A supporter of Donald Trump appeared on MSNBC's "All In" on Thursday night to offer a vision of a bleak, delicious future.
"My culture is a very dominant culture, and it's imposing — and it's causing problems," Marco Gutierrez of Latinos for Trump told Joy Ann Reid. "If you don't do something about it, you're going to have taco trucks on every corner."
That's a serious charge, worthy of being considered seriously. Although easy access to inexpensive Mexican food would be a boon for hungry Americans, what would the inevitable presence of those trucks do to the American economy? How could our country accommodate an explosion of trucks at that scale?
And it would mean that, per Gutierrez's vision of the future, we'd suddenly see 3.2 million conveniently located taco trucks. How ubiquitous is that? Well, it's one on every corner. But we can also compare it to Starbucks, which seems pretty ubiquitous in a lot of places. In 2012, there were about 11,000 Starbucks locations in the United States.
But it's where we're headed, apparently, if Trump loses. That's good news for the economy in one way. If you assume that three people work in each truck, that's 9.6 million new jobs created. The labor force in August was 159.4 million, with 144.6 million employed. Adding 9.6 million taco truck workers would help America reach nearly full employment — and that's just the staffing in the trucks. Think about all of the ancillary job creation: mechanics, gas station workers, Mexican food truck management executives. We'd likely need to increase immigration levels just to meet the demand.
Of course, there would be other repercussions. Many of the taco trucks would struggle to find business, like those posted at remote crossroads in Kansas. Other restaurants would likely suffer as a glut of other options and price wars undercut their offerings. There would be plenty of jobs for those fired from higher-end restaurants, but the resulting drop in wages would be staggering.
John Krutilla, a pioneer in environmental economics, helped to shape the field as an expert at Resources for the Future (RFF) in the mid-twentieth century. Perhaps his greatest legacy is shifting the discussion from one of economics versus the environment to consider a new economics of the environment. In a new RFF discussion paper, I tell the story of these intellectual moves. Here’s that story in brief:
From the nineteenth century, environmentalism in the United States historically has been divided into its "conservationist" and "preservationist" impulses. The conservation camp, represented by its champion Gifford Pinchot (1865–1946), advocated conservation of natural resources to be used for human purposes, using a progressive model of rational government planning. Extending Jeremy Bentham's utilitarian maxim, it would conserve resources to deliver "the greatest good to the greatest number for the longest time." The preservation camp, represented by John Muir (1838–1914), advocated protecting wilderness from humans, rooted in a spiritual love of “Nature” for its own sake. Eschewing rational planning, it would undergird such preservation through grassroots organizations such as Muir's Sierra Club.
In the first half of the twentieth century, natural resource economics was firmly on Pinchot’s side of that schism. Thus, an interdisciplinary scientist like Aldo Leopold, with economic training and a position in a university agricultural economics department, could view the growing environmental ethic in terms of a tension between economics and the environment. Economics appeared to be about material use of resources, whereas a new environmental ethic required a love of the environment for itself. Thus, on this reading, any defense of the environment on economic grounds appeared to be too narrow.
That position began to change as the postwar environmental movement gained momentum. More than anyone, John Krutilla pushed economics to the point where it could embrace Muir’s vision as well as Pinchot’s.
In "Conservation Reconsidered" (1967), published 50 years ago next year, Krutilla argued that if humans preferred a preserved state to a developed one, then such preferences were legitimate and belonged in the economic calculus. The traditional focus on conserving resources for material production needed to be reconsidered, he said, in light of the growing scarcity of preserved natural landscapes.
Krutilla's move coincided with a growing environmental movement on one hand and, on the other, an evolution in economists' understanding of their own discipline. Environmentalism increasingly was defined around aesthetic consumerism rather than materialistic conservationism. Economics, too, previously defined as the study of material welfare, was being redefined as the study of opportunity costs.
Krutilla pointed out that developing a landscape came at the opportunity cost of preserving it; reciprocally, preserving a landscape came at the opportunity cost of developing it. Thus, the choice to develop was inherently an economic one. In this way, Krutilla helped reorganize earlier debates that put economics and the environment at odds to frame the discussion in terms of a new economics of the environment. Taking this theory to the real world, Krutilla testified to this effect during a controversy over developing Hells Canyon on the Snake River in Oregon—thus showing that economics could be on the side of preservation. Moreover, Krutilla argued that preserved landscapes could always be developed later, whereas development was irreversible. This consideration shifted the economic decision in favor of preservation, other things equal.
Now that officials from the U.S. and nearly 200 other countries have reached a deal in Paris meant to keep global warming at bay, many citizens back home want to know—how much will it cost us?
