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What to do about Climate Change…

The ‘natural resources‘ tag encompasses everything from oil to water to the earth itself. This is a large area to canvas, and I’ll focus specifically on international and national proposals to “green” our development. Once again I’ve taken much of the language in this digest from the sources linked to at the bottom of the piece, and while this post is quite long, I wanted a comprehensive take. I will note that I left out the many legitimate criticisms of environmental modeling and forecasting in the first place. There are many reasons to be suspicious of all of the forecasts that essentially “predict” the weather in a hundred years. This post will ignore these concerns, however, and concentrate on the data that is put forth by the UN and the UN’s Intergovernmental Panel on Climate Change (IPCC).

High Cost

Three examples of these environmental proposals are the Kyoto Protocol, Al Gore’s plan, and T. Boone Pickens’ plan. All three are costly. Pickens plans to generate 20% of America’s power through wind, and he estimates it would cost $1 trillion to build that capacity and another $200 billion to update our electrical grid. Gore wants the US to “produce every kilowatt of electricity through wind, sun, and other Earth-friendly energy sources within 10 years. This goal is achievable, affordable, and transformative.”

Environmental economist William Nordhaus ran the numbers on Gore’s idea to reduce carbon emissions by 90% by 2050. He found that such a plan would reduce the maximum increase in global temperatures to between 1.3 and 1.6 degrees Celsius, and it did so at very high cost of between $17 trillion and $22 trillion over the long term. Even at a very, very low estimate, Gore’s plan would cost about $300 billion per year for the next ten years.

Meanwhile, the Kyoto Protocol is estimated to cost around $165 billion annually.

The costs of these plans are large (and I ask that you compare them to the costs of different types of interventions I will raise later), and I will contend they are not worth it, and that lower-cost R&D and “focused adaptation” plans would be far more sensible.

But how do the proponents of these plans justify these massive interventions?

Super Ultra Emergency?

Thomas Friedman justifies massive green spending by explaining that humans are an “endangered species” and none of us “are going to make it” as we experience disasters “of a biblical scale.” Friedman trumps Gore five-fold, coming to claim that sea levels might rise a hundred feet, whereas the UN expects between six inches and two feet this century. Friedman says that in 22 years the evening news will feature ‘weather, other news and sports’ – in that time sea levels will have risen fewer than three inches.

If you buy in to the rhetoric of humans being “an endangered species” with disasters of “biblical scale,” then we should start shutting down power plants and confiscating cars tomorrow. We have no good evidence that such a disaster scenario is imminent, but nobody can conceivably prove it to be impossible. Once you get past the table-pounding, any rationale for rapid emissions abatement is really a restatement of the precautionary principle: downside possibilities are so bad that we should pay almost any price to avoid almost any chance of their occurrence. Of course, this same principle would justify spending trillions on countless other “possibilities.”

I disagree with those who view global warming as a super-ultra emergency, and agree with those view warming as a problem, one that must be managed via greenhouse-gas restrictions and a weaning away from fossil fuels.

Putting the Benefits of Mitigating Climate Change in Context

Most scientists warn that a temperature rise of 2 degrees Celsius (3.6 degrees Fahrenheit) could have serious consequences. How serious? Well, according to the UN IPCC a 4C increase – twice this amount – would reduce global economic output by 1% – 5%. That’s in the world of the 22nd century which is expected to have per capita consumption of something like $40,000 per year versus our current consumption of about $6,600 per year. So we are condemning future generations to be only 5.7 times richer than us.

But global warming isn’t just about wealth reduction — it’s about the death and disease that would hit already at-risk populations. But even using the IPCC’s warmest scenario – increased global temperature of 4°C between 1990-2085, climate change will contribute ~10% of the death toll from hunger, malaria — a surrogate for vector-borne diseases in general — and flooding. Thus, eliminating climate change completely would reduce annual mortality by 2 million to 6 million in 2085, depending on the IPCC scenario employed.

That’s the potential upside of completely stopping climate change. Of course, the initiatives we are talking about don’t even pretend to make such claims. The Kyoto Protocol would reduce climate change by less than 10% in 2085-2100, while costing $165 billion annually.

I mentioned initially the idea of “focused adaptation,” which amounts to dealing with the symptoms of potential climate change, such as hunger, malaria, and coastal flooding. For instance, by 2015, malaria could be reduced by 75% for $3 billion per year, hunger by 50 percent for $12-15 billion per year. Please take a look above again to see how small these costs are in comparison to the efforts to mitigate climate change. Climate change will contribute ~10% of the death toll from these causes and look at the amount of spending it will take to even reduce 10% of climate change. Meanwhile, we can reduce 75% of Malaria for $3 billion per year.

