Environmental Economics

Economists [not] in the new administration

Justin Wolfers (Why most economists are so worried about Trump):

If the November election was intended as a rejection of elites, of expertise and of the sort of technocratic advice that economists often give, it’s a punch that has landed.

In somber analyses, huddled hallway conversations and pointed asides during endless panel sessions at the annual conference of economists last weekend in Chicago, the major theme was a sense of anxiety about the incoming Trump administration. This foreboding was evident in roughly equal measure among conservative and liberal economists. But it is in direct contrast with the feelings of small-business owners and Wall Street traders.

Most of my fellow economists remain convinced that university-trained economists can offer useful insight to the new administration. Few believe it will matter. The life force that animates the econ tribe — that what they’re doing matters — has been drained away.

Few see useful channels for influence. Partly this reflects President-elect Donald J. Trump’s legislative plans. On issues like restricting trade, directly intervening to assist specific industries or corporations, targeting tax cuts to the wealthy, his agenda stands as a rejection of the advice that mainstream economist have typically offered.

And partly this reflects Mr. Trump’s appointments. Few of his key economic advisers have any economics training, and the only official who identifies as an economist — Peter Navarro, who earned a Harvard Ph.D. in economics and will head up the newly formed National Trade Council — stands so far outside the mainstream that he endorses few of the key tenets of the profession.

Concern about the role of economic advice translated into concern about the economy. Over three days of intense discussions, I didn’t encounter a single economist who expressed optimism that Mr. Trump’s administration would be good for the economy. The optimists were those who thought Mr. Trump would not have the energy to actually implement his agenda; the pessimists’ thoughts veered toward disaster. ...

Count me among the pessimists and as one of those "economists [who] remain convinced that university-trained economists can offer useful insight to the new administration."

"VW agrees to $4.3B settlement in emissions scandal"

This is a lot of money:

Volkswagen has agreed to a $4.3 billion draft settlement to end a legal fight with federal regulators over its diesel emissions scandal. 

The company said it would pay the fine and also plead guilty to criminal misconduct as part of a criminal and civil settlement with regulators, Reuters reports. VW's board is meeting this week to approve the settlement deal.

According to the report, VW will now commit to spending more than the $19.2 billion it had previously earmarked to deal with legal issues arising from the scandal.

In 2015, federal officials revealed that Volkswagen was deliberately skirting emissions testing for some of its diesel vehicles. Regulators said VW had equipped up to 11 million vehicles with “defeat devices,” or software allowing the cars to emit more toxic chemicals than is allowed under federal law. 

The company has settled a handful of complaints against it related to the scandal, including a $14.7 billion deal covering owners of 2-liter diesel vehicles and environmental violations and a $1.2 billion deal with U.S. franchise dealers. The company is also planning to buy back 3-liter diesel vehicles that include the defeat device software. 

via thehill.com

Hopefully, this will increase the perceived probability of getting caught doing something illegal and reduce the criminal behavior. Of course, we can't hold everything else constant between then and now. 

Daily demand and supply: gas prices

Thanks Obama!

The national average has increased for 14 days in a row following the OPEC oil production agreement on November 30. Today’s average of $2.21 per gallon is up three cents per gallon on the week and two cents per gallon on the month. The national average is up 20 cents compared to the same date last year.

Last month, OPEC agreed to cut output by 1.2 million barrels per day beginning January 2017 and markets have continued to react to the production cut agreement with crude oil prices hitting an 18 month high. Retail prices have steadily increased following the news of the OPEC agreement, but the effectiveness of the deal and continued market impacts will hinge on all countries implementing the agreed to production levels.

via gasprices.aaa.com

Since gas prices are correlated with consumer perceptions and "the economy is [already] in trouble, and Donald Trump is the only one who can fix it," can we look forward to "Carrier-style negotiations" with OPEC?

 

"What You Should Know About the Professor Who Has Trump’s Ear on the Economy"

From the Chronicle of Higher Education:

Peter Navarro, a professor and author who became known during the presidential campaign as the only academic economist directly advising the Trump campaign, continues to be one of the most public voices on economic matters for President-elect Donald J. Trump as he prepares to take office next month.

