How Did The World Scientific Community Come To Believe That Global Warming Is Happening?

This is not such an obvious matter, as in fact this consensus came about, to be specific that there will be global warming in the long run, before it was clearly happening, indeed, while the data from the previous three to four decades or so was that average global temperatures were falling.  This was the situation in the early 1970s, when this all went down.  And let me be clear that what most people hear is incorrect: it is not the case that there was always this consensus and that it was just a Newsweek cover and a few oddballs who were forecasting a possible ice age, or at least more modestly, that the future trend of average global temperature would be heading down as it had been for several decades rather than up.  At a certain point in time it was a tossup in the scientific literature, but then the warming side won.

The year of the tossup was 1971.  In that year,articles appearing in the top journals at that time publishing climatology (Science, Nature, PNAS, Journal of the Atmospheric Sciences, Geophysical Research Letters, Bulletin of the American Meteorological Society) were split evenly, with about a quarter predicting global warming, another quarter predicting global cooling, and the rest saying that it was unknown which way it would go.  How could this have been and why were so many people pushing the cooling hypothesis (aside from the fact that average global temperatures had in fact been gradually declining for several decades)?

The issue was rising emissions of aerosols, aka "particulates" and their frequently related SO2, which tend to cool things off.  As of 1971 most climatologists were highly aware that emissions of both the warming CO2 and the cooling aerosols/particulates/SO2 were going on.  The major wave of clean air acts among high income nations that would limit emissions of aerosols and SO2 had not yet been passed, nor would it be known that while there would be limits on those, there would not be any limits any time soon on CO2 emissions.  But that was not really the issue that decided the thing in the end.

As it was, views changed rapidly, and 1975 was the last year that there was an article in a top climatology journal still predicting global cooling (this was not too long after  the much hyped Newsweek cover story), and 1978 was the last year that one saw an article in those journals that said it was up in the air.  Since then, the scientific consensus at the top of the climatology profession has  been that CO2 (and other GHGs) will dominate and we shall tend to have global warming (which allows for cooling in some specific locations, and of course there might be exogenous offsets such as volcanoes or changes in solar radiation).  What happened during those years, with the turning around of the global temperature trend only starting around 1975 and still not clearly in place by 1978?

There are two things that were realized soon after 1971 (by 1972 the balance of views was already beginning to tilt).  The most important is that aerosols/particulates/SO2 do not stay in the atmosphere all that long.  They fall out in rain, often as acid rain, long a major pollution issue/concern, one of the reasons laws and regulations were passed to limit their emissions.  This also  meant that their effects were largely regional at most, not global.  OTOH, CO2 takes a very long time to get removed from the atmosphere. So even if in 1971 increases in emissions of both aerosols and CO2 were roughly equal, this meant that the increase in ambient levels at the global level would be much more sustained for CO2 than for aerosols/particulates/SO2.  The warming effect would win and dominate in the long run.

I would note the particular scientist who was probably most responsible for this change of opinion among scientists, the late Stephen H. Schneider, who died in 2010, and who would be one of the prime movers of the UN IPCC process.  In 1971 he was probably the most prominent leader of the "it can go either way" camp, as highlighted by his very influential article with S.L. Rasool in Science, 133: 138-141, "Atmospheric carbon dioxide and aerosols: Effects of large increases on global climate."  His change of view to the pro-warming side, which nailed in the broader shift and had been heralded in some earlier papers by him was his 1976 paper with R.M. Chervin in the Journal of Atmospheric Sciences, 33: 405-412, "On determining the statistical significance of climate experiments with general circulation models."

Now it is true that this consensus by the scientific community did not get much if any public attention for a long time, probably at least partly because of the overblown media coverage of the "threat of ice ages" that had been going on in some places in the early to  mid-70s. Once burned (or frozen), twice shy.  So it took James Hansen testifying before a Senate committee in the hot summer of 1988 to  bring public attention to this, which with the hot weather gave credence to the already well established scientific literature, and he got the public credit rather than Schneider as the media piled on.  Now to be fair, Hansen had been publishing in the ares in the 70s, but it was Schneider who was really the main figure who led the majority of climatologists to understand why global warming was probably going to dominate over global cooling, not James Hansen.  I am not going to go on further about him here other than to remind people that his recent role related to the Paris accords has not been the most has nuseful.

Barkley Rosser  

"Did the Great Recession Lead to the Great Vacation?" -- Yes.

Dean Baker asks, "Did the Great Recession Lead to the Great Vacation?"

Hey, don't laugh.

George Zipf (1941) "National Unity and Disunity; the nation as a bio-social organism":

Let us view the American depression of 1929 with the concept of leisure time in mind. 

b) October, 1929; the discovery of the 'raw material' of leisure time. 

