Environmental Economics

Greg Mankiw's Blog: The ZLB in My Favorite Textbook

Greg Mankiw:

In a recent blog post, Paul Krugman writes:

As far as I know, among basic textbooks only Krugman/Wells even talks about the liquidity trap.

This is probably a true statement.  It is not that other books don't cover the topic, however.  It is just that Paul Krugman doesn't know it.

Delicious.

I assume we are supposed to draw our own conclusions

I just watched this video on how much different people earn in a minute (including a minimum wage worker, a median worker, a teacher, a physician, Rex Tillerson and Kobe Bryant).  There is no conclusion drawn in the video so I assume the creator, Bart Edlund, is presenting a set of facts from which the viewer is free to draw this or her own conclusion.  So here's my conclusion:

Markets reward people differently. Some people make a lot of money.  Some people make a little.  Some people think those who make a lot make too much.  Many people think those who make a little don't make enough.  Some people think that Rex Tillerson is evil incarnate.  Some people would say that the income disparity depicted in the video is unfair. I don't know how to define unfair. So I choose to dismiss fairness as a singular criterion for decision making. Although it must always be considered.And the government can help.  Or not.  I don't begrudge someone being paid what others are willing to pay.  And I don't advocate for taxing those who make 'a lot' based solely on the argument that they make 'too much.' I believe everyone should pay their 'fair share.' But I have no idea how to define a 'fair share.'  I conclude that market based wages are the worst system for determining how much someone should make--except for any other system.  I know that is not an original thought.

A highly technical illustration of Hotelling's Rule for depletable resource extraction with backstop technologies

They said it couldn’t be done. They tried to tell us that renewable energy could only survive if it were propped up with government subsidies. Never mind that our whole system of economic development, beginning with the patent office, is predicated on the idea that fledgling, underfunded industries need special protection for a limited time until they are strong enough to go it alone. Never mind that the fossil fuel industry, which can hardly be considered fledgling or underfunded, is still receiving billions in taxpayer subsidies.

But like the little engine that could, or the middle aged rock star that, after twenty years of struggling in sleazy dives has suddenly become an overnight sensation, solar power, having now surpassed the 100 GW threshold, has finally arrived and is good to go, in many places, without subsidies.

via www.enn.com

Here's a picture to help you understand the complex economics underlying the story:

Political Calculations: The Demand Curve for the U.S. Minimum Wage

Why can't I blog like that?

How much will President Obama's 2013 State of the Union proposal to increase the federal minimum wage to $9.00 per hour affect the teens and young adults who make up roughly half of all those who earn the minimum wage or less in the United States?

We've been dancing around that question as we've been considering the recent history of minimum wage increases in recent weeks, but today, we're finally going to answer it!

Or rather, you are, because we've built a tool that you can use to do the math for yourself! Here, you just need to enter either President Obama's or your own proposed minimum wage (ideally in terms of constant 2011 U.S. dollars), and our tool will do the rest!

Here is the demand curve (read the post for a description of how it is estimated):

A lesson in average and marginal

From a text conversation with the Official Second-Oldest Daughter of Env-Econ (OSODEE)--who is struggling to understand Romeo and Juliet:

OSODEE: "90% on my timed writing in English today."

ME: "Not bad."

OSODEE: "Yeah but it didn't move my grade any."

Me: "When the grade is the same as the average, the average won't move."

OSODEE: "I know father."

Now seems like a good time to remind you of the incentives created by per gallon versus per mile gas taxes

From today's Washington Times:

An on-again, off-again move by the Obama administration to scrap the federal gas tax in favor of a pay-per-mile fee would boost the tab to Americans as high as 250 percent, raising their current tax of 18.4 cents a gallon to as high as 46 cents, according to a new government study.

But without a tax increase, said the Government Accountability Office study, the government's highway fund is going to go dry. One reason the fund is going broke: President Obama's push for fuel efficient cars has resulted in better mileage, and fewer stops at the pump.