My beef with the Environmental Movement

The environmental movement has welcomed a flurry of, at best, benign and wasteful, and, at worst, destructive movements and legislation – all in the name of “green.” For instance, Al Gore, among others, pimped ethanol hard, and the government policies that followed made it harder for people to eat — accounting for as much as 75% of the global increase in food prices since 2002.

These same folks want us to commit enormous amounts of resources to ideas like the Kyoto Protocol, Gore’s Plan, and Pickens’ plan, as they attempt to win support for these ideas with exaggerated doomsday scenarios and refusing to acknowledge the immense opportunity costs of their plans.

Environmentalists such as Friedman respond that we should still help the poor, for instance, but instead of giving them diesel, we should give them solar panels to power their lives.

That’s a nice thought, but not relevant to the question of opportunity costs. If the investment cost for solar power is 14 times more expensive than diesel, the money spent on helping the poor will simply not go as far — instead of 14 kids getting power you help just one. The large-scale emissions abatement central to Gore and Friedman’s strategies would carry astronomical costs, and they would carry real tradeoffs that its proponents should acknowledge.

It’s time to quit endorsing every lame-brained environmental strategy lobbyists dream up.

Ideas I’ll get behind

Contrary to popular belief, many of us who are ‘skeptics’ of the environmental movement’s claims don’t believe in doing nothing at all. The harshest critics of Gore’s plan still believe that global warming is real and poses a serious risk, and agree that an R&D program is a component of a solution. We also support adaptation to weather problems (disease, hunger, flooding mitigation), and believe ongoing efforts to analyze physical and economic trade-offs involved in various proposals through the IPCC and similar bodies are valuable and should be supported.

The government has no business picking winners in the alternative-energy competition (sorry, Illinois constituents and T. Boone Pickens), but augmenting basic research spending (as it is does in medicine) makes sense. And, again, taking steps to deal with hunger, disease, and flooding will do much more to help poor people, whether the climate change predictions come true or not.

Conclusion

Thomas Friedman sums up the environmental position when he equates spending trillions of dollars on greening with “training for the Olympic triathlon. If you make the Olympics and you run the race and do the whole triathlon, you may win. But if you don’t, even if you come in second or third, you’ll still be so much fitter, so much stronger, so much healthier, so much more respected, so much more secure. Which part of this sentence don’t you understand? Why would we not want to run this race?”

To continue with his analogy, my response is that while in 100 years you are much more toned and fit, your wife has left you, and your kid dropped out of school to sell drugs. But hey! You are in TERRIFIC shape. No denying that. The point of the analogy is that our resources are not unlimited, and that you concentrate them on one area (climate change mitigation) to the detriment of other areas (UN’s Millenium Development Goals).

Attempting to be an Olympic gold medal winner in “greening” isn’t the smartest use of our limited resources. As I’ve argued above, we can do much more to help both ourselves and the poorest people in the world by using some of the resources (that would otherwise be sucked up by the cost of olympic training) on other things we care about.

We live in a world abundant with poverty, disease, dictatorships, terrorism, nuclear proliferation, lack of girls’ education, and more than 1 billion people without cleaning drinking water or electricity.

These people would likely be better served if Daddy ditched the Olympic medal delusion, and started acting like a rational adult. That doesn’t mean he shouldn’t stay fit; but maybe instead of buying muscle milk he gives the kids some clean drinking water.

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Filed under: Natural Resources

digest: trade, the global growth engine

(Much language borrowed from the summaries and articles linked at the bottom of the post)

Free trade is blamed for a lot of things, often for exporting American jobs and forcing poor people to work in terrible circumstances. Of course, the poor locals are not enslaved, they are offered jobs, and while (sometimes) these work standards may not be up to 21st century American standards, they are still better than the poor people’s other options.

With regards to American job losses, trade is often tarred with blame that would be better assigned to technological innovation. American industrial production has actually increased significantly over the years, the secret is that Americans have lost their job to machines. Like technological innovation, trade can lead to losses for particular groups of workers; however, if you oppose free trade on these grounds you should realize you are borrowing your argument from the Luddites and should call for horse-and-buggy subsidies as well (and of course, those workers’ jobs wouldn’t have existed in the first place were it not for trade).

More practically, if it was good for Vaclav in W. Czech to trade with Vlad in E. Czech in ’88, why is it any less good for them to trade now that the country is split in two?

One of the better arguments against simply advancing free trade is that while the gains to winners from free trade are sufficiently large that a hypothetical redistribution of these gains from winners to losers could make everyone better off, economic analysis doesn’t say that these compensations actually take place.

This is true, but again, it’s also true of all change, whether it’s from trade, technological advances, or simply a change in people’s tastes (Woe is the Pog maker! Where is his safety net?)