Last Friday, Mr. Navarro gave the transition team’s official response to the latest federal jobs report (although unemployment continued to fall, he maintained that the level of job recovery "further demonstrates an urgent need for President-elect Trump’s America First economic plan"). And later that day, when Mr. Trump broke nearly 40 years of diplomatic protocol and spoke directly to the president of Taiwan, at least one account highlighted the likely role that Mr. Navarro’s get-tough-with-China influence may have had on the president-elect’s actions.

Mr. Navarro, who is 67, is a Harvard-trained professor of economics and public policy who has been on the faculty of the business school at the University of California at Irvine since 1989. Before that, he spent two years as an assistant professor of business and government at the University of San Diego.

His ties to Mr. Trump began years before the campaign, when Mr. Navarro produced a film in connection with his 2011 book, Death by China: Confronting the Dragon — A Global Call to Action (Pearson FT Press). He sent the film to Mr. Trump, and soon got back an endorsement from the real-estate developer that called the film "right on."

This past October, a column in the The New Yorker speculated that if Mr. Trump won, "Peter Navarro would likely become the single most powerful economic adviser in the United States." The author of the piece also said he found some of Mr. Navarro’s ideas on China and trade "so radical" that he couldn’t find another economist who fully agreed with them.

Little-known nationally, Mr. Navarro attracted wider attention this summer, thanks in part to a Bloomberg View column by Tyler Cowen, an economics professor at George Mason University, who, while praising Mr. Navarro as a "one of the most versatile and productive American economists of the last few decades," also characterized Mr. Navarro’s recent writings on China as "a series of emotional diatribes against the Chinese government." He also wrote, "If you want to read one thinker to understand Trump on China, it is Navarro."

In an interview with The Chronicle this week, Mr. Cowen said Mr. Navarro’s broad protectionist ideas — like Mr. Trump, he urges slapping huge tariffs on Chinese goods to reduce the trade deficit — are out of step with generally accepted economic theories. "There are plenty of economists who defend some form of protectionism," said Mr. Cowen, to help a growing economy or to bolster selective industries. But "close to no one," he said, agrees with Mr. Navarro’s idea that a trade deficit is bad on its face. ...

If you were in graduate school in the late 1980s, you probably know this one: Richard Carson and Peter Navarro, "A Seller's (and Buyer's) Guide to the Job Market for Beginning Academic Economists," Journal of Economic Perspectives, vol. 2, no. 2, Spring 1988 (pp. 137-148). It's the same guy (and the Richard Carson is the same one you might be familiar with too). 

I'm no macroeconomist but (but I'm not going to let that stop me) someone tell me why we shouldn't be worried about inflation? The Fed will begin to allow interest rates to rise very soon but it will take a while to get to the point where monetary policy is no longer expansionary, taxes will fall and government (infrastructure) spending will increase sometime soon. If all three shift the aggregate demand curve to the right (when the economy is not in a recession) then prices will rise. Or am I missing something?

Benefits and costs of free trade (off-topic)

We might be going off-topic a heck of a lot during the next four years:

While the costs of free trade tend to be concentrated, benefits like lower prices for imported goods are spread very broadly, making them less obvious. In an interview on Fox News on Sunday, Newt Gingrich, former speaker of the House and a Republican Trump ally, questioned whether that trade-off made sense.

In some cases, he said, Americans should be “prepared to pay a little bit more for imported products” to keep jobs at home.

If trade advocates can’t make a better case, or at least come up with better ways to help the inevitable economic losers of globalization cope, then free trade itself may be imperiled, whatever the overall benefits.

via www.nytimes.com

Using the very simplest (a static demand and supply model), and most compelling, economic analysis of international trade shows that the economic costs of tariffs (lost consumer surplus due to higher prices and lower consumption) exceed the benefits (producer surplus gains which are positively correlated with jobs).

Masters of the Obvious

I don't have the time to read all the articles like this one:

Last week, Donald J. Trump was elected president based on a straightforward promise to make the United States great again. He aimed his message primarily at tens of millions of white working-class Americans who feel left behind in the growing economic prosperity, undercut by the advancement of minorities and women, competition from illegal immigrants at home and cheap workers in other countries.

This week, Mr. Trump is being forced to acknowledge that his straightforward solutions are, in fact, much less straightforward than he promised they would be.

