Environmental Economics

Economic Principals tut-tuts Paul Krugman

In the context of the over-the-top criticism of Reinhart and Rogoff, David Warsh:

Last week, Krugman on his energetic New York Times blog praised Laurence Ball, of Johns Hopkins University, for his “Four Percent Solution”:

Larry Ball makes the case that we would be a lot better off with a 4 percent inflation target rather than the 2 percent that is now central bank orthodoxy. Intellectually, this position is hardly outlandish; indeed, Ball’s case is very similar to the case Olivier Blanchard made three years ago, just stated more forcefully and with more evidence.

Here is Rogoff, writing in a December 2008 op-ed for Project Syndicate, “Inflation is Now the Lesser Evil”:

It is time for the world’s major central banks to acknowledge that a sudden burst of moderate inflation would be extremely helpful in unwinding today’s epic debt morass…. Moderate inflation in the short run – say, 6% for two years – would not clear the books. But it would significantly ameliorate the problems, making other steps less costly and more effective.

By any standard, that was a prescient call – a bit too early to build popular support, but a year earlier than Blanchard, and sufficient to demonstrate the Rogoff was anything but a single-minded budget-cutter. In 2011 he renewed the prescription.

A lawyer who withheld exculpatory evidence like that from his argument would have his case tossed out of court. A columnist for a great newspaper should be held to a similar standard.

I have known Krugman for a long time; I admire him. I share many of his convictions. I would even say that we are friends. His career as a journalist, like his career as an economist, has been studded with brilliant coups.

But as in the Little Rock case, he lacks a governor; or, in this situation, even an editor. The earlier episode ensured that Krugman would never again serve in government. (He had done a turn the CEA as a junior staffer under Martin Feldstein in the early 1980s.) This one surely cinches the case that he should never win a Pulitzer Prize. The habitual thumb on the scale has become contempt for the balance itself.

Whoa, that would make me stop and think. 

The "Little Rock case" refers to the time during the Clinton administration when Krugman ripped the administration economists, mostly Tyson and Reich, for daring to get the jobs and attention that he seemed to want. 

In terms of economics (and politics) I sometimes agree with Krugman. But after a snicker or too, I never agree with his "rip 'em to shreds" approach, which always detracts from his arguments. 

What is wrong about this headline?

NY Times:

Home Prices Rise, Putting Country in Buying Mood

Maybe nothing, but it makes me think that higher housing prices make consumers want to buy more houses (and that is wrong ... unless consumers only want to buy houses when housing prices are on the rise, signaling this is a good investment). The article, however, says that this is a macroeconomic effect. Higher housing prices are raising consumer confidence which is increasing overall consumer spending.

When does +2.2% = -0.1%? er, never?

More negative space from Greg Mankiw's Blog ("Stevenson-Wolfers on Reinhart-Rogoff"):

They write:

In the end, all the corrections advocated by the critics shift the average GDP growth for very-high-debt nations to 2.2 percent, from a negative 0.1 percent in Reinhart and Rogoff’s original work. The finding remains that economic growth is lower in very-high-debt countries (see chart). It has been disappointing to watch those on the left seize on the embarrassing Excel errors but ignore this bigger picture.

 

via gregmankiw.blogspot.com

But still, isn't there a big difference between +2.2% and -0.1% growth? With +2.2% growth income will double in 30 years or so. With -0.1% growth income will never double. Plus, there is still the issue of causality: does slow growth cause debt or does debt cause slow growth?

I guess it has been disappointing to watch some argue that the R/R mistakes don't really matter. 

Call me a faction

David Warsh:

... last week ... former Secretary of State George Shultz and Nobel Laureate Gary Becker, of the University of Chicago, proposed to replace the bewildering  patchwork of existing energy taxes and subsidies (think ethanol!) that has grown up over the years with a single carbon tax levied on all forms of energy, with the idea of “leveling the playing field” among fuels of all sorts, by charging for the amount of atmospheric carbon they emit.

Instead of putting a huge new source of funds at the government’s disposal, however, Shultz and Becker say that the measure should be “revenue neutral,” meaning that whatever sums are realized beyond what the government currently nets should be paid into an account held separate from all the rest, and earmarked to be returned to individual taxpayers.  The aim would be to curb greenhouse gas emissions, nothing more. ...

The real problem has to do with how the issue is to be framed.  Many factions, conservative and liberal alike, see carbon taxation as a means to the end of dealing with US budget problems – as a new source of revenues ...

What is this "huge new source of funds" that would be "at the government’s disposal"? Is this sort of like the "huge new source of funds" (i.e., government budget surplus) that emerged around the turn of the century? The surplus that we debated about what to do with? And then decided to both cut taxes and increase government spending (keeping the bond market liquid) and then the surplus went away?

Oh! That "huge new source of funds"!

