Suppose that someone proposed using nuclear explosions to melt the Arctic ice cap*, with the aim of opening the Northwest passage and reducing shipping costs, and that this proposal was supported by an analysis showing that world GDP could be permanently increased by 1 per cent, or maybe 3 per cent, as a result.
On the face of it, this seems (to me, anyway) like a crazy idea. Should such a proposal be dismissed out of hand or taken seriously and subjected to benefit-cost analysis or ? And, if we did do a benefit-cost analysis, what would be the result?
Read more…
It’s time, once again for the Monday Message Board. As usual, civilised discussion and absolutely no coarse language, please.
I’ve been reading the PM’s Water Plan announced last week. While the Plan gets the scale of the problem about right, the near-exclusive emphasis on engineering repeats the mistakes of the past on a larger scale.
The big problem is the primary focus on engineering solutions such as lining and piping of channels. No benefit-cost analysis is presented and the aggregate numbers are worrying. The proposal is to spend $6 billion on efficiency improvements that are
aim to achieve efficiency gains of around 25 per cent of total irrigation water use. This programme will generate water savings of over 3,000 GL per year, with over 2,500 GL per year saved in the MDB. Water savings will be shared 50 per cent with irrigators to help meet the challenge of declining water availability, and 50 per cent to address over-allocation and sustain river health.
On the good side, if I read it correctly, the implied return of water to the Murray-Darling Basin is around 1250 GL, which is close to the 1500 GL recommended by the Living Murray program as the minimum needed for sustainability.
But the average cost of $2 million per GL saved ($2000 a megalitre) is very high. While the drought and evidence suggesting a long-term decline in inflows have raised the market price of irrigation water entitlements, it is still below this value in most markets as far as I can observe. Here’s some recent data from the MIA .
By contrast, market purchases of entitlements continue to be treated as a last resort. This is bad policy. Proposed engineering schemes should be tested for cost-effectiveness with a water price set by the value of water to irrigators, as indicated by the price at which they are willing to sell (or buy).
Read more…
Weekend Reflections is on again. Please comment on any topic of interest (civilised discussion and no coarse language, please). Feel free to put in contributions more lengthy than for the Monday Message Board or standard comments.
Akismet has started flagging lots of genuine comments as spam. I’m manually despamming when I get time, and will work on a fix when I get some more time – probably not for a week or two, unfortunately. So apologies for the disrupted discussion, brickbats to spammers of all kinds, and hope that normal service will return soon.
I watched The Devil Wears Prada not long ago – as the name implies, it’s not short on product placement, though of course this is part of the fun. The central character, played by Meryl Streep, is the editor of a fashion magazine and the heroine/narrator is hired her assistant. Streep’s character is represented as an impossibly demanding princess – the first illustration of this being an imperious demand for Starbucks coffee, delivered in a paper (or maybe even styrofoam) cup. Even allowing for the needs of product placement, and the curiously high status of this coffee-shop chain in the US, this strikes me as way off the mark. Surely she should be demanding her own personal barista, freshly grinding exotic coffee beans, and delivering the product in brand-name china (compare the gangster-movie financier in Mulholland Drive who spits out the coffee with which his hosts have struggled desperately to please him).
But all this comes to the central contradiction of promoting luxury consumption, discussed here not long ago. On the one hand, we want to read about and watch the luxury products of the rich and famous, and advertisers want to exploit this. On the other hand, if we could all afford to buy it, it wouldn’t be luxury consumption. There are ways around this – for example, Gucci makes its name with impossibly expensive clothes, but makes much of its profits by attaching its brand name, and the associated high markups, to lower-priced products like sunglasses.
Of course, I’m using “luxury” in a special sense here. Refrigerators were once available only to the wealthy, but they are valuable because they are useful. Now they are cheap and widely available (note that other items, like university education are going in the opposite direction), but this isn’t a problem. By contrast, the kind of luxury I’m talking about, represented most clearly by high fashion relies on exclusiveness for its value. In the end, this is a zero-sum game, which probably explains some of the oddities of fashion.