With the end of 1929, the American total economy reached a point of great achievement, namely, a point when the national economy could produce its accustomed needs without using anywhere near all its available energies. Expressed differently, in 1929 the United States discovered a new 'raw material': leisure time, which in a way is just as much a 'raw material' as coal, oil, steel or anything else, because for many types of human activity, leisure time is an essential prerequisite. Of course one may be inclined to say that 1929 introduced a period of surplus production; that is true. Nevertheless in the solution of any problem much depends upon the angle of approach, and in this study we prefer to speak of the introduction of a surplus of leisure time. 

However, as we have remarked in the course of our study, any change in kind or amount of goods or of processes within a social-economy will necessitate a restriation within that social-economy itself. This was true of the discovery of steam, oil, and the like, and it will also be true of the 'discovery' of leisure time. 

Yet what are some of the implications of an increase of leisure time as far as production is concerned? Obviously, as long as a social-economy produces goods in sufficient amount to meet the minimal needs necessary for the survival of its members, then a social-economy could conceivably continue indefinitely. The only draw-back to this happy state of affairs is the phrase 'the minimal needs necessary for the survival of its members.' We do not know what those hypothetical minimal needs are, nor do we know a happy way of indefinitely forcing great masses of the population to be contented with a supply equal merely to the barest needs of survival, as long as more goods are possible. However, let us return to the consideration of leisure time as a raw material, or if one prefers, as a consumable good. 

As soon as we turn to the implications of an increase of leisure time from the viewpoint of distribution, then matters become clearer. Leisure time, like any other consumable good, is something worth organizing for; and the distribution of amounts of leisure time to the members of a population is as much subject to the laws of income-distribution as anything else. People like to eat, to sleep, to play,—and people like to 'loaf.' In short, everyone wants leisure time. To live by doing nothing is the height of economy. But how about the distribution of leisure time? Naturally, a large-scale unemployment is in and for itself a certain distribution of leisure time. But is it the most economical distribution of the nation's entire stock of leisure time within the total reservoir of a nation's complete production of consumable goods?"

Say what? Leisure time as raw material?

Is America's Freedom Unhinged From Reality or Truth?

Economic historian, Dr. Rupert Ederer issued an urgent warning to America and other nations who had adopted the neo-liberal ethic.  In October 2012 in his article "America and Catholic Social Teaching: An Urgent Warning".  He wrote:

"Capitalist plutocracies should be forewarned. They may well be facing some kind of parallel to the heinous outburst known as the French Revolution. That followed prolonged abuse of political power by long-standing hereditary monarchies and their associated aristocracies. The current murmur of revolution stems from the abuse of economic power by a class of capitalistic plutocrats nurtured in recent centuries by a cult of freedom which has come to be known as liberalism. Basically that is about freedom unhinged from reality — or truth."  [This is] "Indicated in the Catholic Church’s social teachings from the start....the failure of the economic liberals, and now neoliberals, to observe “in the area of economic and social activity” the important link between the “truth about man.” That shortcoming gave birth to Marxian socialism, and now to the current and fatal capitalistic economic pandemonium."

Ederer invokes the stated concerns and even outright opposition of a long series of leading Catholic world figures over the way the neoliberal ideological movement first took hold and then became firmly entrenched.:

the present Pope Benedict XVI [encyclical, 'Caritas in Veritate']
Pope John Paul II in January 1999 and his 'Laborem Exercens', 'Sollicitudo Rei Socialis' and 'Centesimus Annus
Pope Paul VI [May 1971 'Populorum Progressio']
Pope John XXIII [1961 encyclical 'Mater et Magistra']
Monsignor Fulton J. Sheen ['Communism and the Conscience of the West' (1948)]
Pope Pius XII [Address to Italian Workers, June 1941]
Pope Pius XI in 1931 [encyclical Quadragesimo Anno]
Father Heinrich Pesch, Jesuit Master Economist [Lehrbuch der Nationalökonomie (1923)]

In the forward to the 5th volume Pesch wrote:

"People, not excluding learned economists, tend to lapse all too easily into extremes. The recklessness in socialistic free labor union policy did evoke and continues to evoke reaction, so that today one feels entitled to talk about a kind of ‘neo-Manchesterism.’ Mises is regarded as the main exponent of this trend, and because of his incisive and original criticism of socialism he has also gained acceptance and respect among authors who, unlike him, have stepped forward and supported the legal protection of women and children, and social insurance of workers. Mises is on the wrong track when he attributes the terrible conditions in English factory regions where Manchesterism prevailed, not to that phenomenon, but to other circumstances. The historical development of industry among the various nations, and also a proper understanding of human nature, pass judgment on individualistic freedom."