In terms of microeconomic efficiency, a revenue neutral carbon tax is appealing because it replaces an inefficient tax on something good (labor) with an efficient tax on something bad (pollution). So, if all we care about is efficiency then revenue neutrality is great. But if we also care about the level of government debt we might consider a carbon tax that is less than revenue neutral. 

Aguanomics on green jobs

David Zetland:

Over the past few years, I've noted repeatedly (example example) that the Pacific Institute tends to put too much emphasis on engineering and not enough on economics ...

PI just issued two new reports demonstrating how their method fails. ...

The second is a study of the potential for "green jobs," in which PI says:

An investment of $1 million in alternative water supply projects yields 10-15 jobs; in stormwater management, 5-20 jobs; in urban conservation and efficiency, 12-22 jobs; in agricultural efficiency and quality, 14.6 jobs; in restoration and remediation, 10-72 jobs

Now, I'm going to ignore non-skilled jobs that cost $50-$100k each as well as the ludicrous range of estimates and concentrate on two obvious flaws in this report. First, it ignores the fact that jobs are a COST. We should be concentrating on destroying, not making jobs, since fewer workers per project implies higher productivity and living standards. We want people to work, of course, but where their salary creates value. Second, the opportunity cost of these "green investments" [sic] is not just the $1 million that comes out of taxpayer pockets but the other places that could use $1 million. Green jobs sound nice, but they are often worthless.

via www.aguanomics.com

A new feature of env-econ.net is a sequester casualty

Just when we started tracking green jobs with help from the BLS:

Automatic budget cuts have claimed an early casualty: The Bureau of Labor Statistics tossed a program Friday that monitored green jobs in the United States, according to Bloomberg. ...

The green jobs initiative is one of three Bureau of Labor Statistics data reports slated for the chopping block, Bloomberg reported. 

Republicans have long criticized the effort, saying its definition of a green job is too loose.

House Oversight and Government Reform Committee Chairman Darrell Issa (R-Calif.) has been particularly critical of the program, calling it a White House “propaganda tool.” He contends the green jobs tracker has oversold employment in that sector.

Issa labeled it as an attempt to justify the $90 billion in loans, tax incentives and grants President Obama set aside for clean-energy and transportation programs through the 2009 federal stimulus

But clean-energy advocates contend the industry is going through a period of rapid growth, crediting the president’s policies and the stimulus for many of those gains.

Still, those employment figures will fall far short of Obama’s 2008 campaign pledge to add 5 million green energy jobs in a decade, a point Republicans have been quick to make.

via thehill.com

I'm also looking forward to reporting that a grant proposal is a victim of the sequester. I need more leisure!

Question of the day

What would you do with additional tax revenues this week?

Jack Lew, the White House nominee for Treasury secretary, says President Obama’s second-term vow to confront climate change will not lead to proposals to tax carbon dioxide emissions.

“The administration has not proposed a carbon tax, nor is it planning to do so,” Lew said in written responses to Sen. Orrin Hatch (R-Utah), the top Republican on the Senate Finance Committee, which will vote on Lew’s nomination Tuesday.

Carbon taxes or fees are generating new interest among climate advocates and some liberal lawmakers, especially amid debates about how to curb the deficit and overhaul the tax code. ...

Hatch used his written questions to bash the idea of a carbon tax. He cited Obama’s vow in his second inaugural address to confront climate change, adding, “a carbon tax is one of the options that President Obama could pursue.”

“Given the enormous tax increase that would result from a carbon tax, how would you advise the president to use carbon tax revenues? What would your highest priorities be?” Hatch asked.

Lew declined to get into the idea, offering his one sentence vow and leaving it at that.

via thehill.com

The White House nominee for Treasury secretary apparently has no idea.

Knowledge Problem: Sequester Reporting Scavenger Hunt

Michael Giberson:

Brace yourself, sequester is coming! The news has been filled with horror stories over the pain threatened by the sequester cuts. ... these stories have one thing in common: A lot of emphasis on how modest federal budget cuts will impose outlandish costs, and absolutely no mention that plausible alternatives–increasing taxes, increasing the national debt ever higher–would also impose real economic burdens.

The one alternative to the sequester that does merit brief mention, that Congress actually passes a bill that selectively cuts spending, is widely agreed to be implausible.

Now I’m sure that some reporters are out there doing their job, not just reporting the obvious fact that recipients of federal dollars would rather just keep the money flowing, but also reporting that federal spending itself comes at a cost. But such news reports are rarer than rainbow-colored unicorns these days.

Head over to Knowledge Problem for the official rules.

The BLS will be updating us on green jobs

While unsubscribing to a couple of BLS updates I ran across this:

That's right, green jobs are just as important as mass layoffs and inflation. 

The stand-up economist at the 2013 AEA Humor Session

Hyperinflation in Hell ... by Yoram Bauman, Ph.D., "the world's first and only stand-up economist".