No one knows for sure, but one estimate from an environmental think tank in Washington pegs the cost as a $170 billion hit to U.S. gross domestic product in 2030, or about 0.7% of the total economic output that year. ...
The idea behind the Paris talks is that all countries have to participate in a United Nations-organized effort to curb emissions of greenhouse gases linked to global warming. To get everyone on board, each country was allowed to develop its own plan, and countries aren’t compelled to meet their targets, which cover the period after 2020.
Few political leaders are interested in ordering up deep, painful cuts to emissions in ways that could unleash high electricity prices, stunt industrial growth or prevent impoverished citizens from clawing their way into the middle class.
So most countries, under pressure from peers as well as domestic critics, settled on cuts likely to cause small to moderate economic pain in the medium term, with the potential for big benefits in the longer term if all the major economies comply and humankind keeps the effects of climate change at bay.
The U.S. pledge is built around President Barack Obama’s “clean power plan,” which focuses on steep reductions in carbon dioxide emissions from the electricity sector—mainly coal. The U.S. government estimates the impact of the power rule—issued by the Environmental Protection Agency—at between $28 billion and $39 billion in 2030, or 0.1% to 0.2% of projected GDP.
Besides the power-plant rules, the U.S. pledge in the Paris accord relies on regulations mandating more-efficient automobiles and trucks, plus other efforts to stem greenhouse-gas emissions.
In May, the World Resources Institute constructed an economic model that shows the effect of the overall target that the U.S. submitted in Paris, although without the final details of how it’s achieved.
That projection resulted in the $170 billion hit to GDP in 2030, not considering the potential gains from better public health or an improved climate. ...
For some reason I have been thinking about income inequality lately. I guess it could have something to do with unavoidable coverage of asinine opinions by politicians trying to get people to elect them by saying whatever they think will get them votes. Rather than criticize the asinine opinions of others, I thought I would offer my own asinine opinion for your criticism. So here is my asinine opinion as an economist*: Inequality is an individual problem, poverty is a social problem.
Some may be tempted to argue that the difference between inequality and poverty is semantic: when politicians and policy makers talk of inequality, they are really only concerned about those in poverty, right? Well, no. Because if real poverty were the concern, and inequality alleviation were really an altruistic endeavor, then politicians would be much less concerned with alleviating inequality in the U.S. and much more concerned about alleviating poverty globally.
Let's take a quick example: Consider a single U.S. citizen who falls precisely at the current U.S. guideline for poverty: $11,770 per year (according to the Department of Health and Human Services). I think most of us can agree that that is a pretty low income. And I think most of us would find it tough to 'survive' on $11,770 per year. But let's look at that number from a global perspective. According to the Global Rich List**, an income of $11,770 would place that person in the 85th percentile (top 15% of incomes) of the global income distribution. Just to be clear, that means 85% of the global population falls below the U.S. poverty line, while only 21.9% of U.S. income earners fall below the poverty line (at least according to this calculator at Political Calculations). Twenty-two percent is a big number and cause for concern, by why are U.S. politicians only concerned with 22 percent of the U.S. population, when 85% of the world population is just as poor (or poorer).
The easy answer is 'We live in the U.S. dammit, we can't expect to solve the world's problems. USA! USA! USA!' But I don't think that is the real issue. I think the real issue lies in how we perceive poverty. I fear that even if we were to find a way to raise all U.S. incomes above the poverty line, we would still be hearing about and talking about income inequality. Why? Because inequality relies on relative comparisons whereas poverty relies on absolutes. We can measure absolutes, but relative comparisons require judgments.
Let me give an extreme example to hopefully illustrate my point. I live in a bubble--that's what we call our bucolic suburb, 'The Bubble.' It is one of the wealthiest towns in the state (if not the country). If I were to compare my income to those in the bubble, I would probably fall somewhere near the median. Not poor by any means, but the distribution of income in the bubble puts me in the middle. The fact that there is a distribution means that there will be inequality. Of course, this level of inequality is small relative to comparisons at the state or national level, but that is exactly my point. There are times when I get jealous because my income doesn't match up to those around me. It somehow seems 'unfair.' They have more than me. But I fully recognize that my jealousy is my problem. This is not the result of any market or government failure. It is a consequence of my own human condition--I am a sinner and I am jealous. There, I said it. Whew.
But seriously, I don't know how to make comparisons between income distributions. If you look at my income at the national level, I am suddenly no longer in the middle of the distribution and I am rapidly sliding into that class of people who are the target of attack in political discourse: The X% (GASP!).
But why stop at the U.S. borders? If we look globally, suddenly most of the U.S. population falls into someone elses X%. The World Bank sets the level for extreme poverty at $1.90 per day AFTER adjusting for differences in purchasing power.