The big and beautiful wall might look more like a fence. Most of the estimated 11 million illegal immigrants won’t be summarily deported, he said, backing off a line from stump speeches earlier in the campaign. Perhaps only two or three million — just the bad guys. That number is in the ballpark of deportations in the Obama administration. Undocumented immigrants who are not criminals, he said, are “terrific people.”

Mr. Trump has not yet clarified his promises on trade, but most experts say it will be very hard to simply walk away from Nafta and impose a 45 percent tariff against imports from China. “In an age of global supply chains,” said Dani Rodrik of the Kennedy School of Government at Harvard, “you cannot take a chain saw to trade agreements and not end up cutting your foot off.” ...

via www.nytimes.com

But I've been reading all of them anyway.

Graph of the Day: Trump vs Passports--Spurious or Informative Correlation?

The graph below was inspired by David Zetland's claim that...

...most Americans have neither visited foreign countries (compare passport holding with state voting here) nor follow news from those countries.

Comparing passport holdings to state voting give us this possibly spurious and possibly informative graph:

Each additional percentage point increase in passport holdings in a state decreases the percentage voting for Trump by 0.70 percentage points on average (Y=0.775-0.6991X).  This isn't a claim that passport holdings cause decreased Trump support, but rather that the correlation is striking.  State-by-state passport holdings explain 54% (R2=0.5402) of the variation in state-by-state Trump support.  Of course, passport holdings could be (and likely is) acting as a proxy for some other set of characteristics or beliefs that cause decreases in Trump support.  Unfortunately statistics can't really tell us the underlying cause of the negative correlation.  

Could it be that people who hold passports have a more worldly view while those who do not hold a passport hold a more nationalist view?

Could it be that only wealthier individuals hold a passport?

Could it be that passport holders are more likely to be cat people and cat people are more likely to vote against Trump?

The statistics can't tell us the answer.

But the correlation is intriguing. 

Where do the polls go from here?

The polls were wrong for the last two presidential elections. In 2012, poll aggregation (i.e., Nate Silver, AKA 538) got it right. Seeing a profit opportunity, a bunch of poll aggregators entered the market but this time they all got it wrong: 

It’s a question that will be asked over and over in the coming days, weeks, months: How could so many pollsters and analytics experts get the election so wrong?

Sam Wang, the Princeton University neuroscientist hailed by Wired this week as the “new king of the presidential-election data mountain,” has been using probabilistic analysis to forecast the elections since 2004. Four years ago he was one of a group of quants who, as The Chronicle’s Tom Bartlett put it, “won the election.” This year his Princeton Election Consortium had given Mr. Trump’s Democratic opponent, Hillary Clinton, a 99-percent chance of winning in its final forecast, pegging her likely electoral votes at 323

The point isn’t to pick on Mr. Wang. An overwhelming majority of data-crunchers missed Mr. Trump’s ascension — including, it seems, those conducting internal polls for the Democratic and Republican parties. And college polling institutes like the one at Monmouth University — which earned a coveted A-plus rating from the data-reporting site FiveThirtyEight — will certainly be conducting lengthy post-mortems.

One scholar did expect a Trump victory: Allan J. Lichtman, a professor of history at American University, who, according to The Washington Post, has predicted three decades of presidential elections using a set of 13 true-or-false questions.

Does that mean that historical analysis outstrips quantitative work? Not necessarily. But this election campaign had already prompted political scientists and other scholars to rethink basic assumptions about political norms, strategies, and analytics. Now electoral forecasting will move to the top of that list, and scholars will have to play a major role in assessing the damage.

via www.chronicle.com

I can think of one technical reason the polls were wrong. The low response rate polls were subject to sample selection bias. Let's say that only 13% of the population is responds to the survey (13% is the response rate in the Elon University Poll). If the 80% that doesn't respond is similar except for observed characteristics (e.g., gender, age, race, political party) then you can weight the data to better reflect the population. But, if the 87% that doesn't respond is different on some unobservable characteristic (e.g., "lock her up") then weighting won't fix the problem. The researcher would need other information about nonrespondents to correct it (Whitehead, Groothuis and Blomquist, 1993). If you don't have the other information then the problem won't be understand until actual behavior is revealed.

