Brad DeLong

All Right. One More. I Gotta Correct the Record...

Steven Dubner writes:

Global Warming in SuperFreakonomics: The Anatomy of a Smear - Freakonomics Blog - NYTimes.com: Much of the outcry was made by people who had read Romm but not our book — which isn’t surprising, since the book isn’t out until October 20. As the noise grew, Romm added on the charge that “the publisher has stopped Amazon from allowing people to search the book” – that is, to read the actual text online. Smells like a conspiracy theory, no?

But nobody stopped anything. The text was never searchable on Amazon for the simple reason that the book wasn’t yet published, which is standard procedure. I don’t know where Romm got this fact – or if perhaps it was just too good a rumor to not be true...

(1) Dubner's "nobody stopped anything" is simply wrong. Romm posted a .pdf of Freakonomics chapter 5. Somebody--Dubner and Levitt's publisher--then did require Romm to take it down. That takedown is in sharp contrast to the behavior of some other publishers these days, who are eager to offer sample chapters online.

(2) Moreover, Romm says that as of last week he was able to use Amazon's "search inside the book" function on Superfreakonomics, and that somebody turned it off. I believe him:

Paul Krugman Goes Meta

And offers us three things to read:

(1) Joshua Gans identifies in Dubner and Levitt an odd inconsistency that I’ve identified more broadly: those who go on and on about how people respond to incentives when they’re making a pro-free-market argument suddenly seem to lose all faith in the power of incentives when the goal is to induce more environmentally friendly behavior:

But come on. Isn’t the whole point of the Freakonomics project that prices work and behaviour changes in response to incentives? Everywhere else, a few pennies will cause massive consumption changes while when it comes to a carbon price, it is all too hard.

(2) Ryan Avent makes a general point about people who dismiss cap-and-trade as too hard, then promote something else that only seems easier because you haven’t thought it through. I agree with him about the carbon tax issue; and while I hadn’t thought about applying the same principle to geoengineering, he’s completely right. Having somebody--who? The United States? The United Nations? The Coalition of the Willing?--pump sulfur into the atmosphere through an 18-mile tube, or cut off sunlight with a giant orbital mirror, would either (a) require many years of hard negotiations or (b) quite possibly set off World War III. If it’s (a), why is that so much easier than a global agreement on emissions? (Which, as Brad points out, really would only have to involve four big players.)

(3) Andrew Gelman poses a question:

The interesting question to me is why is it that “pissing off liberals” is delightfully transgressive and oh-so-fun, whereas “pissing off conservatives” is boring and earnest?

I have a theory here, although it may not be the whole story: it’s about careerism. Annoying conservatives is dangerous: they take names, hold grudges, and all too often find ways to take people who annoy them down. As a result, the Kewl Kids, as Digby calls them, tread very carefully when people on the right are concerned — and they snub anyone who breaks the unwritten rule and mocks those who must not be offended. Annoying liberals, on the other hand, feels transgressive but has historically been safe. The rules may be changing... but it’s been that way for a long time.

*Sigh* Last Post on Superfreakonomics, I Promise

Sigh.

So I finally got a copy of chapter 5 of Superfreakonomics.

In the abstract I really like the idea of cheap geoengineering solutions to global warming. My personal favorite is a giant parasol 18,000 miles in diameter at L1 to absorb and then reradiate a chunk of sunlight in other bands. But I have never been able to find anyone here at Berkeley who (a) knows what they are talking about, and (b) agrees with Levitt and Dubner that we know that Al Gore efficiency-and-conservation solutions are much less cost-effective than Mt. Pinatubo geoengineering solutions in dealing with global warming. That NASA and Energy and OSTP should be working on and funding research into the possibilities of geoengineering is something everybody I talk to agrees with. But nobody I talk to agrees with Levitt and Dubner that efficiency-and-conservation efforts are futile, and that we should shut them down to bet all our chips on geoengineering.

It really does look to me like Levitt and Dubner:

• went to Myhrvold's Intellectual Ventures.
• got wowed.
• excitedly wrote up what they heard.
• and then failed to do their intellectual due diligence about what they were told there.

Thus I have a little unsolicited advice for Levitt and Dubner. If I were them, I would abjectly apologize. And I would then start editing the chapter thus:

1. pp. 165-6: Change to no longer put "global cooling" in the 1970s and "global warming" today in parallel: The scientists in the 1970s who were worried about global cooling had neither the quantative evidence, the climate models, the understanding of forcing processes, or the peer-reviewed consensus that analysis of global warming has today. Placing the two in parallel is simply wrong.

2. pp. 165-6: Change to remove false claim that the quotes from Newsweek were the words of "scientists."

3. pp. 165-6: Change to remove false claim that Newsweek was accurately citing the 1975 NAS Study--which says not that the globe is likely to cool but instead that we don't know enough about climate to forecast trends, and tht we need to do more research.

4. p. 167: Change to make explicit the claim that switching to an all-vegetarian diet reduces your carbon footprint by about the same order of magnitude as does switching to a hybrid car. But do not say that cars and trucks do not "contribute an ungodly share of greenhouse gases." They do--it's just that human meat-intensive agriculture contributes and ungodly share as well.

5. p. 168: Change to make the point that the fact that our estimates of climate effects are imprecise is not an argument for doing less or waiting to offset global warming--it is an argument for doing more and doing more now. Uncertainty is not our friend at all

6. p. 169: Change. Currently massively confused about Marty Weitzman's work. Marty focuses on the chance and valuation of catastrophe. He concludes that a version of the precautionary principle is appropriate: when distributions have fatter tails than log normal--which Marty thinks they do--the right policies are those that minimize the possibiliity of catastrophe. Which means starting to act now.

7. p. 170: Change to no longer imply that James Lovelock has some special role or authority in climate analysis or climate policy.

8. p. 170: Change to debunk rather than approve of British conservative Boris Johnson's claim. Johnson's statement is simply wrong. It is not the case that "the fear of climate change is like a religion in this vital sense, that it is veiled in mystery, and you can never tell whether your acts of propitiation or atonement have been in any way successful." We can measure greenhouse gas concentrations in the atmosphere, solar radiative forcings, and temperatures. We can tell whether acts of propitiation and atonement are working.

9. p. 171: Change the highly misleading: "When Al Gore urges the citizenry to sacrifice... the agnostics grumble that human activity accounts for just 2 percent of global carbon-dioxide emissions, with the remainder generated by natural processes like plant decay..." that 98% of carbon emissions are part of an ongoing biological cycle is not an argument supporting an "agnostic" position. And Levitt and Dubner should not hve claimed that it is.

10. p. 171: Change highly misleading paragraph to stress that what is relevant is not the stock but the flow: not that human activity accounts for 2% of the flow but rather that but for industrial emissions one-third (and growing) of the stock of greenhouse gases would simply not be there today.

11. p. 173: Change to no longer dismiss out-of-hand global agreement on climate policy. Dubner and Levitt currently write: "when it comes to actually solving climate change externalities through taxes, all we can say is good luck.... [G]reenhouse gases do not adhere to national boundaries.... Nor does one nation have the right to tell another what to do." But if the big four--U.S., EU, China, and India--of 2050 do agree, they then have the cultural, economic, and diplomatic power to coerce the rest of the world. Reaching global agreement is a very reasonable prospect.

12. pp. 177-181: Change to tone down the puff piece on Myhrvold and Intellectual Ventures--the subsequent pages contain a lot of clues that Myhrvold and company really don't know very much about what they are talking about.

13. p. 182: Change to debunk rather than approve of quote from Wood: "Everybody turns their knobs... so they aren't the outlier, because the outlying model is going to have difficulty getting funded..." Alternatively, back this claim up with some real evidence that it is so. (The climate modelers who I talk to say that it is not.)

14. p. 182: Change to debunk rather than approve of quote from Wood: "current climate models 'do not know how to handle water vapor and various types of clouds'..." Current climate models may not handle water vapor and clouds especially well, but they do handle them.

