Environmental Economics

So what do we do about it?

Usually I summarize articles by selectively choosing the sections I like and leaving out the part that I don't (or the parts that make it harder for me to present my own biased view of the world).  I like this one so much I couldn't selectively cut.  So here's the whole thing.

The scientific community has known — and been saying for decades — that the earth is warming up. Except for a small cadre of highly vocal, ideologically stuck, but increasing marginalized people, there is no dispute about this among scientists. The data are extensive – covering the globe – and they have been vetted, reanalyzed, corrected for error, compared with satellite data, and subjected to every known criticism. And independent group after independent group has found the same thing: the earth is warming. The fact that this is actually old news can be seen in the latest poll (from Stanford University with Ipsos and Reuters) that, despite the inability of all the leading Republican presidential candidates to publicly acknowledge this, even 83% of the American people believe the earth is warming. And there probably isn’t much that 83% of the American people will agree on these days.

And you thought those MBAs weren't paying attention in their economics course

From the inbox:

All that knowledge you imparted to us is being used in the real world.....I appreciate it.

Greg Mankiw's Blog: Nordhaus on Energy Economics

Greg Mankiw:

A smart friend recommends this article by Yale economist Bill Nordhaus.  The Pigou Club endorses the conclusion:

The need for taxes on energy externalities such as carbon emissions is central to our ability to reduce the harmful side effects of economic growth. It is striking how the political dialogue in the US has ignored a policy that has so many desirable features. Perhaps, in the near future, faced with the deadline of a dire economic situation, negotiators will formulate such a policy. It would generate substantial revenues while bringing so many long-run economic and environmental benefits. Simply put, externality taxes are the best fiscal instrument to employ at this time, in this country, and given the fiscal constraints faced by the US.

Mitt Romney tweets:

My economic policy team – Glenn Hubbard, Gregory Mankiw, ... Welcome to the team.

Job-killing environmental regulations?

I knew if I waited long enough I would not need to face this challenge. Paul Krugman considers the impacts of environmental policy and finds that:

1. the macroeconomic impacts are small (even when apparently overestimated)
2. the environmental impacts are large

Here is the bulk of the article:

Both Rick Perry and Mitt Romney have ... put weakened environmental protection at the core of their economic proposals, as have Senate Republicans. Mr. Perry has put out a specific number — 1.2 million jobs — that appears to be based on a study released by the American Petroleum Institute, a trade association, claiming favorable employment effects from removing restrictions on oil and gas extraction. The same study lies behind the claims of Senate Republicans.

But does this oil-industry-backed study actually make a serious case for weaker environmental protection as a job-creation strategy? No.

Part of the problem is that the study relies heavily on an assumed “multiplier” effect, in which every new job in energy leads indirectly to the creation of 2.5 jobs elsewhere. Republicans, you may recall, were scornful of claims that government aid that helps avoid layoffs of schoolteachers also indirectly helps save jobs in the private sector. But I guess the laws of economics change when it’s an oil company rather than a school district doing the hiring.

Moreover, even if you take the study’s claims at face value, it offers little reason to believe that dirtier air and water can solve our current employment crisis. All the big numbers in the report are projections for late this decade. The report predicts fewer than 200,000 jobs next year, and fewer than 700,000 even by 2015.

You might want to compare these numbers with a couple of other numbers: the 14 million Americans currently unemployed, and the one million to two million jobs that independent estimates suggest the Obama plan would create, not in the distant future, but in 2012.

More pollution, then, isn’t the route to full employment. But is there a longer-term economic case for less environmental protection? No. Serious economic analysis actually says that we need more protection, not less.

The important thing to understand is that the case for pollution control isn’t based on some kind of aesthetic distaste for industrial society. Pollution does real, measurable damage, especially to human health. ...

How big are these damages? A new study by researchers at Yale and Middlebury College brings together data from a variety of sources to put a dollar value on the environmental damage various industries inflict. The estimates are far from comprehensive, since they only consider air pollution, and they make no effort to address longer-term issues such as climate change. Even so, the results are stunning.

For it turns out that there are a number of industries inflicting environmental damage that’s worth more than the sum of the wages they pay and the profits they earn — which means, in effect, that they destroy value rather than create it. High on the list, by the way, is coal-fired electricity generation, which the Mitt Romney-that-was used to stand up to.

As the study’s authors say, finding that an industry inflicts large environmental damage compared with its apparent economic return doesn’t necessarily mean that the industry should be shut down. What it means, instead, is that “the regulated levels of emissions from the industry are too high.” That is, environmental regulations aren’t strict enough.

Another semi-grand experiment?