Also mentioned are earlier Catholic popes who laid the foundation for the Church's social teachings on the economic order and the institution's opposition to economic liberalism:
Leo XIII [his encyclical 'Rerum Novarum' and his important encyclical On Human Liberty (Libertas Praestantissimum) which came out in 1888.]

Ederer concludes his article by pointing out that the present Pope Benedict XVI's encyclical 'Cartitas in Veritate' "addressed precisely the quintessential link between charity and truth.  

"Serious study of Caritas in Veritate" says Ederer "not to mention widespread implementation of that principle, has scarcely begun."

The Zadroga Act v. the Medical Device Excise Tax

This story highlights why Speaker Ryan has to be seen as repugnant. Let me start with a shout out to someone I admire:

There had been widespread support for a stand-alone measure to help the 9/11 responders, but congressional leaders were never quite able to push it across the finish line. While lawmakers from the New York area were strong advocates for the bill, it also had the forceful backing of Jon Stewart, the former host of “The Daily Show,” who made repeated trips to the Capitol to push for it.

John Stewart was right to push hard for passage of this Zadroga Act. But Speaker Ryan held support for our heroes until he could engineer tax breaks for his rich buddies:

But the House Democratic leader, Representative Nancy Pelosi of California, has voiced angry opposition to the huge package of tax breaks, saying it would unfairly benefit big business.

Pelosi of course would vote for the Zadroga Act as a standalone bill. Let’s focus on one of those tax breaks:

It also appeared that manufacturers of medical devices were on the threshold of a victory in their campaign to roll back an excise tax on many of their products. Under the tentative agreement, the device tax, which took effect in 2013, would be suspended through 2017, congressional aides said. Republicans said the device tax discouraged the development and sales of innovative, lifesaving medical technology. Some Democrats from states with thriving medical technology companies agreed.

The notion that this modest estate tax would discourage innovation set Dean Baker off:

The economics of the medical device industry are similar to the economics of the prescription drug industry. Companies have large research costs, but then are able to sell devices for a markup of several hundred or several thousand percent above their marginal cost. By giving more people access to health care, the ACA was increasing the demand for medical devices and therefore increasing the number of devices that could be sold at high markups, creating a windfall for the industry. The purpose of the tax was to take back some of this windfall.

That should read a very small portion of the windfall. Permit me to expand on what Dean said by a simple illustration of how this excise tax works. Let’s assume that a medical device giant like Medtronic or J&J has $10 billion in U.S. sales per year. The 2.3% tax does not apply to the $10 billion but to a constructive price defined as the arm’s length price between the production division and the wholesale distribution division. Let’s also assume that production costs are $2500 billion and distribution costs are $3000 billion, which would mean profits are a staggering $4500 billion. Now where this constructive price lands depends on what portion of these profits should accrue to the distributor versus the manufacturer. The Big Four is basically lying for their clients by arguing that the constructive price should be only 30 percent of the price paid by customers as if all of the intangible assets are attributable to marketing rather than patents, product intangibles, and process intangibles. If they get away with this, the effective tax rate would be only 0.7 percent of sales. A company that receives a 45 percent profit margin is going to be discouraged an effective tax rate of only 0.7 percent? And the notion that the owner of valuable patents, product designs, and process intangibles are entitled to a contract manufacturing return? Who are these people kidding?

Central Points On the Tax Versus Cap And Trade Issue In The Paris Climate Agreement

I have already made several posts on this, but I want to focus on two  points regarding this and apologize that some of this will be repetition.   One is theory and one is on the views of economists.

The theory point derives from Martin Weitzman's 1974 paper in the Review of Economic Studies on Prices and Quantities.  I mentioned  this argument in my Pigou Club post, but again, in a world where we lack certainty about impacts of trying to clean up,  whether one focuses on fixing prices or fixing quantities depends on the potential threat from getting it wrong.  So, if one is more worried about overly high costs of cleanup from being wrong, then one wants to avoid that by fixing prices, which in the environmental policy debate means taxes or some similar mechanism.  If one is more worried about getting the benefits of cleaning up wrong, that is having a disaster because one did not keep the quantities controlled properly, then one should use a quantity limit approach.  Personally I think the latter is by far the biggest problem for the global warming problem, so a quantity approach is the better way to go, making it cost effective by adding cap and trade or tradable emissions permits to it.  I note that a hybrid policy is possible, allowing one or the other to  be dominant, but allowing a kick-in if things get too extreme on either side so as to allow the other policy to then also be used.

