Ten Economic Paragraphs Worth Reading: December 21, 2009
1) Mark Thoma: "President Obama Largely Inherited Today’s Huge Deficits":
What is the cause of large and continuing budget deficits? The Bush tax cuts, the wars in Iraq and Afghanistan, and the economic downturn explain "explain virtually the entire deficit over the next ten years." Notice the tiny contribution of Tarp, Fannie, and Freddie (shaded red) and the stimulus package (shaded yellow, just below the red area) to the deficit from 2012 onward. These are not the source of our long-term budget problems.
2) Russ Roberts: Complexity and Emergence:
Over the last six years or so, since coming to George Mason and in the last three years since conducting a weekly podcast, I’ve been thinking a great deal about the following ideas: 1. Some orderly things are not intended by anyone. 2. The division of labor is limited by the extent of the market. 3. It is easy to fall prey to confirmation bias. 4. Politicians respond to incentives. These are pretty simple ideas. When you give people the one sentence version or paragraph version they nod and tell you they agree with the essence of the idea. But I find these ideas to be quite deep. They are easy to understand but very difficult to absorb. The more I think about them, the deeper is my understanding. I give Hayek credit for number 1 on the list. He didn’t invent the idea. But he made me think about it the most.
3) David Cameron: A warmer world is ripe for conflict and danger:
"Picture Japan, suffering from flooding along its coastal cities and contamination of its fresh water supply, eyeing Russia's Sakhalin Island oil and gas reserves as an energy source . . . Envision Pakistan, India and China - all armed with nuclear weapons - skirmishing at their borders over refugees, access to shared river and arable land." This might look like the minutes from a meeting of Hollywood executives. In fact, it is from a Pentagon memo on the possible consequences of global warming. Climate change is not just an environmental question, it could have a massive impact on international security. People in the developing world will likely suffer most, as climate change will make the resources they depend on more scarce: fresh water, cropland, forests and fisheries. This will have grave humanitarian consequences. Oxfam predicts 30m more people could be at risk of famine as a result of global warming. With more famine we should expect more disease...
4) Rob Stavins: What Hath Copenhagen Wrought? A Preliminary Assessment of the Copenhagen Accord:
From all reports, the talks were completely deadlocked when U.S. President Barak Obama arrived on the scene.... Through a series of bilateral and eventually multilateral meetings of President Obama with Chinese Premier Wen Jiabao, Indian Prime Minister Manmohan Singh, Brazilian President Luiz Inacio Lula da Silva, and South African President Jacob Zuma, a document gradually emerged.... It is virtually unprecedented in international negotiations for heads of government (or heads of state) to be directly engaged in, let alone lead, negotiations, but that is what transpired in Copenhagen. Although the outcome is less than many people had hoped for, and is less than some people may have expected when the Copenhagen conference commenced, it is surely better – much better – than what most people anticipated just three days earlier, when the talks were hopelessly deadlocked.... President Obama characterized the new Accord as “an important first step”.... [A]ll of the seventeen countries of the Major Economies Forum--which together account for some 90% of global emissions--are agreeing to participate.... 1. The signatories validate their will to “urgently combat climate change in accordance with the principle of common but differentiated responsibilities and respective capabilities.”... 2. Action and cooperation on adaptation is urgently required, particularly in the least developed countries, small island developing states, and Africa. Developed countries commit to provide financial resources to support adaptation measures in developing countries.... 3. Annex I Parties of the Kyoto Protocol (the 1997 list of the industrialized countries and the emerging market economies of Central and Eastern Europe) commit to implement mitigation actions (specified in Appendix I), and Non-Annex I Parties (the developing world, as defined in the Kyoto Protocol) also commit to implement mitigation actions (specified in Appendix II), all of which will be submitted to the UNFCCC Secretariat by January 31, 2010.... 4. Emissions reductions for the Annex I parties will be measured, reported, and verified according to guidelines (to be established), which will be rigorous and transparent, whereas mitigation actions taken by non-Annex I parties will be subject to domestic measurement, reporting, and verification (MRV) reported through national communications, with international consultation and analysis.... 5. Least developed countries and small island developing states may undertake actions voluntarily and on the basis of support (from other countries). Such actions will be subject to international measurement, reporting, and verification.... 6. The parties will establish positive incentives to stimulate financial resources from developed countries to help reduce emissions from deforestation and degradation.... 7. The parties agree to pursue opportunities to use markets to achieve cost-effective mitigation actions.... 8. Predictable and adequate funding will be provided to developing countries for emissions mitigation, reduction of deforestation, and adaptation.... 9. The developed countries commit to a goal of jointly mobilizing $100 billion annually by 2020 from sources both public and private.... 10. Evaluation of the Accord’s implementation is to be completed by 2015, including consideration of strengthening the long-term goal as the science indicates...
5) Arloc Sherman: State-Level Data Show Recovery Act Protecting Millions From Poverty:
While the recession is expected to drive states’ poverty rates up for 2009, new analysis based on Census data shows that the American Recovery and Reinvestment Act of 2009 (ARRA) is keeping large numbers of Americans out of poverty in states across the country. In addition to boosting economic activity and preserving or creating jobs, the recovery act is softening the recession’s impact on poverty by directly lifting family incomes. The Center’s analysis, which covers 36 states and the District of Columbia, examines the effect on poverty of seven ARRA provisions: the expansion of three tax credits for working families, two provisions that strengthen unemployment insurance assistance, a provision that boosts food stamp benefits, and a one-time payment for retirees, veterans, and people with disabilities.[1] Nationally, these provisions are keeping more than 6 million Americans out of poverty and reducing the severity of poverty for 33 million more. (These figures include both people whom ARRA has lifted out of poverty and people whom ARRA has kept from falling into poverty.) These estimates are conservative...