To oppose free trade on these grounds is again to take up arms with the Luddites. Would you have supported a “timeout” on technological innovation until we came up with a plan to help out the horse-and-buggy industry? Then why support a trade timeout??

Free trade gets a bad rap because of man’s wonderful suspicion of foreigners and tendency to divide people into “in groups” and “out groups” and to elevate one and demonize the other. So free trade and immigration get tarred and feather as the enemies of America’s workers, as opposed to the truly significant (entirely domestic) problems, e.g., health care, bad schools, and, in recent times, bad banking practices.

Overall, trade has yielded not only a bounty of material good, but also of intellectual and cultural capital, an understanding of our neighbours, and a desire to sell things to others rather than to annihilate them. Yet the astonishing increase in the sum of human happiness that has been wrought by lifting hundreds of millions of Asians from the misery of subsistence farming into comfortable prosperity is [often] conveniently forgotten.”

In the course of human existence, poverty has been the rule. The past few hundred years has seen an explosion of wealth previously unimaginable. Those that have been left behind are notably those excluded from the global exchange. Trade doesn’t impoverish people; people are naturally impoverished, and in global exchange there lies the opportunity (not a guarantee) to attain wealth and security.

I’ll quickly add that none of this it to argue against a societal safety net, which I believe can be justified (in some forms) as creating a more resilient workforce and therefore economy. It is to say that free trade should not be held up as we figure out what the safety net should look like (alas, it likely will.)

Filed under: Economic Policy

American poor see major gains after ’80

Of course, the day after I write up the post on ‘American poor,’ the WSJ features a piece that reexamines income growth for the poorest Americans. What follows are my takeaways from the piece, which can also be found at www.delicious.com/prottas. My one sentence conclusion is that the poor have shared in the gains of the past 25 years – especially historically oppressed groups (e.g., black females) – and that chronic American poverty is a much smaller problem demanding a more surgical solution.

When all sources of income are included and taxes paid are deducted, households in the lowest income quintile saw a roughly 25% increase in their living standards from 1983 to 2005: the poor are not getting poorer. Looking at the last two business cycles, this low-income group experienced a 10% rise in their after-tax incomes from 1983 to 1992 and then another 11% rise from 1992 to 2002. Household income gains have been underestimated for a few reasons: number of people living in the households has been shrinking (44% real income gain per capita for low-income households from ’83-’05), and EITC requirements have led to counting more poor families today than in the past. 66% of ’87 most poor have attained a higher tax bracket. Top 1% in ’98 saw a decline in their income of 52% over the next ten years. Only 3% of Americans are chronically poor (impoverished for three years or more). Since ’80, white males have seen the smallest income gains (+9%), black females the largest (+79%).

Filed under: Economic Policy

publius’ digest: american poor edition

This post will look at understanding the American poor, and critique some of the efforts to help them. This post will not cover education (my top priority for the American poor), health care, or trade, which I cover under those ‘tags‘ specific to those categories.

I agree with the Dems that alleviating poverty is a moral call which also has positive externalities for all. I depart from the Democratic party line when they talk about relative poverty or inequality. I believe that relative poverty ‘justice’ is not rooted in an objective assessment of the negative consequences of income disparity (though I would love to see such a study of income disparity, not poverty, effects), but an emotional, superficial gut reaction to seeing the wealth of others when many are in need. I am concerned with advancing the condition of those in need, but I believe relative poverty taints the moral imperative of poverty alleviation with jealousy and envy — relative status warfare.

While I am not very concerned with the cries of relative poverty, I am concerned with the decline of wage growth for many Americans. Growing income inequality is caused by the returns to highly-skilled labor outpacing the returns to low-skilled labor, of which there is an abundance outside of America with workers who have much worse options than the American poor. Americans whose labor does not add value over the global poor’s labor are seeing their income and job security decrease. I explore this with the ‘education‘ tag.

People like Barbara Ehreneich do a disservice to the debate on how best to help the American poor with their narrative of class warfare. She is wrong in saying that total compensation has stagnated since 1981, and (more importantly) wrong in linking compensation to class warfare, instead of productivity. She is wrong in implying that the presence of high CEO pay is what is holding back the American poor’s compensation (instead of the value of their skills).

While wage growth has been leveling off, the past 15-20 years made it much cheaper to clothe and feed poor families due to the benefit of global trade (inflation on ‘poor’ goods is less than that of ‘rich’ goods); so income inequality statistics also undervalue the improved well-being of the American poor by ignoring how much further a dollar goes for a poor American in 2008 as compared to 1985.

As I near the end, I’ll look at housing policy and the minimum wage as examples of policies I think are not helpful, and representative of many efforts from the left aimed at helping the American poor.