This would seem to be a strong argument, and I note that Weitzman has largely stayed out of being publicly involved in the debate over taxes versus cap and trade at Paris, although he is in the same department as Robert Stavins, who has supported cap and trade pretty clearly.   However, as many have  noted there are some very prominent economists in the Pigou Club, with Arrow, Schelling, and Stiglitz the most prominent, and with Mankiw also  very promient.  More than one observer has said, "how  can you disagree with these guys?"  Well, for starters, I do not think any of them have said that one should not or  never use cap and trade as climatologist James Hansen seems to have said after the Paris agreement tilted for cap and trade as I predicted it would based on past diplomatic and political history, although Paris certainly allows nations to use carbon taxes to achieve their national goals if they so  choose.  The  only favoritism is for international coordination, where the agreement suggests that trading permits is a useful  way to do that, which it certainly is.

As it is, I see this as partly a debate between very famous economists whose principal areas of research are not in the economics of global warming, although this topic has become Schelling's main concern in recent years, and I think that both he and Arrow also know a lot about the climate science involved, against some economists whose main field has been environmental economics, and thus are not as well known publicly as these Nobel Prize winners.  Stavins is one of those, and so is Weitzman (although he has publicly remained neutral). I shall name another, Tom Tietenberg of Colby College and J.H. Dales, whose current location I do not know.  Dales was the actually the first to propose tradable emissions permits, aka cap and trade back in the 1960s, getting the idea from the Coase Theorem, which was developed very much as a critique of Pigou's approach to taxing negative externalities. I may not be right on this, but I suspect that part of why Arrow and Schelling and Stiglitz have favored Pigouvian taxes is that it was the earliest approach formulated and the only one in all the textbooks for  years, dating back to the 1920s.

It was Tom Tietenberg in the 1970s who led the actual first implementation of cap and trade, the Wisconsin plan to limit BOD emissions into the Fox River, which I was peripherally involved with.  But Tom was the main person, and he is also the author  of the most  widely used environmental economics textbook.  He went from Wisconsin to be one of the main people advising EPA and the US government more generally on implementing the successful system for trading permits for lead in gasoline and SO2 emissions, much praised by Schmalensee and Stavins in their forthcoming JEP article.  But nobody outside of  environmental econ knows who Tom Tietenberg is, and, of course, the cap and trade system arose initially out of an effort to make cost effective the quantity limits laws that the US had put in place in the early 1970s against the advice of all the economists supporting Pigouvian taxes, many  of them signatories on this petition that went to Paris.

My final observation on this is that this reminds me a bit of what happened after the fall of the Soviet Union.  There were a bunch of comparative economists around, not well known outside of their field, who knew very well how difficult the transition processes would be and cautioned about overly ambitious plans brought in from the outside in a "one size fits all" manner.  But all the pizzazz of the fall brought all sorts of very well known economists who had not  studied comparative economics into the ball game, getting ahold of the policy apparatus and developing and enforcing the destructive Washington Consensus, which led to many disasters in Eastern Europe against the advice of many of the more established but less well known comparative  economists.  This reminds me of that a bit, the advocates of carbon taxes pushing a textbook ideal  against a policy actually developed by environmental economists that has much more going for  it, especially at the global level.

Barkley Rosser

The Only Thing You'll Ever Need to Know About NRO

Wait... I can do better than that. Tilt!

Notice the difference? Look real close at the alignment of the chart frame and the outer frame in the second chart. With an almost imperceptible 1/2 degree rotation of the chart, the temperature record can be made to appear essentially flat. How could the editors at NRO have overlooked this opportunity? Too much intellectual integrity? I doubt it.

As a university teacher I get this all the time. There is a word for it: SOPHOMORIC -- "conceited and overconfident of knowledge but poorly informed and immature." 

The NRO chart is based on fact. It merely misrepresents that fact. This is S.O.P. for the climate change denial cult. They are big on isolated facts wrenched out of context and presented in a misleading way. Senator Ted Cruz is a master of the technique. He is so good at it that he would never have to lie. Except that he is so good at it that he cannot tell the difference!

Senator Cruz and NRO are not the problem. They are symptoms of the problem. The problem is that misrepresentation is the currency of contemporary American life. Advertising, politics, entertainment, business, education, administration, economics. Cruz and NRO simply inflate that currency to outlandish proportions. They get away with it because "everybody does it!"

Tilt.

A Blast from the Past: Unions as Combinations in Restraint of Trade

A move is under way in Seattle to extend collective bargaining to drivers for Uber and Lyft.  The idea is to pass a city ordinance that would do for the city’s gig workers what the National Labor Relations Act does is supposed to do for “normal” employees.

Uber, under the guidance of David Plouffe, Obama’s former campaign manager, is fighting back.  Today’s New York Times has a story that sets out their legal case and suggests one argument might have traction, “that collective bargaining by independent contractors would amount to illegal price-fixing under anti-trust law.”

No irony is voiced in the article, but it should be noted that this was exactly the legal basis for the repression of unions in the nineteenth century–when a legal basis was even sought.  Each worker is supposed to be an independent market competitor, right?  So if they get together and demand a higher price for their labor, it’s a combination in restraint of trade.  Because of this legal history it was necessary to get national legislation to carve out an exemption from anti-trust for labor.