15. p. 182: Also, change to reinforce point that uncertainty in climate models is not an argument for doing less now but rather an argument to do more.

16. p. 183: Change to debunk rather than approve of quote from Myhrvold: "most of the global warming over the past few decades... might actually be due to good environmental stewardship." It's not.

17. p. 183: Change to remove false claim that worldwide particulate pollution is shrinking rather than growing. It is still growing rather than shrinking and so still cooling the earth more with each passing year--it's only in the clean North Atlantic that heavy particulates been shrinking.

18. p. 183: Change to rephrase: "Nor does atmospheric carbon dioxide necessarily warm the earth"--other things equal, it certainly does.

19, p. 184: Change to remove false claim: "Yet [Ken Caldeira's] research tells him that carbon dioxide is not the right villain in this fight."

1. p. 186: Change to debunk rather than approve of false quote from Wood: "most authoritative literature on the subject suggests a [sea level] rise of about one and a half feet by 2100."

2. p. 186: Remove false claim: "a most surprising environmental scourge: trees." Distinguish between (a) tropical trees, (b) temperate trees, and (c) boreal trees in regions where there is a great deal of snow cover.

3. p. 186: Remove false claim that the earth has been cooling "over the past several years."

4. p. 187: Claim that "coal is so cheap that trying to generate electricity without it would be economic suicide" needs much, much more backing-up: I can't see how it could possibly be true.

5. p. 187: Remove false claim: "A lot of things that people say would be a good thing probably aren't.... As an example he points to solar cells..."

6. p. 187: Claim that "The energy consumed by building the thousands of new solar plants necessary to replace coal-buring and other power plants would create a huge long-term 'warming debt'"--I cannot see how this could possibly be true. The overwhelming majority of power plants that are going to be in operation have not been built yet, and buildind closed-carbon-cycle or non-carbon plants is not much more expensive than building open-carbon-cycle ones.

7. p. 188: Remove false claim that "Myhrvold... has probably thought about such [ecological disaster] scenarios in greater scientific detail than any climate doomsayer."

That is as far as I have gotten...

William Connolley on SuperFreakonomics: Global Cooling

He writes:

SuperFreakonomics: Global Cooling (and some other stuff)?: liked Freakonomics, so I'm a bit sad to see the (inevitable) sequel being so hopelessly wrong. Probably this is a case of the old rule: whenever you see people write about stuff you know, they get it wrong. Joe Romm has a fairly characteristic attack; and just for a change I'll agree with him; though he chooses odd bits to assault. It looks like the "global cooling" junk is just one chapter, but of course it is the only one I'll pay any attention to.

Diagnosis, in brief: (1) they write about stuff they clearly don't understand (2) they pick a catchy reverse-common-wisdom nugget as a headliner without the having the slightest interest in whether it is true or not (mind you, plenty of more respectable folk do the same) (3) they pick an expert to talk to, but since they don't have a clue about the subject they don't know how to pick a good expert, or even understand what the expert says (4) there is a grain of sense in there, but so badly wrapped in trash it is nearly unfindable.

The entire piece is riddled with errors. Reading it all would be tedious. So, before reading it in detail I decided to set myself a target of 10 major errors and then stop....

Does "Superfreakonomics" Need A Do-Over?

Brad Plumer:

Does "Superfreakonomics" Need A Do-Over?: I enjoyed the original Freakonomics quite a bit.... [I]t was clear Levitt was a clever economist who could gin up fascinating "natural experiments" to crack open everyday mysteries. So now Levitt and his co-author Stephen Dubner have a sequel.... Levitt and Dubner just parachute into the field of climate science and offer some lazy punditry on the subject dressed up as "contrarianism." There's no original research. There's nothing bold or explosive. It's just garden-variety ignorance. As William Connelly, a former climate modeler at the British Antarctic Survey says in his review of the book's climate chapter (which he has posted):

Diagnosis, in brief: (1) they write about stuff they clearly don't understand (2) they pick a catchy reverse-common-wisdom nugget as a headliner without the having the slightest interest in whether it is true or not (3) they pick an expert to talk to, but since they don't have a clue about the subject they don't know how to pick a good expert, or even understand what the expert says (4) there is a grain of sense in there, but so badly wrapped in trash it is nearly unfindable.

In just a few dozen pages, Dubner and Levitt manage to repeat the myth that the scientific consensus in the 1970s predicted global cooling (quite untrue), imply that climatologists are unaware of the existence of water vapor (no, they're quite aware), and traffic in the elementary misconception that CO2 hasn't historically driven temperature increases (RealClimate has a good article to help with their confusion). The sad thing is that Dubner and Levitt aren't even engaging in sophisticated climate-skepticism here--there's just a basic unwillingness to gain even a passing acquaintance with the topic. You hardly need to be an award-winning economist to do that.

What's more, as Joe Romm reports, the main scientist that Levitt and Dubner actually interviewed, Ken Caldeira, says they've completely twisted and mischaracterized his views—a glaring bit of journalistic malfeasance. And, as Matt Yglesias points out, one of Dubner and Levitt's arguments rests on the (demonstrably wrong) premise that solar panels are always black. Now, as a journalist, I'm all in favor of having people write about things they're not an expert in--and mistakes do happen--but this is a little absurd.

Meanwhile, over at The New York Times website, Dubner is complaining that critics are all engaged in "shrillness" (without linking to any of the criticisms of his book) and appears to be quietly removing comments when readers attempt to point to Connolley or Romm's critiques. Guess they don't make hard-charging contrarians like they used to.

---

UPDATE: And chunkyreesewitherspoonlookalike@gmail.com emails:

I'm a little offended by the book's laziness. Had they wanted, they could've recruited some clever deniers to feed them material for the climate chapter. People like Chris Horner and Anthony Watts and Roger Pielke are dishonest and wrong, but they're not stupid or ignorant people—they engage in some high-level sophistry and deceit. But Dubner and Levitt didn't even know enough about the subject to seek out the A-list bullshit artists.

---

FURTHER UPDATE: Roger Pielke is unhappy with chunky (which I understand) and with my posting of chunky (which I understand), but then appears to go completely off the rails in email:

Roger Pielke, Jr. rpielkejr@gmail.com Mon, Oct 19, 2009 at 5:48 AM: I see that you have refused to post my comment on your blog. If you make strong accusations about a professional colleague it would seem appropriate to back that up. I await your reply which I'll prominatly feature on my blog. All best from Boulder, Roger Pielke, Jr.

Brad DeLong brad.delong@gmail.com Mon, Oct 19, 2009 at 11:22 AM: I have no idea what you are talking about. I haven't done anything to any comments from rpielkejr@gmail.com...

Roger Pielke, Jr. rpielkejr@gmail.com Mon, Oct 19, 2009 at 11:24 AM: How about the comments that you posted on your blog about me? Specifically: http://rogerpielkejr.blogspot.com/2009/10/economist-brad-delong-calls-me-stupid.html

Brad DeLong brad.delong@gmail.com Mon, Oct 19, 2009 at 11:29 AM: Are you sane? I have not refused to post your comment on my weblog. My default is that everyone's comments are automatically published. (I do prune them later, if I think they are actively misleading. But I don't refuse to publish.)

Roger Pielke, Jr. rpielkejr@gmail.com Mon, Oct 19, 2009 at 11:35 AM: Indeed I am sane. I believe you are ignoring the point of my email to you, you posted a comment on your site with some very strong (and misleading statements about me, here: http://delong.typepad.com/sdj/2009/10/does-superfreakonomics-need-a-do-over.html. Why did you do this? And will you correct the post or otehrwise explain this unprovoked attack? See: http://rogerpielkejr.blogspot.com/2009/10/economist-brad-delong-calls-me-stupid.html

Brad DeLong brad.delong@gmail.com Mon, Oct 19, 2009 at 12:11 PM: I repeat: I have not refused to post your comment on my weblog.