The GAO study is just the latest review of federal spending that paints a grim picture of the nation's infrastructure. Just keeping spending at current levels, the GAO said, would require a near doubling of the gas tax to 32 cents a gallon, and that would jump to as high as 46 cents should the federal government add spending to fix crumbling infrastructure and build new roads.

The average driver pays about $96 a year in federal gas taxes, said GAO. Should the administration seek to raise the highway trust fund from $34 billion to the $78 billion needed to fix and maintain roads, that could rise to $248. Translated into a pay-per-mile plan, drivers would face a tax of 2.2 cents per mile compared to the 0.9 cents they pay now. Trucks would pay far more.

But isn't driving less (and thereby reducing the externalities associated with driving) the real goal?  Or is the goal to raise revenue?  If these seem like conflicting goals--they are.  As I noted on May 20, 2011:

...with a per gallon gas tax, total taxes paid will increase with miles driven and decrease as fuel efficiency increases.  The gas tax creates the incentive to Drive Less! and drive more efficiently. 

And a gas tax can't be manipulated as easily [as a mileage tax].

It is also worth noting that a [per mile] driving tax and a [per gallon gas tax] are not equivalent.  A driving tax is a flat rate tax per mile driven for all cars.  The driving tax creates no incentive to increase fuel efficiency (and possibly a disincentive) since increases in fuel efficiency will not reduce miles driven (and may increase them).

The administration's choice of policy will reveal the true motivation behind a gas tax:  If the motivation is to create incentives for better fuel efficiency and reduced externalities, then we will see an increase in the per gallon gas tax.  If the goal is to simply raise revenue regardless of the incentive to reduce externalities, we may see the driving tax.

Field Research--Invasive species

During my recent vacation (a whirlwind family tour of the Western Caribbean), I spent some time on the island of Roatan (off the coast of Honduras).  Being a good environmental steward--stop laughing--I spent some time talking with a representative from the Roatan Marine Park--OK, my family was shopping and I was bored so I stopped by a kiosk for the Marine Park*.  I learned that their #1 concern right now is the impact of the invasive Lionfish on tourism.  So upon my return to snowy Ohio, I looked up the Marine Park website and saw this:

Economic costs from invasive species can occur through loss of recreational and tourism revenues. This is a particularly the case with the invasive Pterois volitans (lionfish) on Roatan where so much revenue is dependent on the tourism industry. When economic costs of invasions are calculated as production loss and management costs, they are low because they do not consider environmental damage; if monetary values were assigned to the extinction of species, loss in biodiversity, and loss of ecosystem services, costs from impacts of invasive species would drastically increase.

I think something more specific than 'drastically' is needed.  I think I may have found my calling.

Also intriguing:

Lionfish were accidentally released into the Atlantic from Biscayne Bay Florida in 1992 following hurricane Andrew. Genetic analysis reveals that lionfish in the Caribbean have likely all originated from this population

*To prove my good stewardship I bought a Roatan Marine Park t-shirt for $10.  On the back it has a WANTED poster for lionfish with the caption "Eat More Lionfish."

Econ 101 in less than two and a half minutes

A shortage in the labor market for economists

From The Chronicle of Higher Education:

New job openings for economists increased by 2.7 percent this year over last year, according to the American Economic Association. The increase followed two years of growth that returned the annual number of new jobs to prerecession levels.

An increase in the number of academic jobs fueled this year's growth, with listings for those positions increasing by 5.7 percent, to a total of 2,059 in 2012. At the same time, the number of nonacademic jobs listed fell by 3.6 percent, to 856. Academic institutions continued to be the most-common employer, representing more than two-thirds of the employers listing job openings, according to the association, which based its tallies on its Job Openings for Economists Web page.