So now here we are again.  National labor law is broken; it doesn’t work for the workers it ostensibly covers, much less for the new proletariat in the gig economy.  And in an age when a few behemoths dominate most markets and mergers between the companies with the highest market shares are routinely approved, labor may once again face the wrath of the state under the banner of anti-trust.

The technology may be new but the political economy is old and familiar.

Paris Talks Good: James Hansen Is An Idiot

Robert Stavins has expressed great pleasure with the outcome of the Paris talks.  Yes, it does not guarantee more clearly the $100 billion per year fund to help poorer countries with their mitigation efforts, but clear goals and transparent mechanisms for moving to achieve them have been agreed upon by nearly 200 nations, with those responsible for 96% of world emissions providing more concrete plans for what they plan to  do.

The loudest naysayer is climate scientist James Hansen.  He declares this to have been all talk and "no action" as reported by The Guardian.  Why?  Because it did not include a carbon tax.  I have  already argued that this was not remotely on the table and is not even necessarily the best plan.  In fact, as I forecast would be the case if there was agreement here, it has encouraged international trading in carbon permits.  This already exists in the European system and China is implementing one in 2017.  There are many arguments for this, which I have already laid out here before.

The agreement looks about as good as could be hoped for.  Non-economist Hansen declaring the carbon tax to be the only acceptable action is just making a big fool of himself.  He should stick to climate scence.

Barkley Rosser

Doctor Krugman and Mister Trump

Mark Thoma cites a Paul Krugman column on Empowering the Ugliness in which the latter concludes that ."..this ugliness has been empowered by the very establishments that now act so horrified..." Professor Krugman was referring to a contemporary ugliness that is -- to use a discrete circumlocution -- not unprecedented in American political culture, as the above pamphlet cover from the American Federation of Labor illustrates.

Of course, A.F. of L. President Samuel Gompers's advocacy of Chinese Exclusion -- like Donald Trump's proposal for Muslim  (and Mexican) Exclusion -- was "not inspired by a scintilla of prejudice of any kind, but with the best interests of our country uppermost in our mind..." Not a scintilla!

Sam Gompers also said, "So long as there is one man who seeks employment and cannot find it, the hours of work are too long." I mention this because both anxiety about immigration and advocacy of shorter working time as a remedy for unemployment have been ridiculed by economists -- including Krugman -- as products of a mistaken "lump-of-labor" belief in a fixed amount of work.

Thanks in part to decades of condescension by economists (including Paul Krugman), the shorter working time remedy is now conveniently "off the agenda." According to Krugman, he doesn’t "get too worked up about this kind of misunderstanding anymore; it doesn’t have political power behind it, the way right-wing fallacies do."

But what about unemployment? "Yes," Krugman conceded in his 1997 hot dogs and buns rebuttal to William Greider, "technological change has led to a shift in the industrial structure of employment. But there has been no net job loss; and there is no reason to expect such a loss in the future." Which could be paraphrased as yes, immigration has led to a shift in the ethnic composition of employment. But there has been no net job loss; and there is no reason to expect such a loss in the future." Here is why we shouldn't have to get worked up about unemployment anymore:

But wait--what entitles me to assume that consumer demand will rise enough to absorb all the additional production? One good answer is: Why not? If production were to double, and all that production were to be sold, then total income would double too; so why wouldn't consumption double? That is, why should there be a shortfall in consumption merely because the economy produces more?

Here again, however, there is a deeper answer. It is possible for economies to suffer from an overall inadequacy of demand -- recessions do happen. However, such slumps are essentially monetary -- they come about because people try in the aggregate to hold more cash than there actually is in circulation. (That insight is the essence of Keynesian economics.) And they can usually be cured by issuing more money -- full stop, end of story. An overall excess of production capacity (compared to what?) has nothing at all to do with it.

Full stop. End of story.

Except that's not the end of the story. That insight which Krugman called "the essence of Keynesian economics"? There was more than one application of the principle, according to the man himself:

The full employment policy by means of investment is only one particular application of an intellectual theorem. You can produce the result just as well by consuming more or working less. Personally I regard the investment policy as first aid. In U.S. it almost certainly will not do the trick. Less work is the ultimate solution.

In other words, "So long as there is one man who seeks employment and cannot find it, the hours of work are too long." So, what'll be -- meat or rice?

Why Is The Pigou Club So Out Of Synch With The Paris Climate Negotiaters?