At this point I am thoroughly bemused...

Four Defenders of Dubner and Levitt, Superfreakonomics's Cllimate Chapter...

Bryan Caplan:

The High Points of Superfreakonomics: I just read my advance copy of Superfreakonomics.  Overall, it's better than the original.  It's still cutesy, but stronger in the "who cares?" factor. The highlight: "What Do Al Gore and Mount Pinatubo Have in Common?," a surprisingly skeptical look at global warming, and a shockingly positive defense of geoengineering.  Levitt and Dubner don't seem ready for the Pigou Club:

But when it comes to actually solving climate-change externalities through taxes, all we can say is good luck.  Besides the obvious obstacles - like determining the right size of the tax and getting someone to collect it - there's the fact that greenhouse gases do not adhere to national boundaries... Thus, global warming.

In any case, why bother with taxes when we can fix warming for peanuts?

Budyko's Blanket could effectively reverse global warming at a total cost of $250 million. Compared with the $1.2 trillion that Nicholas Stern proposes spending each year to attack the problem, IV's idea is, well, practically free...

Tim Harford:

Superfreakonomics reviewed: As for the final chapter on global warming, it is a striking discussion of geo-engineering, surveying various schemes for cooling down the planet rather than trying to prevent climate change by cutting carbon emissions. This is a strong story, but it is also one-sided, portraying the geo-engineers as brilliant iconoclasts, dismissing the objections to geo-engineering as the knee-jerk reaction of the unreflective, and failing to convey the views of a single credible geo-engineering sceptic. A well-deserved swipe at Al Gore does not really count.

According to this chapter, the only reason everyone is making so much fuss about carbon dioxide is that they’ve never heard of geo-engineering, or are the kind of stubborn Luddites who think technology never solved anything. I have some sympathy with that view but the section nevertheless needed more balance.

In the end, a book such as SuperFreakonomics stands or falls on its entertainment value. And on that count, there’s no doubt: it’s a page-turner...

Joshua Gans:

The Climate of Superfreakonomics: there is nothing too wrong with it. Not enough for name calling. What the authors are doing is identifying the ‘economist’s angst’ in this whole discussion. They start off with the 1970s discussion of global cooling although it isn’t clear that is a strong prediction either. We are all frustrated that climate models aren’t perfect even if sufficient scientists think there is enough and so I read that discussion as providing an example of that. But then there is a pretty clear discussion of the intertemporal problem we face in dealing with this. Again, all fairly non-controversial if leaning to a sceptical side. Nothing to get upset about....

The chapter then moves on to consider what to do about climate change. It too quickly moves through current plans for carbon prices saying they are uncertain and costly. Both true but there is surely more to it than that. After all, there is a ton of pollution going on and surely economists should be nervous about that being unchecked. Levitt and Dubner recognise externalities but then propose to mitigate externalities by eliminating the harm rather than changing behaviour. This is to be done through geoengineering which is discussed at length....

The underlying argument as to why we should pursue this rather than behavioural change is not environmental religion but whether it is possible to put prices on this and get behavioural change. Levitt and Dubner don’t think it is possible. They argue that if you can’t get doctors to wash their hands to stop the spread of infection, how can you expect people to clean up the planet?

But come on. Isn’t the whole point of the Freakonomics project that prices work and behaviour changes in response to incentives? Everywhere else, a few pennies will cause massive consumption changes while when it comes to a carbon price, it is all too hard. My own view is that a carbon price plus some information might have some drastic effects on the behavioural side. This chapter should have been about what it takes to change behaviour and what we do and do not know about that. Instead, it passes through that entire issue in a completely unsatisfactory way. Where is the call for field experiments and randomised trials? Instead, we should stick hoses into the atmosphere and seemingly give up on trying to get people to turn off lights when they exit a room....

This is all a shame because the point of having a popular face for someone like Steve Levitt is to be able to push agendas they are convinced about. The geoengineering one is a candidate for that but the incompleteness of the economic job has undermined the exercise and may well damage the platform he has built. It would have only taken a few pages. Yes, it would be a little less punchy and counterintuitivey (is that a word?) but the influence factor would surely have been stronger.

When it comes down to it, pollution is occurring. As Ken Arrow pointed out long ago, if there are irreversibilities then there is an option value in curtailing the polluting activity so that we can work out what the right future path is. It is that risk that means we should not let externalities go unpriced. And even if geoengineering works out, there will still be externalities. The safe course is to deal with them now...

Robert Waldmann:

Tubes!: Not the intertubes, 18 mile long tubes held up by helium baloons releasing S02 into the stratosphere.

Daniel Davies writes

if you find yourself writing, in all seriousness, as a practical proposal, the phrase "pumping large quantities of sulphur dioxide into the Earth’s stratosphere through an 18-mile-long hose, held up by helium balloons", it is probably time to take a step back and ask yourself if something has gone a little bit wrong with your life.

Ok, so I asked myself, and I still think that pumping large quantities of sulphur dioxide into the Earth’s stratosphere through an 18-mile-long hose, held up by helium balloons, would be excellent.

Davies is one of many many people who criticize the chapter on global warming of "Superfreakonomics" by Steves Levitt and Dunbar. The most quoted takedowns were written by Joe Romm and by Tim Lambert. As far as I can tell, they really don't have very much to say against the acid rain tubes idea. Rather they mainly object to the Steves proposal that we use the tubes as an alternative to cap and trade. The argument against doing both seems fairly weak to me.

There is the Leninist argument that the worse it is the better it is so any way to ameliorate global warming other than reducing emissions is bad, because it wil reduce pressure for reduced emissions. No one feels obliged to paint their roof black to increase pressure for emissions reductions and I don't see the difference.

Now there are clearly problems with the acid in the stratosphere approach. The SO2 won't stay there forever. It seems to me that the best way to defend the tubes proposal is to lye -- that is dump something alkaline in the oceans (this is both to deal with sulfuric acid from the tubes and carbonic acid from C02). Now if one aimed to do that in a way which wouldn't create extremely alkaline areas and kill marine life, it would cost a lot. I think that cost should be added to the tubes' cost.

Also, it might not work. A case for not relying on the tubes but not, as far as I can see, a case for not trying them.

Superfreakonomics: Global Cooling, Patriotic Prostitutes, and Why Suicide Bombers Should Purchase Life Insurance

Finally...

Download Superfreakonomics chapter 5

Paul Krugman on Superfreakonomics on Climate

Paul Krugman writes:

Superfreakonomics on climate, part 1: OK, I’m working my way through the climate chapter.... The chapter opens with the “global cooling” story — the claim that 30 years ago there was a scientific consensus that the planet was cooling, comparable to the current consensus that it’s warming. Um, no.... To the extent that there was a consensus, it was that there wasn’t much evidence for anything.... What you have today is a massive research program involving thousands of scientists and many peer-reviewed publications, with all major international bodies agreeing that man-made global warming is real. You can, if you insist, dismiss it all as a gigantic hoax or whatever--but it’s nothing like the isolated 70s speculations about cooling.

And then we come to a bit of economics.... Yikes. I read [Marty] Weitzman’s paper... it’s making exactly the opposite of the point they’re implying it makes. Weitzman’s argument is that uncertainty about the extent of global warming makes the case for drastic action stronger, not weaker. And here’s what he says about the timing of action:

The conventional economic advice of spending modestly on abatement now but gradually ramping up expenditures over time is an extreme lower bound on what is reasonable rather than a best estimate of what is reasonable.

Again, we’re not even getting into substance — just the basic issue of representing correctly what other people said.

Six Questions for Levitt and Dubner (More Superfreakonomics Blogging)

Aha. A friend has sent me a scan of what he calls the "particularly egregious" pages 186-7 of Steve Levitt's and Steve Dubner's Superfreakonomics: Global Cooling, Patriotic Prostitutes, and Why Suicide Bombers Should Buy Life Insurance:

Indeed, I find that I have six questions for them about these two pages:

1: "Wood notes that the most authoritative literature on the subject suggests a rise of about one nd a half feet by 2100..." I had thought that the most authoritative estimates suggest a 1 to 7 feet rise in sea levels by 2100--not 1.5 feet. Am I wrong?

