Environmental Economics

More on Obama's goof

From the comments:

This is Econ 101. With a near-vertical supply curve--which is the case during the summer--a tax cut has no effect on the market price. The only consequence is an increase in the producer surplus. I drew up the relevant supply and demand graph on a post at our [Economists for Obama] site.

My reply:

Thanks for the comment, I've made this a separate post. And what do you think about the Obama's notion that lower prices will increase demand?

Note to everyone: This isn't about politics for me ... all 3 candidates are butchering economics right now but today's favorite butcher is Obama.

U.S. Scientists and Economists' Call for Swift and Deep Cuts in Greenhouse Gas Emissions

From the RESECON listserv (see below) comes an opportunity to sign a U.S. Scientists and Economists' Call for Swift and Deep Cuts in Greenhouse Gas Emissions petition:

There is growing momentum in the United States to establish policies that cap and reduce our nation's heat-trapping emissions. A central feature of the policy debate—in Congress, in the international negotiations, and in statehouses and legislatures across the country—is over how swiftly and how deeply U.S emissions should be reduced.

A distinguished group of U.S. scientists and economists have come together to develop and endorse this Call for Swift and Deep Cuts in Greenhouse Gas Emissions. The core purpose is to ensure that this debate is informed by a powerful, succinct statement from top U.S. experts on the urgency of U.S. action, and the scale and feasibility of needed reductions.

The Union of Concerned Scientists is providing logistical support for this initiative on behalf of the signatories.

Obama goofs on gas demand

Omigosh, omigosh, omigosh (Obama assails ...):

Barack Obama didn't back down yesterday in his opposition to a so-called gas tax holiday this summer, becoming more vocal in calling it political pandering and slamming John McCain and Hillary Clinton for proposing it.

He told voters in Winston-Salem, N.C., that suspending the 18.4-cents-a-gallon federal gas tax between Memorial Day and Labor Day would save them only about $25 to $30. Some economists, he said, believe the proposal could backfire and actually raise prices by increasing demand. "We don't know that the oil companies will actually pass on the savings," he added.

Wrong, wrong, wrong: A lower gas price causes quantity demanded to increase as consumers move down the demand curve. The only things that cause gas demand to change are changes in income, prices of substitutes and complements, tastes and preferences and expectations (e.g., fill your gas tank in Louisville, Ky before Derby Week). I demand a retraction.

Who are these "some economists" that Obama is talking about? Did they get their degrees from an SEC school or something? Name names so that we can have an econoblogosphere beatdown! Out these blasphemers!

Note: I think Obama got the $25 to $30 number correct.

Hat tip: Larry Ellis.

Update: Here is the YouTube clip.

It's Derby Week and gas prices are rising

Louisville gasoline prices ... :

... following a 20-cent jump in prices at many Louisville-area stations to a record $3.76 per gallon. ...

The price jump began yesterday morning. It was hard to say whether the increase reflected a broader regional or national increase, "or if, as most motorists will assume, it's purely Derby-related," said Roger Boyd, spokesman for AAA in Louisville.

Last year, Louisville prices rose 19 cents per gallon in the week before Derby -- though previous years have also seen minor price decreases.

Gas demand increases (with more drivers) and becomes more inelastic (you can't choose not to drive to the Derby Party) leading to higher prices.

Env-Econ 101 Case Study: Inelastic Supply

We spend a lot of time talking about the elasticity of demand: That is, how consumers react to higher (or lower) prices.  Just as important, but less often mentioned--probably because it's harder to measure--is the elasticity of supply:  How does the amount producers produce react to higher prices?

First, some motivation:

Some kinds of fertilizer have nearly tripled in price in the last year, keeping farmers from buying all they need. That is one of many factors contributing to a rise in food prices that, according to the United Nations’ World Food Program, threatens to push tens of millions of poor people into malnutrition.

Democrats divided over $88/year $22.08

From the NYTimes (Dems divided ...):

Senator Hillary Rodham Clinton lined up with Senator John McCain, the presumptive Republican nominee for president, in endorsing a plan to suspend the federal excise tax on gasoline, 18.4 cents a gallon, for the summer travel season. But Senator Barack Obama, Mrs. Clinton’s Democratic rival, spoke out firmly against the proposal, saying it would save consumers little and do nothing to curtail oil consumption and imports.

While Mr. Obama’s view is shared by environmentalists and many independent energy analysts, his position allowed Mrs. Clinton to draw a contrast with her opponent in appealing to the hard-hit middle-class families and older Americans who have proven to be the bedrock of her support. She has accused Mr. Obama of being out of touch with ordinary Americans who are struggling to meet their mortgages and gas up their cars and trucks.

Do you consume more gas during the week or on weekends?

Driving home yesterday, I heard a radio host talking up the merits of a 4 day work week.   The main argument seemed to be: 20% less driving means 20% less fuel consumption.

I know I tend to think like an economist, but doesn't anyone else drive more on the weekend than during the week?  I know I do.  I don't have any evidence handy, but I would guess a 4 day work week would have no net effect on total fuel consumption--and possibly even increase it.

Thoughts?

Am I a climate policy agnostic?

From the inbox:

There is a lot of mis-information out there about the costs and benefits of such strategies and how such strategies might function.  It might be helpful if workshop participants were presented with an array of possible solutions like evaluations of the European experience with cap-and-trade; proposals for cap-and-trade solutions in the US; merits of carbon tax proposals; evaluations of the European carbon tax recycling efforts.  ...

... I am aware that you have both an interest and expertise in this area.  Moreover, you are apparently one of the few knowledgable agnostics in a field where everybody seems to have a preference.  This would make you the perfect candidate to be the person with whom I should initiate discussions.

The first definition of an agnostic at Merriam-Webster's is "a person who holds the view that any ultimate reality (as God the efficiency of alternative policy instruments) is unknown and probably unknowable." That is not quite the way it is. I don't disagree with the current policy instrument thinking:

1. a carbon tax is more efficient than carbon cap-and-trade
2. carbon cap-and-trade can be designed to mimic the properties of a carbon tax
3. etc

The concept that drives my acceptance of a second or third best incentive-based environmental policy instrument is that they are all likely much more efficient than a command and control policy.

Therefore, I guess, I fit the second definition of agnostic: "a person unwilling to commit to an opinion about something."

Basking in reflected glory

From Real Time Economics:

The Concord Coalition, a bipartisan Washington nonprofit organization that lobbies for reducing the federal budget deficit, named Diane Lim Rogers to be its first chief economist. She has been chief economist of the House Budget Committee since January 2007, and previously worked for other congressional committees and the White House Council of Economic Advisers during the last year of the Clinton Administration and first 100 days of the Bush administration.

On May 11, Mother’s Day, Ms. Rogers will launch a blog called EconomistMom.com, where she will comment on a range of issues, with fiscal responsibility prominent among them, using her dual credentials as a Ph.D. economist and mother of four.

Congrats Diane!

Teaching Moments: brought to you by NYTimes

This one's for John, as he should have a field-day with the incorrect usage of the economic jargon.

Enjoy, The General