Organized officially in 2006 by Greg Mankiw, the Pigou Club has never had more dominance among economists in terms of opinion.  A petition supporting a carbon tax was sent for the opening of the current Paris climate negotiations with 32 names on it, including three econ Nobelists: Kenneth Arrow, Thomas Schelling, and Joseph Stiglitz, all of whom I greatly respect. An even longer list of prominent economists (although without Arrow or Schelling) along with their individual arguments, as well as some climatologists such as James Hansen, is here. About the only prominent environmental economist not on the list is Harvard's Robert Stavins, who is attending the conference and supports a cap-and-trade proposal as do I. Why are we so alone among economists and even many activists, but why is it that cap-and-trade is far more likely to come out of Paris, if any specific proposal does?

The Pigou Club argues that a carbon tax is simpler and more efficient.  At times some of its members even claim that support from professional economists is "near unanimous."  Maybe, but it is not unanimous, and economists are likely to get left standing at the altar all alone when it comes down to it.  As it is, there are many nations that have some sort of carbon or energy tax, although none of these seem to apply to  all  fuels and none are coordinated in any way with any other nations.  Most focus largely on gasoline (and we have gas taxes in the US, but not focusing on carbon content) or  new cars.  It turns out that getting a coordinated carbon tax across national boundaries may be difficult to impossible, even without the apparently absolute opposition of the political elite in Washington (or at least its Republican component) to any new taxes of any sort (even revenue neutral ones), although the GOP at this time seems to be allergic to any climate proposals at all (I mean, their really smart leaders have figured out that all this global warming stuff is just a hoax, right?), and the Senate blocked Obama-supported Waxman-Markley in 2010, an attempted and much flawed cap-and-trade bill that managed to pass the still-Dem-dominated House (although some of the arguments given against it by GOPsters were that it would be "just  like a tax increase").  The supporters of a revenue neutral carbon tax also criticize the in-place from Kyoto European CO2 Trading System (ETS) as having experienced volatile prices, having been subject to "gaming" and theft, and a lot of sectors escaping from it, although a tax can also involve fraud and sectors getting out of it thanks to political pressure.

Tim Taylor here reviews arguments from a forthcoming Journal of Perpectives article by Richard Schmalensee and Robert Stavins discussing past efforts at cap and trade (originally known as "tradable emissons permits").  The largest and most successful such program was for SO2 trading done in the US after the Clean Air Act amendment of 1990, with even most proponents of carbon taxes recognizing that this one worked out pretty well.  But the argument is that we were lucky with that one, and that it is a much smaller deal than a global carbon trading system.  Schmalensee and Stavins also report on an earlier successful use of it for reducing lead in gasoline between refineries as well as some successful use of it for NOX emissions.  They recognize that the ETS has had problems, but some of those seem to have been due to a lack of information at the beginning of the system along with too many industries being exempt.  However, they note that China will be implementing a cap and trade system in 2017, and given that the Europeans adopted their system as part of the Kyoto Protocol under pressure from the US, these parties are really not at all interested in following a bunch of mostly US-based economists in replacing their ETS with a carbon tax, even though quite a few European countries have limited carbon taxes in place already.

However, none of this gets at why carbon taxes are simply not being seriously considered in Paris.  Maybe no agreement on a mechanism to meet the likely 2 degrees Celsius maximum increase target that is being bandied about much (with more endangered nations arguing for tightening that to just a 1.5 degree increase) will happen. But if one is, it will almost certainly be some version of cap-and-trade with subsidies for poor countries rather than a carbon tax (or its popular-with-activists variation, fee and dividend). The real reason is quite simple. If one is aiming for a specific targeted limit on temperature increase, then given current science that implies a specific quantitative emissions limit.  It is well known that a tax only stabilizes/guarantees the price.  It does not stabilize the quantity emitted.  To do that, one must impose a specific quantity limit, and it is also completely well known that a properly set-up cap-and-trade system will be the most cost effective way to achieve such a limit.  This is why cap-and-trade is on the table in Paris, but the carbon tax is not.

I must admit that I may be partly biased in favor of cap-and-trade having been peripherally involved in setting up the very first government-established such system ever in the world back in the mid-to-late 1970s in the state of  Wisconsin for  BOD emissions on the Fox River that flows into Green Bay, with that river having many BOD-intensive pulp and paper mills along it (Fort Howard Paper, Kimberly-Clark, etc.) who traded with municipal sewage treatment plants.  That plan is still in place and operative, last time I checked, if pretty low key these days (some of those mills have since closed, but not because they had arbitrary quantity emssions limits placed on them in the 70s)..

I also am aware that Copenhagen was a nearly total flop, aside from some agreements about improving information gathering (something very important as the problems with setting up the ETS show), this problem still a big deal in China where we have just learned that they have been burning 17% more coal than previously reported..  It will be hard enough to get any kind of serious agreement out of Paris.  This  is all the more reason to go for  something that is not only the most suited to achieving what is needed, a specific quantity emissions limit, but also the most acceptable to the diplomats and politicians in most of the nations that are engaging in these very difficult negotations.  Really, I am a bit amazed and even shocked that all these prominent and intelligent economists have not figured this one out.