2: "Ken Caldiera... mentions a most surprising enviromental scourge: trees..." I grant that covering the reflective greenland ice sheet with green leaves might not be a good idea. But surely Ken Caldeira of Stanford did not say that your average tree is doing less to cool the earth by sucking up carbon dioxide than if the tree were cut down and decomposed and some other more-reflective typical use were made of its spot, is he?

3: "Then there's this little-discussed fact about global warming: while the drumbeat of doom has grown louder over the past several years, the average global temperature during that time has in fact decreased..." As best as I can see from http://data.giss.nasa.gov/gistemp/graphs/Fig.A2.txt, this year is:

• 1/5 of a degree F warmer than last year
• the same temperature as 2007 and 2006
• 1/7 of a degree F cooler than 2005
• 1/10 of a degree F warmer than 2004
• the same temperature as 2003 and 2002
• 1/7 of a degree F warmer than 2001
• 2/5 of a degree warmer than 1999 and 2000
• the same temperature as 1998
• and warmer than every single other year since the start of the Industrial Revolution--a full degree F warmer than 1960, for example.

How do you get from that temperature record to the statement that "over the past several years... average global temperature... has in fact decreased"?

4: "coal is so cheap that trying to generate electricity without it would be economic suicide..." That coal is cheap does not mean that moving away from it would be "economic suicide." That depends on (a) how large a share of total costs are energy costs, and (b) how expensive the long-run alternatives to coal turn out to be. And that is what we are trying to figure out. What definition of "economic suicide" are you using?

5: "The problem with solar cells is that they are black... designed to absorb light from the sun.... But only about 12 percent gets turned into electricity, and the rest... contributes to global warming." Surely the heat energy reradiated from a solar panel is a small fraction of the heat trapped by all the carbon dioxide that would be produced by the coal-fired plants that would otherwise generate the electricity, isn't it?

6: "The energy consumed by building the thousands of new solar plants necessary to replace coal-burning and other power plants would create a huge long-term 'warming debt'." I had thought that practically none of the power plants that we will use in 2050 are now in operation, and that building them--whether for open-carbon cycle, closed-carbon cycle, or non-carbon--will cost about the same amount of energy, and thus that there is no significant extra power-plant construction debt from going green in our new power-plant construction over the nezt forty years as long as it is done gradually. Am I wrong?

Steve Levitt on His Unpublished Book, Freakonomics, and Climate Change

Steve Levitt writes, about his unpublished book:

The Rumors of Our Global-Warming Denial Are Greatly Exaggerated: [W]e believe that rising global temperatures are a man-made phenomenon and that global warming is an important issue to solve. Where we differ from the critics is in our view of the most effective solutions to this problem. Meaningfully reducing global carbon emissions has proven to be difficult, if not impossible. This isn’t likely to change, for the reasons we discuss in the book. Consequently, other approaches represent a more promising path to lowering the Earth’s temperature. The critics are implying that we dismiss any threats from global warming; but the entire point of our chapter is to discuss global-warming solutions, so obviously that’s not the case.

The statements being circulated create the false impression that our analysis of the global-warming crisis is ideological and unscientific. Nothing could be further from the truth.

Ummm...

Perhaps then they should halt distribution, and get a new and very different dust jacket for the book? After all, "global cooling" are the first two words of their subtitle:

Correspondence on Global Warming and Superfreakonomics

Steve Dubner writes:

Brad,

It is amazing to see how quickly and thoroughly Romm's extremely misleading attack has spread, to the point where even independent thinkers like you accept it on face value. His attack is full of deception and outright lies. He makes it sound as if we somehow twisted and abused Caldeira's research; nothing could be further from the truth. We will have to clear this up publicly, although as you suggest it will be hard to put out this fire no matter how wrongfully set. This is politics that's being played now, nothing else. Also: yes, Romm posted a PDF of the chapter on his website, which the publisher, in its routine effort to pull pirated copies of its copyrighted material off the web, asked him to take down. As far as I know, it was never on Amazon; there's been no censoring; we are talking about a book that hasn't yet been published (when it is, I assume Amazon will post the searchable pages, as is typical), but Romm has done a great job of getting people to believe that a book they haven't read is full of errors.

I reply:

Brad DeLong to Stephen

Re: "It is amazing to see how quickly and thoroughly Romm's extremely misleading attack has spread, to the point where even independent thinkers like you accept it on face value..."

As I said, I can't read your chapter--by your publisher's choice.

That's very bad for you: Romm's posting your chapter and a link to it is a way for him to establish credibility--"see for yourself"; your publisher's pulling it down is a way to diminish yours.

Over this weekend, people's views are gelling--Paul Krugman's, for example--while your voice isn't being heard, and once people's views are gelled, it takes a huge amount of evidence and the right kinds of psychological pressure to ungell them.

Thus, for example, I would love to believe in Myrhvold and in cheap geoengineering solutions. But I come from Berkeley, where Richard Muller is the dominant public-intellectual voice on geoengineering, and he is very knowledgeable and very skeptical. My second cousin Tom Kalil does solar panels and so forth for a living at OSTP. The reaction of the climate people I know to Myrhvold on solar panels, whom Romm says you quote:

"A lot of the things that people say would be good things probably aren’t,” Myrhvold says. As an example he points to solar power. “The problem with solar cells is that they’re black, because they are designed to absorb light from the sun. But only about 12% gets turned into electricity, and the rest is reradiated as heat — which contributed to global warming..."

is simply unprintable--that it's like claiming that curve balls curve because of photon pressure from the stadium lights.

So given what is flowing past my computer screen at the moment, it looks very much to me as though you were simply hornswoggled by Myrhvold and company, who have formed their own tight self-reinforcing intellectual community reinforcing each other's beliefs up there in Seattle. There is nothing I can see contradicting that interpretation, and a bunch of things from Romm and others confirming it.

The place where I would concentrate, if I were you, would be Stanford's Ken Caldeira. Romm claims:

"[Caldeira] writes me: 'If you talk all day, and somebody picks a half dozen quotes without providing context because they want to make a provocative and controversial chapter, there is not much you can do.' One sentence about Caldeira in particular is the exact opposite of what he believes (page 184): 'Yet his research tells him that carbon dioxide is not the right villain in this fight.' Levitt and Dubner didn’t run this quote by Caldeira, and when he saw a version from Myrhvold, he objected to it. But Levitt and Dubner apparently wanted to keep it very badly — it even makes the SuperFreakonomics Table of Contents in the Chapter Five summary “Is carbon dioxide the wrong villain?...”

If your principal experts truly do repudiate the interpretation you place on their work, that's very bad for you...

Solar Panels: John O'Donnell on Nathan Myhrvold, Steve Levitt, and Steve Dubner

John O'Donnell:

Error-riddled ‘Superfreakonomics’: New book pushes global cooling myths, sheer illogic, and “patent nonsense” — and the primary climatologist it relies on, Ken Caldeira, says “it is an inaccurate portrayal of me” and “misleading” in “many” places: Yes Nathan is howlingly off base.  Not because solar panels are (whatever cover with whatever relative emissivity), but because solar panels, like wind turbines and solar thermal power plants, eliminate the emission of CO2 which would otherwise occur from electricity production.

As Ken Caldeira so grippingly points out (and I tried to make graphically clear in my Stanford talk last year) , each molecule of CO2 released thermal energy when it was formed — that’s why we formed it.  In the case of electricity generation, about 1/3 of its thermal energy went out a wire as electric power, the rest was released promptly as waste heat.  But each molecule of CO2, during its subsequent lifetime in the atmosphere, traps 100,000 times more heat than was released during its formation.