Edited in response to comments
It’s time, once again for the Monday Message Board. As usual, civilised discussion and absolutely no coarse language, please.
Jonathan Chait connects the dots between dishonest conservative (fn1) claims about income inequality (coming in this case from Alan Reynolds) to similar arguments made about evolution and global warming. As he says, to construct an alternate reality in which income inequality is not increasing, global warming is not happening and the world is near the end of its 6000 years anyway, there’s no need to prove a case – just cast enough doubt on the facts and ideology or faith will do the rest. The Republican War on Science is so broad-based that here is now no academic discipline whose conclusions can be considered acceptable to orthodox Republicans.
Read more…
Weekend Reflections is on again. Please comment on any topic of interest (civilised discussion and no coarse language, please). Feel free to put in contributions more lengthy than for the Monday Message Board or standard comments.
David Leonhardt has a nice piece in the New York Times on the opportunity cost of the trillion dollar Iraq war. Leonhardt does a good job of getting the concept across without actually using the economic jargon. Coincidentally, I have a piece in tomorrow’s (Thursday’s) Fin, making the same point, not for the first time, along with a reference to the work Kahneman and Renshon on psychological biases to hawkishness.
Some time in the past few days, my WordPress dashboard recorded its 50 000-th comment. I meant to watch out for it and note the lucky commenter, but I’ve been travelling and missed it. These comments span the period since the beginning of 2004 – I lost thousands of comments in the Great Database Disaster of 2003, and there were lots more in an early commenting system called Haloscan that I never managed to transfer.
Comments are a crucial element of a blog, and I’d like to thank both regular and occasional commenters for their contributions and for the fact that, most of the time, discussion here is sufficiently civilised and constructive to advance our understanding of the issues. If you’ve thought about commenting, but not got around here, this post would be a great opportunity
On the other hand there’s the spammers who make running comments much harder than it should be. I’ve only been running Akismet for six months or so, and its already picked up more than the 50 000 genuine comments accumulated over three years.
It’s time, once again for the Monday Message Board. As usual, civilised discussion and absolutely no coarse language, please.
For the last few years, Exxon Mobil has been the biggest single source of support for global warming denialism, and has also exercised a lot of influence on the Bush Administration in its do-nothing stance. For a long while, Exxon was able to act through front groups like the Global Climate Coalition, but the corporation has been increasingly isolated and its activities have been exposed to public scrutiny, most notably with the open letter from the Royal Society last year.
Now Exxon has changed its position, recognising the inevitability of some sort of controls on CO2 emissions, and lobbying for a broad approach that will be relatively favourable to businesses like Exxon, rather than one tightly focused on the energy industry. At this point, an association with shills for denialism like the Competitive Enterprise Institute is counterproductive as well as being embarrassing, so they’ve been cut adrift (along with half a dozen others not yet named).
In other news, Stern has responded to critics of his review in a recently published postscript. There’s also a Technical Annex with a sensitivity analysis, something that both critics and those (like myself) with a generally favorable view should welcome.
Weekend Reflections is on again. Please comment on any topic of interest (civilised discussion and no coarse language, please). Feel free to put in contributions more lengthy than for the Monday Message Board or standard comments.
The fact that people are so willing to support war is a puzzle that requires an explanation. After all, war is a negative-sum activity, so war between rational parties doesn’t make sense – there’s always a potential settlement that would leave both sides better off*. And empirically, it’s usually the case that both sides end up worse off relative to both the status quo ante or to a possible peace settlement they could have secured at a point well before the end of the war. Even the observation that rulers start wars and ordinary people bear the costs doesn’t help much – leaders who start losing wars usually lose their jobs and sometimes more, while winning a war is by no means a guarantee of continued political success (ask Bush I) All of this suggests that looking for rational explanations of war, as in the ‘realist’ tradition (scare quotes indicate that this self-ascribed title has little to with a reality-based focus on the real world) is not a good starting point.