Barkley Rosser

Something’s Rotten in the State of Reporting About Denmark

A report on budget cuts to alternative energy programs in Denmark in today’s New York Times provides a depressing example of siloed journalism.  The piece is abuzz with righteous green indignation at the decision of Denmark’s new right wing government to defund programs that support innovation in renewable energy, particularly as it coincides with COP21 in Paris.  I share its anger.

But there’s another side to the story.  The new energy minister, quoted in support of the cuts, gives the motivation as budget balancing.  And the article seems to endorse him, saying in the second paragraph that the new ruling coalition is “determined to tighten spending and balance the budget in a program to grow the economy.”

Is growing the economy a good idea?  Sure:

(Source: OECD)

This is Denmark’s real GDP growth, quarter on quarter, since the beginning of 2011: sluggish at best and possibly returning to negative territory.

But this is an argument for increasing spending, not cutting it.  There is no reputable economic theory that justifies reducing government spending as a means to accelerate economic growth.  If the government of Denmark makes this claim it should be reported as a sign of either its ignorance or duplicity.

Suppose for comparison the esteemed minister had said, “We are cutting public support for renewable energy because climate change is a hoax perpetrated by a devious cult of scientists who hate capitalism and want to get bigger grants.”  (Politicians in other countries have been known to claim this.)  Would the Times have told us that the newly elected government is “determined to oppose the hoax of climate scientists” and leave it at that?  Well, there’s no difference.  BS is BS, whether it’s climate denialism or economic nonsense.

Incidentally, Denmark has vast fiscal space to maintain and even increase its borrowing to finance green investments.  (The country maintains its own currency.)  10-year bonds are currently paying about .9%, which is just half a percent in real terms.  Markets are eager to fund Danish debt at rock-bottom rates, so even projects with a marginally positive rate of return easily clear the hurdle.

Question: if the article had been about economics, and a government spokeman had invoked absurdities about the climate, would the Times have been as passive?  Why is economic literacy optional for journalists?

UPDATE: Dean Baker is on the case too.

You Can Buy A Gun, But You Cannot Fly

Thus spake the US Senate.  OTOH, if you are a convicted felon you can fly but might not be able to buy a gun, unless you go to one of those loophole gun shows.

I see some editorials and columns and comments about this outrageous Senate vote.  Its defenders argue that the no fly list is not fully reliable.  Some people not really suspected of terrorism are on it and would be deprived of their right to buy a gun.  I know the NY Times just had a front page editorial  about stopping the gun epidemic, but somehow this Senate vote strikes me as being so far beyond the pale of anything remotely defensible or even sane (Obama called it "insane," and I agree), that I would expect more noise than there has been.  But somehow there has not been quite the level of outrage I would think is appropriate.

I guess this is just a sign of how many completely ridiculous and unacceptable things have been happening.  When one comes along that is completely bonkers, so many of us do not even notice any more or even care all that much.

Barkley Rosser

Congressional Aid to Multinationals Avoiding Taxes

The OECD’s Base Erosion and Profit Shifting (BEPS) initiative is an effort by the G20 to curb the abuse of transfer pricing by multinationals. Senator Hatch is not a fan:

Throughout this process we have heard concerns from large sectors of the business community that the BEPS project could be used to further undermine our nation’s competitiveness and to unfairly subject U.S. companies to greater tax liabilities abroad. Companies have also been concerned about various reporting requirements that could impose significant compliance costs on American businesses and force them to share highly sensitive proprietary information with foreign governments. I expect that we’ll hear about these concerns from the business community and others during today’s hearing.

Indeed we heard from some lawyer representing The Software Coalition who was there to mansplain to us how BEPS is evil. I learned two startling things. First – Bermuda must be part of the US tax base. Secondly, if Google is expected to pay taxes in the UK, it will take all those 53,600 jobs which are mainly in California and move them to Bermuda:

in particular how the changes to the international tax rules as developed under BEPS will significantly reduce the U.S. tax base and create disincentives for U.S. multinational corporations (MNCs) to create R&D jobs in the United States