A hundred thousand is a big number.  It means that running a handheld electric hairdryer on US grid electricity delivers a planet-warming punch comparable to [the heat directly emitted by] two Boeing 747s operating at full takeoff power for the same time period.  The warming is delivered over time, not promptly, but that don’t matter; the planetary heating is accrued, the accountants would say, the moment you hit the switch.

The thermal energy balance for a solar panel runs vastly in the other direction.  If our solar panel is pure black, and 14% efficient, then for each kWh of electric power that comes out, there are 7 kWh of heat that were absorbed and radiated.  But each kWh it generates it eliminates the release of 1.4 pounds of CO2, which during its lifetime in the atmosphere will absorb 210,000 kWh of heat.  So the energy balance for the solar panel (when it’s connected to the US grid) is about NEGATIVE 209,993 kWh(heat) per kWh(electric) — since some fossil power plant somewhere is being turned down based on its generation. And hey, if it’s blue instead of black, that might increase to negative 209,995 kWh.

Levitt and Dubner Disarm Themselves in Their Battle of Wits with Joe Romm...

Joe Romm writes:

Error-riddled ‘Superfreakonomics’: New book pushes global cooling myths, sheer illogic, and “patent nonsense” — and the primary climatologist it relies on, Ken Caldeira, says “it is an inaccurate portrayal of me” and “misleading” in “many” places. « Climate Progress: The reason I’m calling Levitt and Dubner Superfreaks for short is that Chapter Five of SuperFreakonomics, the “Global Cooling” chapter — aka “What do Al Gore and Mount Pinatubo have in common?” — has precious little economics, and what it does have is simply wrong.  So the book could easily have been titled Superfreaks.  [Note:  Most of the book is searchable online.  At the request of the publisher, I have taken down the PDF of the chapter]...

I want to read the Superfreakonomics chapter on climate change this morning. Steve Levitt and Steve Dubner's publisher is now keeping me from doing so.

That is a bad thing to do--and something that is, I think, very bad for Levitt and Dubner (if possibly good for their publisher's bank account). I can read Romm on Levitt and Dubner. I can't read Levitt and Dubner. And that is very bad for Levitt and Dubner: if I can't read them, Romm's argument that they (a) were sold a bill of goods by Nathan Myhrvold and company who do not understand orders of magnitude and (b) misrepresented the views of Stanford's Ken Caldeira win by default.

UPDATE: And Paul Krugman weighs in:

Paul Krugman:

A counterintuitive train wreck - Paul Krugman Blog: Uh oh. I trust Joe Romm on climate — and his verdict on Superfreakonomics is pretty damning. I’ll get to work on the book myself, but it doesn’t look good.

At first glance, though, what it looks like is that Levitt and Dubner have fallen into the trap of counterintuitiveness. For a long time, there’s been an accepted way for commentators on politics and to some extent economics to distinguish themselves: by shocking the bourgeoisie, in ways that of course aren’t really dangerous. Ann Coulter is making sense! Bush is good for the environment! You get the idea.

Clever snark like this can get you a long way in career terms — but the trick is knowing when to stop. It’s one thing to do this on relatively inconsequential media or cultural issues. But if you’re going to get into issues that are both important and the subject of serious study, like the fate of the planet, you’d better be very careful not to stray over the line between being counterintuitive and being just plain, unforgivably wrong.

It looks as if Superfreakonomics has gone way over that line.

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SECOND UPDATE: Joe Romm:

Climate Progress: [S]ince my original post and various other debunkings around the web, the publisher has stopped Amazon from allowing people to search the book.... I don’t know of a single instance where searching was allowed and then stopped.  It seems to me the publisher must be concerned that bloggers and others could actually see and quote the myriad errors and sheer illogic and patent nonsense for themselves...

This is very bad for Levitt and Dubner. They need to get on the horn to their publisher immediately, and get access restored.

To respond by shutting off internet access to the book may or may not be good for short-term sales, but it means that Romm's story becomes the default story for all time...

A Warmer Planet

At caffeine this morning: "So I take it a 2C warmer world is now out of reach? That the best we can hope for now is to stabilize the planet 5C warmer?" "No. You are alarmist. We might be able to hold the average global temperature rise to 4C..."

Sixteen years since I watched Democratic senators now long gone from the Senate kill Al Gore's BTU tax...

Paul Krugman:

Cassandras of Climate: Every once in a while I feel despair over the fate of the planet. If you’ve been following climate science, you know what I mean: the sense that we’re hurtling toward catastrophe but nobody wants to hear about it or do anything to avert it. And here’s the thing: I’m not engaging in hyperbole. These days, dire warnings aren’t the delusional raving of cranks. They’re what come out of the most widely respected climate models, devised by the leading researchers. The prognosis for the planet has gotten much, much worse in just the last few years.

What’s driving this new pessimism? Partly it’s the fact that some predicted changes, like a decline in Arctic Sea ice, are happening much faster than expected. Partly it’s growing evidence that feedback loops amplifying the effects of man-made greenhouse gas emissions are stronger than previously realized. For example, it has long been understood that global warming will cause the tundra to thaw, releasing carbon dioxide, which will cause even more warming, but new research shows far more carbon locked in the permafrost than previously thought, which means a much bigger feedback effect. The result of all this is that climate scientists have, en masse, become Cassandras — gifted with the ability to prophesy future disasters, but cursed with the inability to get anyone to believe them....

[I]f you live in, say, Los Angeles, and liked those pictures of red skies and choking dust in Sydney, Australia, last week, no need to travel. They’ll be coming your way in the not-too-distant future. Now, at this point I have to make the obligatory disclaimer that no individual weather event can be attributed to global warming. The point, however, is that climate change will make events like that Australian dust storm much more common. In a rational world, then, the looming climate disaster would be our dominant political and policy concern. But it manifestly isn’t. Why not?...

[T]he larger reason we’re ignoring climate change is that Al Gore was right: This truth is just too inconvenient. Responding to climate change with the vigor that the threat deserves would not, contrary to legend, be devastating for the economy as a whole. But it would shuffle the economic deck.... Nor is it just a matter of vested interests. It’s also a matter of vested ideas.... So here we are, with the greatest challenge facing mankind on the back burner, at best, as a policy issue. I’m not, by the way, saying that the Obama administration was wrong to push health care first. It was necessary to show voters a tangible achievement before next November. But climate change legislation had better be next.

And as I pointed out in my last column, we can afford to do this. Even as climate modelers have been reaching consensus on the view that the threat is worse than we realized, economic modelers have been reaching consensus on the view that the costs of emission control are lower than many feared. So the time for action is now. O.K., strictly speaking it’s long past. But better late than never.

Brad DeLong's Morning Coffee: U.S.-Mexico Global Warming Issues (August 24, 2009)

Alas! I insulted John Kerry--confusing him with Bob Kerrey...

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Global Warming: U.S.-Mexico Issues (August 24, 2009)

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Paul Krugman on Robert Samuelson of the Washington Post

As always, the underlying question is: just what do Fred Hiatt, Marcus Brauchli, and Katharine Weymouth think that they are doing>

Dense about density: Right now, I’m on New Jersey Transit, near Rahway. Around me is a post-apocalyptic wasteland dense development as far as the eye can see. And not a buffalo in sight.

And you know what? A large fraction of the American population lives in places like this. Yes, America overall has low density, but many of us live in high-density corridors; very few of us live in the wide open spaces. That’s why arguments that, say, we can’t have high-speed rail, because America’s population density is so low, are profoundly stupid. Which does not, of course, stop them from being made.

Indeed. The fact that most of us live in high-density corridors makes them high density. And fun to live in. And in need of more public transportation. Including SUPERTRAINS!!

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

Environmental Policy Cap-and-Trade Blogging: Mark Thoma Brings Rob Stavins to the Rescue

Mark Thoma brings Rob Stavins to the table to provide a guide for the perplexed:

Stavins: Waxman-Markley is Not a Massive Corporate Give-Away: This is a follow-up to the recent discussion between Brad DeLong and Greg Mankiw on the effects of giving away rather than auctioning carbon permits under a cap and trade system (see, e.g., here, here, here, and here). Mankiw begins with the premise that:

Rather than auctioning the carbon allowances, the bill that recently passed the House would give most of them away to powerful special interests.