Also, consider the headline from the Elon University Poll: 

The race for the White House is essentially tied in North Carolina, with Clinton holding a lead of less than 1 percentage point. Among likely voters, Clinton has 42 percent of the vote while Trump has 41.2 percent, with 8.7 percent saying they are still undecided in the race.

Here are the results from the methods report (the brackets indicate that the order of the candidates was randomly assigned):

Incorporating the follow-up question the results would have been:

• Clinton - 309
• Trump - 310 

I'm ignorant about the methods the poll aggregators use but, ignoring that this is a statistical tie, using the follow-up question would have made for a more accurate Elon University Poll headline for North Carolina. It could have read like this:

The race for the White House is essentially tied in North Carolina, with Clinton holding a lead of less than 1 percentage point. Among likely voters, Trump has 43.7 percent of the vote while Clinton has 43.5 percent, with 3.5 percent saying they are still undecided in the race.

Using either way of summarizing the votes, Elon got the North Carolina governor and senate races correct. 

Note to self: Me and my co-authors have been getting a lot of don't know referendum voting responses ... why haven't we asked the "if you had to choose" follow-up question. Has anyone done that?

Who was the greenest president? the votes are in ...

Yesterday I was motivated to pose that question after Max Auffhammer suggested that Barack Obama be named the greenest. My opinion is that President Obama tried his darnedest to be the greenest but didn't receive enough cooperation to achieve that title. My vote went to Richard Nixon for the EPA, CAA and CWA (command and control be damned). I also nominated George H. W. Bush for the CAAA of 1990 (and I was reminded today of no net loss of wetlands) and Teddy Roosevelt for the National Parks. The results are in ("dozens" of votes are reported below the jump) and Nixon wins with 46% of the 28 votes. Roosevelt was second with 21% followed by Obama (14%) and Bush (7%). Jimmy Carter, Bill Clinton and Franklin D. Roosevelt each received one write-in vote. 

Thanks for your votes!

The greenest president?* Cast your vote here!

Max Aufhammer (The Future is at Stake):

The past eight years of the Obama presidency have brought monumental change for the better in the environmental and energy arena. We have made significant progress on fuel economy standards, emissions standards for power plants, the introduction of a real social cost of carbon into federal rulemaking, the rapidly increasing penetration of renewables on people’s roofs and on the people’s plains and in their valleys. President Obama will go into the history books as the first African American president. I would argue that he will be remembered by many future generations as the Greenest president this country has ever had.

Many of the recent regulations are being passed in the form of command and control with significant flexibility built in. Still, these are not the economists’ preferred choice. Yet, team Obama got it done. He had great counsel during his eight years in office, helping design programs that built in flexibility where possible. Joe Aldy, Ann Wolverton,  Nat Keohane, Billy Pizer, Gib Metcalf, Michael Greenstone, Arik Levinson, Matt Kotchen, Glenn Sheriff, Sheila Olmstead, Gilbert Metcalf, and Kenny Gillingham are just a few of the brilliant environmental economists that spent time in the White House and at Treasury helping design and implement smarter and more efficient policies. I do note a curious absence of Berkeley environmental economists, but maybe Secretary Clinton will deck the halls with Berkeley folks if elected. We’re here for you Madam Secretary.

Maybe the most significant achievement and point of departure is the signing of the Paris accord. No previous administration has managed to credibly commit the US to meaningful greenhouse gas emissions reductions. Clinton (Bill, President) signed the Kyoto agreement, knowing full well that Congress would never ratify it. Under Obama, we signed an agreement that does not need to be ratified by Congress as the reductions can be achieved through agency actions. ...

And let us not forget that Candidate Obama ran for election with a cap-and-trade policy proposal. Other candidates for the title of greenest (with major accomplishments in parentheses) are Theodore Roosevelt (National Park System), Richard Nixon (Environmental Protection Agency, Clean Air Act, Clean Water Act) George H. W. Bush (Clean Air Act Amendents of 1990 [aka, Acid Rain Program]). So now that we know the nominees, who do you think is the greenest President in U.S. history? 

You can follow the results here: https://www.surveymonkey.com/results/SM-KWTDJP2N/. 

*Something that only I might be interested in ... I'm not sure why "Greenest" is capitalized in the text. In addition to an awesome color, is it a proper noun? I wrote it in lower case in the title but would be happy to stand corrected.