6) Peter Orszag: No Illusions:
It is not a surprise that the most reflexively and ideologically partisan commentators are lashing out. Today, it’s the editorial board of the Wall Street Journal. For an economist, the irony is rich. The editorial board that did more to bring supply-side economics – or in George H.W. Bush’s immortal words, "voodoo economics" – to Washington is raising the specter of a fiscally irresponsible health reform bill in which efforts to rein in health care cost growth are an "illusion." But the ironies run richer, since an editorial that hurls accusations of overselling cost containment itself displays more impressive rhetoric than substantive content. The Journal makes three fundamental claims. The first is that health reform represents a huge risk to the federal budget, and will end up exploding the deficit, because it relies on an array of speculative policies to control costs. What the Journal misses is the crucial difference between this health reform effort and the flawed supply-side economics that drove the country into the deep deficits of the 1980s: we are insisting that the legislation be deficit neutral as scored by the Congressional Budget Office (CBO) in addition to including a variety of delivery system reform and other cost-containment measures for the long term. In other words, unlike supply-siders, we are not waiting for magic savings to appear. Instead, we are relying on hard, scoreable savings – not the long-term cost-control measures – to pay for the expansion of health care coverage. This "belt and suspenders" approach provides a crucial fiscal backstop, and it's the prudent, realistic, and wise thing to do. (Note to the Journal ed board: here's the link to the CBO score of the Senate legislation, in case you'd like to read it.) With regard to the delivery system reform and cost-containment component of this belt-and-suspenders approach, we have always been clear that we do not know with absolute certainty the changes that will most effectively improve quality and restrain health care cost growth over the long term. But research does suggest the most auspicious approaches, and we are pursuing those...
7) David Frum: The Cost of No Deal:
[W]hat the GOP’s “No, no, no” policy has wrought: 1) Instead of a healthcare reform to slow cost increases... instead of a new system that attempts to control costs, we’re just going to have a bigger and more expensive version of the old system, with a few tinkers around the edges. Republicans could have been architects of improvement, instead we made ourselves impotent spectators.... 2) House and Senate conferees last night rejected a proposal to deny EPA funds to enforce its new powers over greenhouse gasses. So instead of an economically rational approach to carbon abatement – a carbon tax or even a cap-and-trade system stripped of the abuses and boondoggles attached to it by House Democrats – we’re going to have the least rational approach: bureaucratic enforcement. The furious rejectionist frenzy of the past 12 months is exacting a terrible price upon Republicans. We’re getting worse and less conservative results out of Washington than we could have negotiated, if we had negotiated. As is, we’re betting heavily that a bad economy will collapse Democratic support without us having to lift a finger. Maybe that will happen. But existing party strategy has to be reckoned a terrible failure. Most Republicans will shrug off that news. If polls are right, rank-and-file Republicans feel little regard for the Washington party, and don’t expect much from it. But it’s the rank-and-file who are the problem here! Republican leaders do not dare try deals for fear of being branded sell-outs by a party base that wants war to the knife. So we got war. And we’re losing. Even if we gain seats in 2010, the actions of this congressional session will not be reversed...
8) BEST NON-ECONOMICS THING I HAVE READ TODAY: Gregory Gause: The Kuwaiti Confidence Vote:
On Wednesday, Dec. 16, the Kuwaiti parliament, for the first time in its history held a confidence vote on the prime minister. Shaykh Nasir al-Muhammad won the vote by a margin of 35-13, with one abstention. This may sound like ordinary Parliamentary politics. In Kuwait, it isn't. The Kuwaiti constitution allows the legislature to declare an "inability to cooperate with the government" by a majority vote of the elected representatives.... [I]n the past, when such votes were threatened the Amir either accepted the government's resignation (usually reappointing the prime minister to form a new government) or dissolved the parliament, rather than subject a senior member of the Al Sabah family to a confidence vote. It was only in the last year or so that the ruling family has allowed confidence votes on its members.... A confidence motion on the prime minister is unprecedented. This is a big step in Kuwaiti politics, a confirmation of constitutional government and, one hopes, the beginning of the end of the stand-off between the legislature and the government that has led to six different governments since February 2006 and three elections since June 2006...
9) STUPIDEST THING I'VE READ TODAY: newtgingrich:
As callista and i watched what dc weather says will be 12 to 22 inches of snow i wondered if God was sending a message about copenhagen...
10) FROM THE ARCHIVES: Brad DeLong (November 18, 2002): The Functioning of U.C. Berkeley: Things That Make You Go, "Hmmm....":
Every once in a while, you see a set of interesting numbers pass across your desk. Today's numbers are about Berkeley's enrollment. 33,145 students in total--9,310 graduate students and 23,835 resident undergraduate students. 3,655 new freshmen; 1,754 new transfer students; 8,413 "seniors." With 5,409 students entering, and with attrition of roughly 10% per class before people reach their senior year, I can compute that Berkeley students appear to spend 1.56 years as "seniors." Put it another way, I can guess that your average transfer student spends 3.1 years enrolled at Berkeley and studying on the campus, and the average entering freshman spends 5.1 years enrolled at Berkeley and studying on the campus. Think about attrition (people who spend less than four years at Berkeley because they drop out and leave), think about those constrained by money or with things to do who use their AP credits and overloads to leave early, and I think I'm looking at some pretty depressing (and not-widely-advertised) numbers for time-to-undergraduate-degree. Hope I'm wrong.