So it makes sense to look at irrational sources of support for war. In this pice in Foreign Policy Daniel Kahneman (winner of the economics Nobel a couple of years back) and Jonathan Renshon start looking at some well-known cognitive biases and find that they tend systematically to favor hawkish rather than dovish behavior. The most important, in the context of today’s news is “double or nothing” bias, which is well-known in studies of choice under uncertainty as risk-seeking in the domain of losses (something first observed by Kahneman and Amos Tversky in their classic paper on prospect theory).
The basic point is that people tend to cast problems like whether to continue a war that is going badly in win-lose terms and to be prepared to accept a high probability of greater losses in return for a small probability of winning or breaking even. So we get the Big Push, the Surge, the last throw of the dice and so on.
Read more…
Megan McArdle has a generally sensible post on the main issues, though I disagree on some points as I note in comments, and I still don’t see that this has any bearing on the rights and wrongs of abortion (except relative to the obviously silly position that we are morally obliged to have as many children as possible).
Arnold Kling makes it clear that he doesn’t understand the mathematics of discounting. The first comment, by Michael Sullivan gets it right, but there’s no response or correction so far from Kling. Kling has now corrected his post.
James Annan links to this piece by Paul Baer,. Baer puts the view (with which I have some sympathy) that Stern underestimates the costs of the melting of the Arctic ice cap, which could happen even with stabilisation at 550ppm.
I definitely need to come back to the issue of the costs of global warming. My general view is that, while Stern’s choice of discount rate is at the low end, the Review badly underestimates the social cost of the damage to natural ecosystems that will inevitably arise from global warming.
Akismet has been marking most incoming comments as spam. I’ve rescued a bunch of them, but no doubt not all. Apologies to people whose comments have been lost.
With luck, manual correction will fix the problem. If not, I may have to move to some sort of active verification scheme, a step I’ve always rejected.
If you post a comment and it doesn’t appear, please email me.
Pamela Hartman of LA has another piece (over the fold) on the experiences of Iraqi refugees and the virtual impossibility of gaining refugee status in the US. She asks if anyone has any information on possibilities for refugees seeking to come to Australia. If anyone can help, they could get in touch with her at Pamela Hartman .
It’s obvious that neither the US nor Australian governments has any plan to do anything for the refugees (now numbering up to a million outside Iraq and an equal or larger number displaced internally)) their war has created. But at the very least, they are surely obliged to offer asylum to those whose lives are in great danger because they were unwise or desperate enough to work with the Coalition forces. Leaving these people in the lurch (as was done with the Shiites after the last war) will ensure that even those who were willing to be our friends will end up as our enemies
Read more…
In the Monday Message Board, Michael Greinecker points to a truly strange response to arguments for a zero rate of social time preference.
Crucial quote
I found myself becoming very curious whether economists who support Sir Nicholas’s social discount rate of zero, such as econ bloggers John Quiggin and Brad DeLong, identify themselves as pro-choice or pro-life, and whether they had considered the Stern Report from this angle.
My response has been anticipated by a commenter who observes
Strange as it may seem to Economist writers, there are phenomena in the world that aren’t particularly illuminated by applying economic concepts. Attitudes towards abortion have nothing at all to do with discounting rates.
Others in the comments thread spell this out.
One odd feature of the Economist blog is that contributions are anonymous. I know that Megan McArdle (aka Jane Galt) has something to with the site. While I’m used to pseudonymous commenters, most economics bloggers are (as Matt Yglesias puts it) proudly eponymous, or at least easily identified, and I find this a more satisfactory mode for arguing about issues like the Stern Review, though can’t exactly say why.
During the discussion of discounting and the Stern Review, I got an email raising a point that I had already been worrying about. In discussing costs and benefits in 2100, I and others routinely refer to future generations, and in a sense that’s right, since the people involved in the discussion won’t be around then. But, children alive now have a reasonable chance of living to 2100 – quite a good chance if life expectancy keeps rising. Economists often deal with this kind of thing by modelling a series of overlapping generations, but I haven’t seen much discussion of this in relation to benefit-cost analysis, though no doubt it’s in the literature somewhere.