Read that again.
$1.90 per day.
That's $693.50 per year.
(After adjusting for differences in prices!)
Do you know what percentage of the U.S. population falls below this extreme poverty line?
So what is my point? My point is simple. Income inequality is relative. In order to solve the income inequality problem we have to answer questions like:
"What is an equal distribution?" "How much is too much?" "Should we care about the starving in Africa when considering the income distribution in the U.S.?"
And I don't know how to answer those questions--my economics training has failed me. But neither do you. And neither does Donald Trump, or Marco Rubio, or Hillary Clinton, or Bernie Sanders. No one can answer those questions because there is no single answer. The answer as to which income distribution is the best distribution is an individual answer. It depends. It depends on who you are and who you are comparing yourself to and how jealous of a person you are.
Inequality is relative, but poverty is not.
Is it reasonable to say that Warren Buffett, or Bill Gates, or the Walton Family should have less simply because they have more than most? It might not seem 'fair.' but the fact that they have more than me or I have more than someone else is not a social problem, it is an individual problem: 'I don't like them having more than me. It's not fair.' Doesn't it seem more reasonable (more objective?) to say, let's make sure everyone has at least enough to survive and damn the distribution of the rest.
Now that I've convinced you that I am right, how do we solve poverty?
Ensuring a minimum standard of living for everyone requires one of two things: 1) Either finding more money for those who are below the standard without decreasing the income of anyone above the standard, or 2) Redistributing some income from some of those above the standard to those below the standard.
The first case requires finding money laying on the ground. In other words, there has to be a way to rearrange things so that nobody is made worse off. Economists call this a Pareto-improvement. But to get a Pareto improvement, there has to be an inefficiency somewhere in the economy (resources left unspent). But market-based economies work in such a way as to minimize inefficiencies; so there aren't a whole lot of dollars laying on the ground. This is both the beauty and the beast of market-based systems. Market-based systems ensure that the economic pizza is as big as possible, but the market doesn't give two craps about who gets what sized slice of pizza--and unfortunately some get very small slices.
So to fix the problem we need to figure out a way to cut the slices more evenly. The problem is, as soon as you start changing the sizes of the slices of pizza, the whole pizza shrinks. This isn't an opinion, or an argument against redistribution, but rather an economic reality--unless there are inefficiencies in the allocation of resources, redistribution of income will shrink the size of the economic pie. The question is then, how much smaller of a pie are we willing to tolerate in order to generate a more 'fair' distribution of the pie?
My answer has already been stated: We need to be willing to tolerate enough redistribution to ensure we maintain a minimum standard of living for everyone. Beyond that, we need to get out of the way and let the markets do their thing and create as large a pie as possible given the no poverty constraint.
But won't that allow inequality to persist?
Yes. But inequality is only bad in a relative sense and the degree to which inequality is bad depends on how much inequality your own jealousy allows you to tolerate.
I'd rather focus on solving poverty and then making sure everyone has equal opportunity to play equally in the market sand box. Our focus should be on ensuring the minimum social safety net possible (what should Social Security, Unemployment, SNAP, Medicare/Medicaid look like to ensure a minimum standard of living for all?), eliminating inefficiencies (correcting market failures), and eliminating barriers to opportunity (end discrimination in all forms so that everyone is playing by the same set of rules and has the same opportunities).
Beyond that, if you don't like the distribution of income, that is your problem...not the government's.
My name is Tim and I am NOT running for President of the United States--although you can feel free to write my name in because it would be cool to get a few votes.
*I do not speak for all economists. I am simply basing my opinion on my own training and thoughts from an economics perspective.
**I'm not sure I believe the numbers that this calculator produces, I am just using it to illustrate a point. The actual numbers might be different, but the point still holds.
The Department of Agricultural, Environmental, and Development Economics (my department) in the College of Food, Agricultural and Environmental Sciences (my college) at The Ohio State University (my university) is hiring for four new faculty positions--and I am not ashamed of taking advantage of this blog to promote the positions. If you have (or are close to earning) a PhD with interests in agricultural economics, environmental economics, regional economics, development economics or some combination of those fields along with other interests, then we can probably align your interests with one of our four positions.
Assistant or Associate Professor in Global Economic Modeling: a tenure-track assistant/associate professor position in the area of global economic modeling and integrated assessment. Economic modeling approaches of particular interest include dynamic optimization and computable general equilibrium modeling, as well as familiarity with approaches for handling decision making under uncertainty. Individuals with experience integrating economic models with physical/biological models are encouraged to apply.