But is it correct to classify the program as "giving most of them away to powerful special interests"? Here's Harvard's Robert Stavins who knows a thing or two about this topic. He notes that "it is remarkable (and unfortunate) how misleading so much of the coverage has been of the issues and the numbers surrounding the proposed allowance allocation." He also says that "we should be honest that the legislation, for all its flaws, is by no means the “massive corporate give-away” that it has been labeled.  On the contrary, 80% of the value of allowances accrue to consumers and public purposes":

The Wonderful Politics of Cap-and-Trade: A Closer Look at Waxman-Markey, by Robert Stavins: ...Now, let’s go back to the hand-wringing in the press and blogosphere about the so-called massive political “give-away” of allowances.  Perhaps unintentionally, there has been some misleading press coverage, suggesting that up to 75% or 80% of the allowances are given away to private industry as a windfall over the life of the program, 2012-2050 (in contrast with the 100% auction originally favored by President Obama). Given the nature of the allowance allocation in the Waxman-Markey legislation, the best way to assess its implications is not as “free allocation” versus “auction,” but rather in terms of who is the ultimate beneficiary... how the value of the allowances is allocated.  On closer inspection, it turns out that many of the elements of the apparently free allocation accrue to consumers and public purposes, not private industry.... The split over the entire period from 2012 to 2050 is 53.4% for consumers and public purposes, and 20.1% for private industry.  This 20% is drastically different from the suggestions that 70%, 80%, or more of the allowances will be given freely to private industry in a “massive corporate give-away.”... The fundamental reality remains:  the appropriate characterization of the Waxman-Markey allocation is that 80% of the value of allowances go to consumers and public purposes, and 20% to private industry.

Finally, it should be noted that this 80-20 split is roughly consistent with empirical economic analyses of the share that would be required - on average — to fully compensate (but no more) private industry for equity losses due to the policy’s implementation.  In a series of analyses that considered the share of allowances that would be required in perpetuity for full compensation, Bovenberg and Goulder (2003) found that 13 percent would be sufficient for compensation of the fossil fuel extraction sectors, and Smith, Ross, and Montgomery (2002) found that 21 percent would be needed to compensate primary energy producers and electricity generators.

In my work for the Hamilton Project in 2007, I recommended beginning with a 50-50 auction-free-allocation split, moving to 100% auction over 25 years, because that time-path of numerical division between the share of allowances that is freely allocated to regulated firms and the share that is auctioned is equivalent (in terms of present discounted value) to perpetual allocations of 15 percent, 19 percent, and 22 percent, at real interest rates of 3, 4, and 5 percent, respectively... targeting free allocations to burdened sectors in proportion to their relative burdens, while being politically pragmatic with more generous allocations in the early years of the program.... Going forward, many observers and participants in the policy process may continue to question the wisdom of some elements of the Waxman-Markey allowance allocation.  There’s nothing wrong with that. But let’s be clear that, first, for the most part, the allocation of allowances affects neither the environmental performance of the cap-and-trade system nor its aggregate social cost. Second, questioning should continue about the output-based allocation elements, because of the perverse incentives they put in place. Third, we should be honest that the legislation, for all its flaws, is by no means the “massive corporate give-away” that it has been labeled.  On the contrary, 80% of the value of allowances accrue to consumers and public purposes, and some 20% accrue to covered, private industry.  This split is roughly consistent with the recommendations of independent economic research.

Fourth and finally, it should not be forgotten that the much-lamented deal-making that took place in the House committee last week for shares of the allowances for various purposes was a good example of the useful, important, and fundamentally benign mechanism through which a cap-and-trade system provides the means for a political constituency of support and action to be assembled (without reducing the policy’s effectiveness or driving up its cost).

Although there has surely been some insightful press coverage and intelligent public debate (including in the blogosphere) about the pros and cons of cap-and-trade, the Waxman-Markey legislation, and many of its design elements, it is remarkable (and unfortunate) how misleading so much of the coverage has been of the issues and the numbers surrounding the proposed allowance allocation.

Note to Self: Greg Mankiw's Anti-Environmental Bill Argument Once Again

OK. I've finally figured out what is going on.

Let's draw a graph, with the tax rate on labor (and capital, and other things) on the vertical axis and the tax rate on carbon on the horizontal axis, like so:

We would like, ideally, if there was nothing we wanted the government to do, to have a tax of zero on labor and a positive tax on carbon emissions to correct for the global-warming environmental externality--we would like to be at point O, if we could.

But we can't be at point O. There are very valuable things that we need the government to do, and the government needs to spend money to do them. We need to impose taxes on labor and carbon in order to raise revenue. Thus the "required revenue line," running through points S and A. Our tax rates on labor and carbon must be such as to keep the economy on or above the required revenue line.

At the moment we are at point S--the status quo. We would like to impose a carbon tax and use the revenue to lower our labor tax and thus get to point A--that is the social optimum, the point that (a) gets us as close as possible to getting prices right and thus getting allocative economic efficiency, while also (b) raising enough revenue for the government to do the things that the government ought to be doing. To first order, at least, we can get to point A either by (i) imposing the right efficient carbon tax directly, or (ii) having the government sell the right efficient number of carbon-emission permits.

The best thing to so would be to assemble a legislative coalition of:

• environmentalist Democrats
• Republicans interested in economic efficiency

and pass a carbon tax or a cap-and-trade with a permit auction system to get us to point A.

However, at the moment there are next to zero Republican legislators interested in economic efficiency. Instead, Republicans legislators appear to be exclusively interested in trying to make Obama's presidency appear a failure so that they can then benefit in the 2010 and 2012 elections--the Gingrich-Dole strategy, which they pursued with very short-term political but no other kind of success over 1993-1998, by the end of which both had been bounced out of the legislature.

Thus Obama has to go for a second best. He has to assemble a legislative coalition of:L

• environmentalist Democrats
• blue dog Democrats

where the blue dogs insist that we cannot tax but rather must pay the polluters: businesses that currently emit carbon must be given free permits that they can then sell on the open market, and thus profit from. This is the equivalent of (a) imposing a carbon tax, and (b) then giving the revenues raised away to last-year's polluters in lump sums. This gets us to point B. Point B is clearly better than the status quo of point S--prices are closer to being right. But point B is worse than point A.

So the right strategy for Obama right now is (i) pass cap-and-trade with a permit giveaway now, and (ii) work toward some future in which the Republicans interested in economic efficiency wiill cooperate in a bipartisan faction. Hope that they will someday actually be willing to be bipartisan--to give a higher priority to the welfare of the country than to trying to make Obama's presidency a failure. Then whenever that, happens assemble the bipartisan legislative coalition of environmentalist Democrats and public-spirited Republicans and move from point B to point A.

Now comes Greg Mankiw. Greg says: "Wait a minute. A tax on carbon is not just a tax on carbon--not a move parallel to the x-axis from point S to point B. Instead, whenever you tax carbon you automatically raise the tax on labor too--there is no way that the economy can reconfigure itself to emit less carbon and still employ as much labor as efficiently s it now does, and so a carbon tax is also a labor tax, and points up and to the right from point S to point C. Impose a carbon tax," Mankiw argues, "and we move not from S to B but from S to C and wind up further away from the point O that we want to be at."

Hence Mankiw's call for Obama to veto cap-and-trade-with-permit-giveaway.

Is Mankiw right that carbon is emitted and labor employed in a process of production so joint that any carbon tax will raise taxes on labor enough to move after-tax prices along a vector that makes a more than 90 degree angle with the S-O line--which is what you need for a cap-and-trade-with-permit-giveaway to be a bad idea? He doesn't present any evidence that this is the case.