I finally got around to thinking about this, and in particular the following question. Suppose we accept an ethical framework in which everyone now alive matters equally. Suppose also that as individuals we have a consistently positive rate of time preference, preferring to have higher utility now at the expense of less in the future, that is, more when we are young and less when we are old (this isn’t obvious by the way, but I’m assuming it for the sake of argument) . What is the appropriate pure rate of time preference for society as a whole?
My preliminary answer, somewhat surprisingly to me, is “Zero”. I’ll set out the outline of the formal argument over the fold, but the simple summary has two parts. First, since generations overlap, if, at all times, we treat all people now alive as equal then we must treat all people now and in the future as equal. Given this equality, positive individual rates of time preference translate not into a social preference for the present over the future but into a social policy that consistently puts more weight on the welfare of people when they are young than when they are old.
Read more…
It’s time, once again for the Monday Message Board. As usual, civilised discussion and absolutely no coarse language, please.
Weekend Reflections is on again. Please comment on any topic of interest (civilised discussion and no coarse language, please). Feel free to put in contributions more lengthy than for the Monday Message Board or standard comments.
If you want to see the new flexible workforce, go to Walmart (hat-tip Tim Dunlop). As Tim’s title suggests, there’s nothing new about workers being told, from day to day, whether they’ll be wanted and for how long – look at any old movie about the waterfront for illustrations. All that’s new is that it’s being done by computer now. And flexibility, in cases like this, is a zero-sum concept: the more flexibility our bosses have to direct us, the less we have to run our own lives.
Obviously, I’m not the only one who gets annoyed by pieces pointing to purchases of consumer goods as evidence that rising inequality isn’t really a problem. But, as an economist, it particularly annoys me when this claim is put forward by people who claim to understand markets. I’ve been going on about this for yearsand years.
The most important thing that happens in markets is that relative prices change. If prices change, but income and preferences don’t, what we expect is that people will consume more of the goods and services for which prices have fallen and less of those for which prices have risen. So, when Jeff Taylor tells us that
With price points dropping below the $1000 mark, high-end TVs are moving down-market fast with Wal-Mart leading the way.
we can all cheer this renewed verification of the Law of Demand. But, of course, this tells us precisely nothing about what’s happening to inequality.
Read more…
About the only thing that the supporters of the Iraq war have been able to claim as a success (at least with any plausibility) has been the removal of Saddam Hussein. Now that this removal has been made permanent, wouldn’t this be a good time to declare victory and pull out?
Read more…
I was off the air when the news of Saddam’s execution came through. I’ve had my say about the trial (here and here) already, and all the issues have been chewed over by others, so for now I’ll just say that he got what he deserved.
A recent government report spoke of driving Australians into the age of digital TV. Apparently, this kind of thing is what they have in mind.
Seriously, I wouldn’t object to auctioning off spectrum, even at some cost in terms of signal clarity, if new TV channels were allowed to bid. But the absolute rule of Australian media policy is to nothing contrary to the interests of the incumbent oligopoly.
It’s past time for the Monday Message Board, but it’s hard to keep track of the days at this time of year. As usual, civilised discussion and absolutely no coarse language, please.
I finally got around to seeing An Inconvenient Truth on a plane flight* not long ago. It’s very impressive, and sticks pretty closely to the the science. Just after this, it was posted on YouTube in nine 10-minute segments, but by the time I got there it had been taken down again.
As I’ve mentioned before it’s striking how radically the debate changed in Australia over the course of 2006. Both the Gore movie and the Stern Review played a role in this, crystallising a growing awareness of the bogus nature of the “sceptical” position.
Not only have those denying the reality of human-caused global warming lost all credibility but the fallback position of “it’s real but it’s too costly to do anything about it” has also collapsed. There’s ample evidence that the great majority of Australians are willing to pay the modest costs required to stabilise CO2 levels and stop at least the worst consequences of global warming.
* Offset by carbon credits, of course
Recent Comments