Assistant Professor in Agribusiness: a tenure-track assistant professor with teaching and research responsibilities in agribusiness. Applicants with interests in agricultural markets and marketing, finance, supply and demand analysis, industrial organization, international trade or agricultural and food policy, that complement a primary interest in agribusiness are encouraged to apply.
Assistant or Associate Professor in Sustainable Development and Economy: an assistant/associate professor, tenure-track position to develop an internationally recognized program of research and teaching focused on sustainable development and the trade-offs among economic development, social equity and environmental protection in international or regional contexts. Areas of interest include, but are not limited to: economic growth; equity; resource use; technological change; socio-ecological systems; sustainable and resilient communities.
Click on the links for full descriptions and application info.
Browsing through the streaming videos available on Amazon Prime last night, I came across a documentary series called "wetheeconomy." I'm probably slow to the party but the series features a series of short (5-10 minute) documentaries introducing basic economic topics like supply and demand, measuring GDP, what is money,... Of particular interest to this blog, one of the documentaries is titled "A Bee's Invoice: The Hidden Value in Nature," which is designed to answer the question: Are natural resources vital to the economy?
The environmental economist in me is excited to see environmental valuation included in Chapter 1 of a series introducing a wide array of economic topics. Maybe, this whole environmental economics thing is gaining some traction.
The jealous, rapidly aging human in me is jealous that the film features appearances by two economists, both of whom have interacted on our blog, and neither of whom is named Whitehead or Haab. Anyway, nice work Gernot Wagner and Jodi Beggs* in promoting the cause. I presume they were chosen because the producers thought John and I were unavailable--either that or they wanted younger faces to attract a different demographic than the epitome of boring middle-class soccer/baseball dads.
Once a profitable business for cities and private employers alike, recycling in recent years has become a money-sucking enterprise. The District, Baltimore and many counties in between are contributing millions annually to prop up one of the nation’s busiest facilities here in Elkridge, Md. — but it is still losing money. In fact, almost every facility like it in the country is running in the red. And Waste Management and other recyclers say that more than 2,000 municipalities are paying to dispose of their recyclables instead of the other way around.
Early on (late 1980's, early 1990's) the problem with recycling was the time cost to households. The burden of separating paper, plastic, cans and bottles fell to the household and most households simply couldn't be bothered sorting and carrying 4 or 5 different bins to the curb (or in some cases, taking the bins to a recycling facility). With advances in sorting technologies and the realization that recycling might be profitable, municipalities made it easier on households to recycle: Just throw everything recyclable into the single big blue bin and we will do the rest. The problem now is that households don;t always know what is or isn't recyclable and sorting costs have increased, while the demand for recyclable inputs has decreased. The result: recycling is far less profitable (and perhaps now even unprofitable).
If this is more than a cyclical downturn in the recycling sector, it might be time to think about how to increase the cost of recycling to households.
CONGRESS long ago established a basic principle governing the extraction of coal from public lands by private companies: American taxpayers should be paid fair value for it. They own the coal, after all.
...let them be received, Not without fair reward (Timon of Athens I.ii.189)
Lawmakers set a royalty payment of 12.5 percent of the sale price of the coal in 1976.
Last week I mentioned I mentioned that I would be presenting (yesterday) to The Ohio State University Environmental Professionals Network Breakfast Club on the topic of "Ohio's Water Resources and Citizens at Risk - Ag-related Practices and Policies to Prevent Harmful Algal Blooms, Post-Toledo." I (along with each of two other panel members) was given 5 minutes to give opening remarks before moderator driven Q&A. Rather than my normal rambling unstructured style of presentation, I decided to give a speech--which means actually writing a speech. So here is the speech I gave (speech I read is probably a better way of putting it) to a audience of 230 representatives of ag and non ag sectors. I'm told there will be video at some point. I will let you know if video emerges--provided it doesn't make me look like a complete bungling idiot.
We’ve heard a lot today about solutions for high phosphorous loads in Lake Erie and the resulting harmful algal blooms. As an environmental economist, I’m told my role in this discussion is to provide a balanced look at the potential costs of reducing phosphorous loadings into Lake Erie, the benefits of those reductions to society, and the burden of the costs of phosphorous reductions.
Some of you may be wondering, what is an environmental economist? An environmental economist is an economist who applies the science of economics to environmental issues. I am not an environmentalist. Don’t get me wrong, I care about the environment. But I am realistic about the role that incentives, trade-offs, and profits play in finding solutions to environmental issues that lead to sustainable human well-being. I recognize the reality that the economy and the natural environment are inextricably linked and attempting to separate the study of each creates a situation in which neither is sustainable. Economic, social and environmental sustainability requires the realization that no single solution exists.