Larry Goulder, Rob Stavins, and Severin Borenstein would certainly know. Let me try to call them...

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Reference: Laurence Goulder (1994), "Environmental Taxation and the Double Dividend: A Reader's Guide"

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Test:

Mankiw Anti-Environmental Argument Graph (20090814)
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Climate Change: Department of "Huh?"

Greg Mankiw hopes Obama vetoes a cap-and-trade bill. His column, with emphasis added:

A Missed Opportunity on Climate Change: The danger in a cap-and-trade system is that the permits to emit greenhouse gases are given away for free.... How much does it matter? For the purpose of efficiently allocating the carbon rights, it doesn’t. Even if these rights are handed out on political rather than economic grounds, the “trade” part of “cap and trade” will take care of the rest. Those companies with the most need to emit carbon will buy carbon allowances on newly formed exchanges. Those without such pressing needs will sell whatever allowances they are given and enjoy the profits that resulted from Congress’s largess.

The problem arises in how the climate policy interacts with the overall tax system. As the president pointed out, a cap-and-trade system is like a carbon tax. The price of carbon allowances will eventually be passed on to consumers in the form of higher prices for carbon-intensive products. But if most of those allowances are handed out rather than auctioned, the government won’t have the resources to cut other taxes and offset that price increase. The result is an increase in the effective tax rates facing most Americans, leading to lower real take-home wages, reduced work incentives and depressed economic activity....

As for me, I hope the president refuses to sign a bill that fails to auction most of the allowances. Some might say a veto would make the best the enemy of the good. But sometimes good is not good enough.

I have been trying to think of a model of the economy in which Mankiw's claim is true. I am not having an easy time doing so.

The simplest model has two tax rates, a tax rate on labor income t_l and a tax rate on carbon t_c which is correcting for a pollution externality of v per unit of carbon emitted. And let λ_l and λ_c be the slopes of the supply curves for labor and carbon, respectively.

Then the Harberger triangles associated with the tax on labor and the tax on carbon are:

H_l = λ_lt_l²

and:

H_c = λ_c(v-t_c)²

We currently have a tax on carbon of zero. We don't think that a zero tax on carbon is where we should be right now, do we? It is good to raise the tax on carbon whether you use the revenues to reduce the tax rate on labor or whether you distribute them in some other way. Only if our tax on carbon were already equal to the pollution externality v, and we were thinking of raising it even higher, would it be a bad bet unless we used the revenues to reduce the tax on labor income--or if our tax on carbon was inescapably also a tax on labor income via joint production.

There are, I think, some very strong assumptions about the form of the production function and the demand for and supply of labor underlying Mankiw's claim: for his claim to be true, production has to be joint or nearly joing. Nearly every way of employing labor from playing Peruvian shepherd pipes in the public square to making aluminum via a Hall process powered by low-pressure steam generated by the combustion of lignite must involve nearly the same carbon footprint. And I can't figure out why he thinks that the production function takes that form...

My Varian micro book has to be around here somewhere... And there also should be a Stiglitz-and-Dasgupta that answers all these questions in one of these filing cabinets...

More Cash-for-Clunkers Blogging...

maureendowdsfriendwhoneverwantsanycreditnohownoway@gmail.com sends us to Tristone Capital, which people pay real money to for them to analyze the gasoline market and which has a view on cash-for-clunkers:

Chic Chow and Brady Dolsen, "Cash for Clunkers: Miniscule Gasoline Impact."

Imagine how much energy savings we could have gotten for $2 bln in loans for weatherproofing, or bike rack installation, etc. Definitely not the low-hanging environmental stimulus fruit...

How Would We Figure Out Whether Cash-for-Clunkers Makes Sense?

Andrew Samwick makes the intelligent criticism of cash-for-clunkers:

And for an Encore, Let's Condemn Office Buildings and Rebuild Them Nearby | Capital Gains and Games: By my reading, Stan did not disagree with anything I posted about Cash for Clunkers.  None of the three criticisms of the C4C program that he addressed were leveled by me.  My criticism is that it is a waste of assets, and that a waste of assets necessarily makes us poorer...

A clunker burns a lot of fuel that has a social cost a lot bigger than its private cost. The destruction and replacement of a clunker by a more fuel-efficient car boosts spending (somewhat) and do reduces the Okun gap (somewhat).

Clunkers are made up of (a) cars that would have been junked anyway and (b) cars that had positive value but value less than $5,000. Suppose we set $2,000 as the value of the assets wasted by destroying clunker, and $2 a gallon as the social waste in carbon-fueled gasoline, and 12 mpg as the average differential mileage between a clunker and its replacement. Then destroying a clunker is worth doing on (a) alone if...

... the clunker would otherwise have been driven more than 12,000 miles before being replaced.

And, of course, there is factor (b) to consider as well.

It doesn't look like an overwhelming benefit-cost ratio--there are other things we could be doing that are much lower hanging fruit. But I would not feel confident arguing for Andrew's position that "it is a waste of assets, and that a waste of assets necessarily makes us poorer..." without doing a bunch more work.

Anybody seen anything serious on this?

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**UPDATE: Touche. If the clunker gets 12 mpg, then it is not 12K but 24K that the clunker must have been driven before replacement for the program to make sense based on (a) alone...

The Pivot of Global History: The Handoff from the First to the Second Industrial Revolution

Bob Allen of Oxford writes the smartest thing I have read in at least a year. The conclusion of Robert Allen (2009), The British Industrial Revolution in Global Perspective (Cambridge: Cambridge University Press: 9780521687850), p. 272 ff.:

I have argued that the famous inventions of the British Industrial Revolution were responses to Britain's unique economic environment and would not have been developed anywhere else.... Buy why did those inventions matter?.... Weren't there alternative paths to the twentieth century? These questions are closely related to another... asked by Mokyr: why didn't the Industrial Revolution peter out after 1815?... [O]ne-shot rise[s] in productivity [before] did not translate into sustained economic growth. The nineteenth century was different--the First Industrial Revolution turned into Modern Economic Growth. Why? Mokyr's answer... that scientific knowledge increased enough to allow continuous invention [is incomplete]....

Britain's pre-1815 inventions were particularly transformative.... Cotton was the wonder industry.... [T]he great achievement of the British Industrial Revolution was... the creation of the first large engineering industry that could mass-produce productivity-raising machinery. Machinery production was the basis of three developments that were the immeiate explanations of the continuation of economic growth until the First World War... (1) the general mechanization of industry; (2) the railroad; and (3) steam-powered iron ships. The first raised productivity... the second and third created the global economy and the international division of labor... (O'Rourke and Williamson, 1999). Steam... accounted for close to half of the growth in labor productivity in Britain in the second half of the nineteenth century (Crafts 2004). The nineteenth-century engineering industry was a spin-off from the coal industry. All three of the developments... depended on two things: the steam engine and cheap iron....

Cotton played a supporting role in the growth of the engineering industry.... The first is that it grew to immense size.... Mechanization in other activities did not have the same potential... global industry with.. price-responsive demand... cotton... sustained the engineering industry by providing it with a large and growing market for equipment....

There was a great paradox... the macro-inventions of the eighteenth century... increased the demand for capital and energy relative to labour. Since capital and energy were relatively cheap in Britain, it was worth developing the macro-inventions there and worth using them in their early, primitave forms. These forms were not cost-effective elsewhere.... However, British engineers improved this technology.... This local learning often saved the input that was used excessively in the early years of the invention's life and which restricted its use to Britain. As the coal consumption of rotary steam power declined from 35 pounds per horsepower-hour to 5 pounds, it paid to apply steam power to more and more uses.... Old fashioned, thermally inefficient steam engines were not "appropriate" technology for countries where coal was expensive. These countries did not have to invent an "appropriate" technology for their conditions, however. The irony is that the British did it for them....

