a responsible position.”

Earlier in the day, while taking questions at a private residence in Junction City, near Eugene, Clinton made a similar point: “I think it’s time for us to start taking on the oil companies. A hundred years ago, Teddy Roosevelt took on the oil trusts, and, you know, really broke them up … . Now it’s time to take them on again.”

While Clinton has often expressed admiration for the accomplishments of Franklin Roosevelt, it’s hard to know how far she’ll carry her affection for Teddy. Washington Wire will alert readers if she starts sporting pince-nez spectacles.

This is beyond embarrassing.

Mr. Oil Market Gets Out the Megaphone

Martin Wolf on how the high price of oil is Mr. Market's way of giving us tough love:

FT.com / Columnists / Martin Wolf - The market sets high oil prices to tell us what to do: [O]il... is a finite resource; it drives the global transport system; and if emerging economies consumed oil as Europeans do, world consumption would jump by 150 per cent. What is happenin