One state's policy won't do much for the environmental side of climate change but, if this thing starts on the west coast and trends east and eventually takes over the world, like Nike, then we climate policy might get a bit more efficient:

The California Air Resources Board on Thursday unanimously adopted the nation's first state-administered cap-and-trade regulations, a landmark set of air pollution controls to address climate change and help the state achieve its ambitious goals to reduce greenhouse gas emissions.

The complex market system for the first time puts a price on heat-trapping pollution by allowing California's dirtiest industries to trade carbon credits.

via www.latimes.com

The end of the article includes a short primer on cap-and-trade including an unfortunate discussion about jobs.

Reactionary Policy Example of the Day

The first legislation has been proposed to ban private ownership of exotic animals in the wake of Tuesday’s release of 56 animals in Zanesville.

At the same time, an online petition started by an Ohio University student calling for the ban of exotic animal ownership in Ohio has racked up more than 43,000 signatures in less than 48 hours.

State Rep. Debbie Phillips, D-Athens, said today she will introduce a bill in the Ohio House shortly that would mirror an executive order issued by former Gov. Ted Strickland in January. The order was allowed to expire by his successor, Gov. John Kasich.
It would require embedding electronic devices in exotic animals so they can be tracked if they escape.

via www.dispatch.com

I'm not saying it's a bad idea to ban private ownership of exotic animals (in fact it's a pretty good one). I'm just not a fan of reactionary policy.

Unless of course that policy is in reaction to a river catching on fire.

On second thought, maybe I do like reactionary policy.

One more reason I'm more likely than John to be the next President

The findings suggest that humans' preference for tall leaders is likely an evolved psychological trait that is independent of any cultural conditioning, the researchers said. They also stated that individuals with a greater physical stature are more likely to view themselves as qualified to be a leader, and as a result of this increased sense of efficacy, are more likely to pursue a leadership position.

 

"So while at 6 feet 1 inch, Barack Obama towered over the 5-foot-8-inch John McCain in 2008, perhaps he’ll meet his physical equal in one of the 'big man' governors in the 6-foot-1-inch Rick Perry or the 6-foot-2-inch Mitt Romney in November 2012," Murray said.

via www.mnn.com

I'm 6' 2.5"

As much as you want to hate me, you can't. Evolution prevents it.

Ooops, what have we done now?

From the inbox:

Sorry for e-mailing you out of the blue like this, but your website has been causing my browser to crash for a few weeks now, so it's hard for me to keep up with it.  I tried opening it in Firefox, Chrome and even Explorer - the same thing happened in all of them.  I also tried a different computer, with no luck.  I don't know if other people are having similar problems, but I just wanted to give you a heads up, because right now, I have to go to the archives and access recent articles that way - not a huge hassle, admittedly, but just clicking on the home page and seeing the most recent articles is definitely preferred.

Has this been happening to anyone else?

Not to get all aggie on you and all, but ...

A recent paper in which I am a co-author:

Steven B. Caudill, Peter A. Groothuis and John C. Whitehead, The Development and Estimation of a Latent Choice Multinomial Logit Model with Application to Contingent Valuation, American Journal of Agricultural Economics 93 (4):983-992, 2011.

Abstract. We offer a new approach to investigate hypothetical bias in contingent valuation using a latent choice multinomial logit model. To develop this model, we extend Dempster, Laird, and Rubin’s 1977 work on the expectations maximization algorithm to the estimation of a multinomial logit model with missing information on category membership. Our model can be used to determine within-choice heterogeneity. Using data on the preservation of Saginaw wetlands in Michigan, we find evidence for two types of Yes responders in the data. We suggest that one set of Yes responders consists of yea-sayers who answer Yes to the hypothetical question but are less likely to pay the bid amount if it were real. We suggest that the second group of respondents does not suffer from hypothetical bias and are more likely to pay the bid amount if it were real. Even if the connection to hypothetical bias cannot be made, our method can be used in sensitivity analyses of willingness-to-pay estimates.

I don't want to reveal too much, but those who know me will realize that I had nothing to do with this part of the paper. My major contribution was providing the data and helping out with the context. 

That said, this is my first AJAE after 10+ years of trying and then another 10 or so years of having given up on it. I'm quite pleased.

"What's an $800 Billion Stimulus Worth?"

Worth a read at The Economist's Voice:

What's an $800 billion stimulus worth? Negative $475 billion, according to Burton A. Abrams of the University of Delaware.

The idea is to do a back-of-the-envelope benefit-cost analysis. The benefits are the short term macroeocnomic effects. The costs are the long term macroeconomic effects with a debt to GDP ratio of 0.90+.

The environmental angle is the assumption that the projects the stimulus was spent on had benefits greater than costs which is likely not true (e.g., another Abrams [and Parsons] piece in The Economist's Voice).