[T]he British inventions of the eighteenth century--cheap iron and the steam engine, in particular--were so transformative... the technologies invented in France--in paper production, glass, and knitting--were not, The French innovations did not lead to general mechanization or globalization.... The British were not more rational or prescient than the French... simply luckier in their geology. the knock-on effect was large, however: there is no reason to believe that French technology would have led to the engineering industry, the general mechanization of industrial processes, the railway, the steamship, or the global economy.... [T]here was only one route to the twentieth century--and it traversed northern Britain.

What Bob Allen said.

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N.F.R. Crafts (2004), "Steam as a General Purpose Technology: A Growth Accounting Perspective," Economic Journal 114:495, pp. 338-51.

Kevin O'Rourke and Jeffrey Williamson (1999), Globalization and History: The Evolution of a Nineteenth-Century Atlantic Economy (Cambridge: MIT Press).

Andrew Samwick Is in Despair...

Pessimism of the intellect! But optimism of the will, Andrew! I must say I want my sensible bipartisan center back, I want it back real bad.

Andrew:

Climate Vote Shows Why I Am Still a Man Without a Party: I had three reactions to yesterday's cap-and-trade vote, two of which came from The New York Times article that I read this morning and one of which came from Stan's very smart post.  Here they are:

• From the article, "Only eight Republicans voted for the bill, which runs to more than 1,300 pages."
• From the article, "The bill would grant a majority of the permits free in the early years of the program, to keep costs low."
• From Stan, "But the bigger story is that the White House once again has demonstrated an excellent ability to get Congress to go along with the things it wants."

And now let me take each one in turn.

1) From the article, "Only eight Republicans voted for the bill, which runs to more than 1,300 pages." Much as you may like the idea, this is another 1300 pages of complexity and loopholes.  Buried in there, I'll wager, are more than enough ways for large organizations (the ones who hire lobbyists) to get all the exemption and evasion they'll need.  Consider the alternative of a carbon tax calibrated to achieve the same emission reductions, and applied to all sectors including vehicle fuel consumption.  I'm no expert on translating ideas into pages of a bill, but that can't be much.  And given that it allows us to do away with the CAFE standards, I figure we've done a great service of dramatically simplifying the whole regulatory process for carbon emissions.

2) From the article, "The bill would grant a majority of the permits free in the early years of the program, to keep costs low." That's a couple of interesting pages, no?  This is the critical issue and the bill is flawed for giving into the special interests who demanded and got this giveaway.  The caps require the price to go up, much like a tax would.  Advocates of a green tax swap, like me, would like the additional revenue that consumers of carbon-intensive products pay to be returned to the private sector in a way that lowers the taxes on something desirable, like payroll.  Giving the revenue back to the producers should not be an option.

3) From Stan, "But the bigger story is that the White House once again has demonstrated an excellent ability to get Congress to go along with the things it wants." I think that this sentence -- which is a completely accurate description of the way policy gets made in Washington -- is also an indication of what's backwards about the way policy gets made in Washington.  The power in government should reside with the legislature, not the executive.  I think that much of the reason why the presidential election season has grown to its current monstrous proportions (a full two years of campaigning) is that politicians have realized that the presidency has all the power and the Congress has made itself a weak, secondary player.  I'll be a much happier citizen when Stan has occasion to write, "But the bigger story is that the Congress once again has demonstrated an excellent ability to get the White House to go along with the things it wants."

So how does all of this make me a man without a party?  On each one of these issues, my reading of the polical landscape is that the Republicans are further from the correct policy action than the Democrats. 

It's a step. It's not a big step. It's a very small step. And it's mostly in a sideways direction. But at least it is a step that is not away from where we need to be, and the hope is that having taken one step it will then be easier to take another.

But God only knows what--if anything--will come out of the Senate and conference if this is what comes out of the House.

I want my Al Gore BTU tax from 1993 back!

We Really Would Be Better Off without the Washington Post (Yet Another Robert Samuelson/Climate Change Edition)

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

Remember the presumption when reading the Post: if it's true, you probably already knew it; if you didn't already know it, it probably isn't true. For example, Robert Samuelson on the costs of greening the economy.

Let's outsource it to Paul Krugman:

Climate change fantasies: A while back I wrote about anti-green economics — the insistence, by opponents of policies to reduce greenhouse gas emissions, that the economic cost of cap-and-trade would be immense and unsupportable. I cited Robert Samuelson, who ridiculed the Environmental Defense Fund for suggesting that major action on greenhouse gases would only cost a dime a day per person.

Now comes the Congressional Budget Office, which estimates the cost to households of Waxman-Markey in 2020 at $22 billion — which, given a projected population of 335 million, comes to 18 cents a day. Hah! EDH was being over-optimistic. Seriously, EDF was essentially right: the costs of cap-and-trade are very, very low.

The point is that we need to be clear about who are the realists and who are the fantasists here. The realists are actually the climate activists, who understand that if you give people in a market economy the right incentives they will make big changes in their energy use and environmental impact. The fantasists are the burn-baby-burn crowd who hate the idea of using government for good, and therefore insist that doing the right thing is economically impossible.

Somebody Expects a Rapid Recovery...

Chris Flood:

FT.com / MARKETS / Commodities - Oil hits fresh seven-month high above $70: Crude oil prices rose above the $70 a barrel mark on Friday, hitting a fresh seven-month high, propelled by better than expected economic indicators and a bullish view from Goldman Sachs, Wall Street’s largest commodities dealer...

Republicans: The Stupid and Immoral Party

Jonathan Chait on Fred Barnes:

Fred Barnes, Moral Philosopher: Fred Barnes is in top form in his latest Weekly Standard piece urging Republicans to be the party of no. This paragraph in particular deserves to be savored:

Obama says his policy to restrict greenhouse gases, known as cap and trade, is "market-based." It isn't. The cap on emissions would be imposed by a government panel. Polls show the majority of Americans disapprove of this. Worse for Obama, Frank Newport, the Gallup boss, says most Americans don't believe global warming poses a serious danger. So why choke off economic growth?

This constitutes the entirety of Barnes' advice to the GOP on how to handle global warming. I have not left anything out. It's pretty remarkable. First of all, he says that a cap ongreenhouse emissions is "market-based" because the government sets it.I think nearly any economist would tell you that the issue here is that the market does not have any price mechanism to account for the externality of greenhouse gas emissions. Someone has to set that limit in order for the market to establish a price, otherwise the price would be zero. If Barnes means it's not market-based because the governemnt is setting a cap on emissions, then he's saying the only "market-based" plan is to do nothing.

Even funnier, if it wasn't so morally deranged, is the way Barnes cites a poll showing little concern for global warming and immediately concludes that nothing should be done. Uh, Fred, aren't you skipping the step where you say that Americans are correct to think global warming is not a danger? I mean, that view's totally at odds with the scientific consensus, but saying so at least gives the the veneer of caring about something other than the short-term political interests of the GOP.

For ten years from 1985 to 1995 Fred Barnes was senior editor and Washington Correspondent for the New Republic. I still haven't received my abject, personal apologies from Michael Kinsley, Hendrick Hertzberg, and Andrew Sullivan for promoting his career.

Just saying.

Prius: It’s a Floor Wax *and* a Dessert Toping!

Kate Galbraith:

Prius: It’s Not Just a Car, It’s an Emergency Generator: The Prius has a new use, and it does not involve driving. The Harvard Press — which serves the Massachusetts town of Harvard as opposed to the university — reported that the car’s battery helped keep the lights on for some locals during the recent ice storms.

The newspaper reports that John Sweeney, a resident who lost power, “ran his refrigerator, freezer, TV, woodstove fan and several lights through his Prius, for three days, on roughly five gallons of gas.”

Said Mr. Sweeney, in an e-mail message to The Press: “When it looked like we were going to be without power for awhile, I dug out an inverter (which takes 12v DC and creates 120v AC from it) and wired it into our Prius.”

According to the newspaper, “the device allowed the engine to run every half hour, automatically charging the car battery and indirectly supplying the required power.”

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?