So what then, from my perspective as an environmental economist, is the fundamental issue surrounding harmful algal blooms? Excess nutrient loads into Lake Erie are the result of misalignment of incentives. The profit incentives of the on-farm sector fail to fully capture the costs of nutrient application decisions to the non-agricultural sectors. The cost-savings incentives of industrial and municipal sources of run-off fail to fully capture the downstream costs of urban run-off. The consume-now incentive of today’s consumers fails to fully capture the cost of today’s decisions on future generations.
None of these statements are judgments on the intent of individual farmers, or municipal decision makers or society today in making decisions that impose excess costs on others. In fact, in my experience, most people want to do the right thing. Farmers care about environmental issues. Municipalities care about water quality. Today’s generation cares about the future. Yet when consumption and production decisions are made, reality differs from intent.
For example, when I drove here this morning, I gave no thought to the cost my car exhaust imposes on others. I know that my exhaust contributes to increased atmospheric pollution. I know that by driving I increase the likelihood of health issues for those with breathing issues. I know that my driving contributes to long-term climate change. Yet, other than being a genuinely nice person, I have no incentive to incorporate those external costs into my driving decisions. The price of driving does not fully reflect the external costs.
Prices are the economy’s rationing mechanism. It is prices that drive economic decisions. Prices provide signals. It’s prices that serve as a market’s way of reflecting the value of something. And if prices fail to fully reflect the current and future costs and benefits of production and consumption, markets will misallocate society’s scarce resources.
In political and social discussions we hear a lot of talk about the need for less government regulation, the need for free markets. In general I agree with free market advocates. But in order for a market to do its job of allocating society’s scarce resources today and into the future, that market must capture ALL costs and benefits. Otherwise a market is not truly a free market.
In the case of the environment, we can think of the problem as one of the failure of markets to properly price the services the environment supplies. In effect, the environment is treated as a free input in production and consumption. It is only natural that if something is free we will use more than we would if it were priced at its true value. If gas were free, I would use a lot more of it.
Because the cost of environmental degradation is not captured in markets, we use more of it than we would otherwise. It might be tempting then to conclude that markets are the problem. I agree to a certain extent. Markets are failing to properly account for costs and benefits. But markets are also the solution.
To solve the harmful algal bloom problem, we need to find ways to better capture the external costs of using nitrogen and phosphorous in the markets in which they are used—and then allow the resulting incentives to work to solve the problem. To do so, we can focus on the quantity of phosphorous, or we can focus on the price. Quantity restrictions are effective if monitored effectively, but effective monitoring is difficult. Effective quantity restrictions will reflect in market prices. However, ill-designed quantity restrictions can result in regulatory costs that are higher than needed.
Regulating prices, on the other hand, allow the users to make decisions that reduce their own costs. By allowing the freedom to choose how to adapt to higher prices, price-based policies can achieve the same outcomes as quantity restrictions at lower cost. Prices also provide incentives for innovation. As prices rise to reflect the full costs, users will have the incentive to find lower cost alternatives. New investments in research and development will lead to new lower-cost technologies. Market-based price regulations allow the market to allocate society’s scarce resources efficiently.
However, many price-based solutions have a negative reputation. As I mention each of these, I’m sure each will garner some sort of negative reaction: taxes, subsidies, cap and trade, user fees. But as an environmental economist, I recognize that solutions that build environmental costs into market decisions allow individuals to make the decisions that are in their own best interest. The result is what’s best for society.
Unfortunately, we are talking about a problem of magnitude that hoping people will do the right thing is not an option. While voluntary programs are attractive politically, achieving a 40% reduction in Lake Erie phosphorous loadings, if that is indeed the goal, is going to require more than reliance on goodwill. Real, sustainable, solutions are going to require a recognition that prices need to capture the full social costs of nitrogen and phosphorous use. Anything short of that will lead right back here in the future, hoping the problem solves itself.
"This blog aims to look at more of the microeconomic ideas that can be used toward environmental ends. Bringing to bear a large quantity of external sources and articles, this blog presents a clear vision of what economic environmentalism can be."
Don't believe what they're saying
And allow me a quick moment to gush: ... The env-econ.net blog was more or less a lifeline in that period of my life, as it was one of the few ways I stayed plugged into the env. econ scene. -- Anonymous
... the Environmental Economics blog ... is now the default homepage on my browser (but then again, I guess I am a wonk -- a word I learned on the E.E. blog). That is a very nice service to the profession. -- Anonymous
"... I try and read the blog everyday and have pointed it out to other faculty who have their students read it for class. It is truly one of the best things in the blogosphere." -- Anonymous