The number of new jobs listed for economists has greatly exceeded the number of new Ph.D.'s produced in the field in the United States over the past decade and more, the association said. In 2011, the most recent year for which data were available in both categories, 1,018 new Ph.D.'s were awarded in economics and 2,842 new jobs were listed for economists, according to the association. Annual data the association cited, going back to 2001, showed that in each year there were at least twice as many new jobs as new Ph.D.'s.

Mathematical and quantitative methods was the top field of specialization in the 2012 job listings, the association said, followed by microeconomics and then international economics.

I'm going to be a little cautious about this information. If the plumbers union told you that there was a shortage of plumbers and therefore they should be paid higher wages, what would you think?

Appstate has an ad in JOE this year and we received 200 or so applications. This is in contrast to other acedemic disciplines that might receive 30 or 40 applications for a single job opening. It sure feels like there is a surplus of candidates when you are sorting throught the files. 

This just in: New York's Attorney General prefers shortages to price rationing

I fear I'm going to say something snarkfully inappropriate in this post.  But here goes anyway:

Reports are being investigated in New York City, the Hudson Valley and on Long Island by state Attorney General Eric Schneiderman.

Schneiderman said Monday that he's investigating an increasing number of reports of spikes in prices for essential goods including gasoline, food, bottled water, generators, batteries and flashlights. The probe can include sharp, unwarranted increases in the cost of prices by retailers including supermarkets, hardware stores, bodegas, delis, hotels and taxis, he said.

Now, here's the definition for unwarranted: lacking justification or authorization.

In one report, the cost of a bag of potatoes jumped to $7, up from $3 before the storm hit. The cost of the box of matches appears more than three times the usual cost, and the loaf of bread is more than double the usual cost.

GASP! (sarc)

New Yorkers can report price gouging by telephone at 800-771-7755 or through his office website.

What's the phone number for reporting public officials who break the laws of supply and demand?

"We are actively investigating hundreds of complaints we've received from consumers of businesses preying on victims of Hurricane Sandy," Schneiderman said. "Our office has zero tolerance for price gouging."

And I have zero tolerance for offices with a blatant disregard for economics.

No arrests were reported as of Monday. Schneiderman wouldn't discuss details of the reports or the investigation.

Wait...what?  You can be arrested for raising prices in light of dramatically increased demand and inelastic supply?

Vendors may defend higher prices if they can show an increased cost of obtaining goods from wholesalers or in delivering services, making prosecutions difficult.

Supply is very inelastic in the very shortrun--but really that's really only one side of the story. Think of it this way, if the area hot by the hurricane is completely isolated for a couple of days, the supply of essential goods and services is fixed.  That is, there is no way to increase the quantity supplied in the very short run.  But, during a disaster, the demand for essentials (you know, those things that are absolutely essential and indispensable) increases quickly and dramatically for a short period of time.  This increase in demand puts quick upward pressure on prices.  Failing to raise prices will result in what we economists like to call shortages. 

A telltale sign of a shortage is more people wanting/needing a good than is currently available.  Costs may be an issue, but prices are the markets' means of rationing a limited supply.  Restricting the price rationing mechanism during a warranted increase in demand (see the definition of unwarranted above) is a highly inefficient way to try to ration the available goods. 

No one likes higher prices.  And no one is comfortable with having to deal with higher prices at a time when everything else in their life is in turmoil.  But what is the alternative?  Failing to raise prices simple makes the shortage worse.  How high should we allow prices to go? 

I have no idea...retailers have a much better read on what the market will bear than I do, and for that matter than any government official does.  In an attempt to maintain the appearance of 'doing something' what the officials are doing is making the problem worse by restricting the rationing ability of markets.  Now who is doing something unwarranted?

State law should prohibit unconsionable excessive lack of understanding of how markets work. And don't get me started on fairness.  Nothing about this is fair.  But that's really irrelevant.  Because no matter how fair you want to be, in the immediate short run, there simply isn't enough of the essential goods to go around.  One way or another the price is going to rise until supplies are restored and demand decreases. 

via www.nbcnewyork.com