Housing policy had noble aims, securing the poor by making it easier for them to own homes, but the policies created a huge industry built on taxpayer guarantees of inherently risky lending — a very bad idea. Better plan would be checks/vouchers for putting towards a down payment, if home ownership is really something we want to incentivize in the first place. Rent control is another well-intentioned bad idea; the real solution to low-income housing is making it easier and cheaper to build new housing. Increase the supply, you’ll lower the cost of renting and buying.

Meanwhile, the minimum wage increases the cost of employing low-skilled workers. If a poor person’s labor is worth less than $6.55 an hour, you don’t help that person by making it illegal for anyone to profit from hiring them. Thankfully, the wage floors are low enough that they don’t make a difference one way or another — they are political distractions from real anti-poverty programs like the EITC.

In both cases, I think that assistance that takes the form cash transfers either through tax refunds or through vouchers are preferable. If we want to guarantee a ‘living wage,’ then let’s use the tax system to subsidize their income, not create incentives to buy houses they can’t afford or create a wage floor.

Overall, Americans making $2,000 a year are still in the top 18% in the world, and the great majority of the American poor are doing just fine by world standards. Immigration is by far the number one ‘American poor’ issue. I’ll explore it later, but it trumps every other issue as both a moral imperative and in the interest of the American economy. More generally, global welfare rates higher as a moral cause worthy of investment than the American poor. That said, we should should spend more time thinking creatively about education, as well as slums, or poverty traps, (different than simply low-income areas), which cannot be corrected by providing more money, but still demand attention.

Filed under: Economic Policy

overview of foreign policy

Our chief foreign threats do not rest in the developed world, but in failed states, which are present with great suffering and pregnant with the potential for great destruction to us. Both morality and self-interest dictate that we intervene if we can have a positive impact, and despite our past mistakes, I believe we can develop a strategy, which is economic, diplomatic, and militaristic, to “prepare our partners to defend and govern themselves.” We need a 21st century coherent doctrine that includes both soft and hard power.

We have missed many opportunities to advance our interests in areas from Central Asia to Somalia, and there many more human rights atrocities taking place every year that could be resolved or prevented by a legitimate, credible commitment to peacekeeping and conflict prevention.

Clearly, we cannot count on China to sacrifice their immediate interests for these moral aims, and I would add that Europe’s moral posturing is just that, and nothing more (by extension, I include the UN). While international support is desired, we should seek it as a political tool, not as moral approval. Likewise, state sovereignty is a very real political concern, but not a moral reason to avoid intervention.

Global stability is a public good that only we have the incentive to provide at any cost greater than lip service. In many instances, if we do nothing, no one will.

To this end, our military must continue to shift from its historical large-scale conventional warfare focus to a ‘small-war’ mentality. We should maintain an active, albeit selective, participation in aiding in governing failed states. Concretely, I think this will take the form of security guarantees and quick-response peacekeeping initiatives.

This is not an inclusive post, but I will summarize: we must learn from our recent mistakes, and engage much more thoughtfully; that said, we should not lose or nerve; we should not hand out moral compass to the UN, and we should not shy from engaging the world economically, diplomatically, or militarily. Isolationism, in any of these instances, is immoral and unwise.

Scroll over the link titles to read the summary.

Filed under: World

overview of health care

It’s been awhile, but I’ve been trying to figure out how to leverage the delicious tagged articles and reduce redundant writing (and reading). So below is a summary I’ve written up on the health care perspective I’ve amassed, along with supporting articles and their summaries below.

US health care is bad, but less so in providing access to expensive treatments (we do have the best cancer survival rates) than in paying for everything under the sun. Universal health care is not the primary health care issue facing the US; the primary problem is cost containment. If you want universal health care, you better first deal with that – Medicare spending is projected to some insane percentage of GDP (like 30-40%) of GDP, yes GDP, in not too long – as neither Medicare (nor private payers) have figured out how to deny coverage or payment to over-priced products or services. The reason Western Europe is more cost-effective than the US is that they DON’T COVER a lot of expensive drugs and therapies (explaining why our cancer survival rates are better). They let the government apply a cost-benefit analysis to every product/service — if a private payer or Medicare does that, they end up in SiCKO.

We shouldn’t try to emulate Western Europe, but take lessons from less-visible systems like Singapore. We need to separate redistribution for care for the sick from actual health insurance. We also need to change the way we think about care and coordination, which means changing Medicare’s payment systems for physician services and health care products. The emphasis should not be on reducing profits, but ensuring payment is linked to value-added, not service provided.

Below the fold is more information.

Scroll over the link titles to read the summary.

Filed under: Health