Yes – I find his testimony absurd at so many levels. Let’s take Google as an example. When they say foreign subsidiaries – think Bermuda. Over the past three year, Google’s income has average $15.876 billion per year but its income taxes have only average $2.933 billion for an effective tax rate of only 18.5%. How did that happen? Well – 55% of its income is sourced to these foreign subsidiaries and the average tax rate on this income is only 6.5%. Nice deal! Google’s tax model is not only easy to explain but is also a very common one for those in the Software Coalition. While all of the R&D is done in the U.S. and 45% of its sales are in the U.S. – U.S. source income is only 45% of worldwide income. Very little of the foreign sourced income ends up in places like the UK even 11% of Google’s sales are to UK customers. Only problem is that income ends up on Ireland’s books with the UK getting a very modest amount of the profits. Now you might be wondering how Google got to the foreign taxes to be only 6.5% of foreign sourced income since Ireland’s tax rate is 12.5%. But think Double Irish Dutch Sandwich and you’ll get how the profits ended up in Bermuda as well as perhaps a good lunch! But what about that repatriation tax you ask. Google’s most recent 10-K proudly notes:

“We have not provided U.S. income taxes and foreign withholding taxes on the undistributed earnings of foreign subsidiaries”.

In other words, they are not paying that repatriation tax. Besides the Republicans want to eliminate. Let’s be honest – Congress has hamstringed the IRS efforts to enforce transfer pricing. The BEPS initiative arose out of this failure. And now the Republicans in Congress are objecting to even these efforts. And if Europe has the temerity of expecting its fair share of taxes, U.S. multinationals will leave California and relocate in Bermuda? Who is this lawyer kidding?

It's Monday, So "Silent Samuelson" Wants To Cut Social Security Benefits (Yet Again)

How surprising.  It is Monday, and on the editorial pages of the Washington Post, constant critic of Social Security, Robert J. Samuelson is yet again calling for "some benefit cuts or tax increases, though unpopular...Gradual increases in eligibility ages, starting now, would similarly represent a common-sense adjustment to a graying society."  This is the sort of thing Dean Baker  usually roasts him over, but Beat the Press seems inaccessible today, so I guess I shall have to do the beating.

While this is just par for  the course for RJS, today's twist involves emphasizing how there ought to be generational  warfare going on, but for strange reasons it does not seem to be happening.  He quotes the ridiculous column by WaPo's new economics columnist/blogger, Jim Tankersley, whom several of us bashed pretty hard, but with RJS apparently unaware that his column has pretty much been torn to shreds by everybody who has commented on it and does not write for WaPo.  (My critique of it can be found here.) 

Another new twist is that while Samuelson has long claimed to be a boomer while bashing the boomers and calling for benefit cuts for them, he finally outs himself as having been born in 1945, the last year of the Silent Generation, just before the front end of the boomers.  This is actually kind of funny because in that special Outlook section of WaPo where Tankersley's silly piece appeared there was a discussion about how many Silents identify themselves as boomers.  Weird.

So part of the claim by Silent Samuelson and Gen-Xer Tankersley is that the boomers were "born into some of the strongest job growth in the history of the US."  Unfortunately for them, that is not as true as claimed.  The strongest job growth period was the Golden Age of 1945-1973, which only the front end of the boomers managed to get into a little bit of.  Since then job growth has been less dramatic, and median real wages have barely moved.  The people who really got the benefits of that Golden Age were the later stage Greatest Generation and most dramatically the Silent Generation, Samuelson's generation.  So when he brags in this column today about how he "saved adequately for retirement," well, whoop-de-doo!  He is a Silent, the real ripoff generation.  But he does not call for  them to pay anything.  It is those  spoiled rotten boomers who must pay, without him saying a word about how the Greenspan Commisson of 1983 already imposed the retirement age increases he calls for as well as a pretty hefty tax increase so that the boomers would "pay for their retirement."

What is really weird is that while he seems to think that introducing more gradual  increases in eligible retirement age will somehow make the current or even boomer elderly pay more, it is those future generations who will get hardest by such increases, the hapless Gen Xers as well  as the millennials.  Maybe the millennials have figured this out, although with half of them reportedly thinking that they will get nothing from Social Security, I remain highly doubtful about their level of economic  knowledge.  They have been bamboozled by the relentless propaganda emanating from the likes of Silent Samuelson.

I will give RJS credit for an insight he makes in the later part of his column.  While accurately noting that indeed many millennials are currently hurting with the recent bad economy and student debts and so on, he notes that they also seem to be optimistic about their future prospects.  He finally puts it together that one reason they might be so is indeed this awful wave of retirements of boomers that he mostly rants about as awful: those retirements will open up a lot of opportunities for not only more jobs but also promotions for the millennials.  Not all is lost for the millennials, and Silent Samuelson sort of admits it, even if  he wants to hit them with all these retirement age increases, which maybe they are not looking forward to having implemented.

Barkley Rosser

On That Video Where Some Egyptians Allegedly Say Obama Is Insane And On Drugs And Should Be Removed From Office

An old and close, but very conservative and increasingly out of touch with reality friend of  mine posted a video some days ago on Facebook.  He indicated that he thought it was both funny and also insightful.  It seemed highly suspicious to me, so I googled it and found that the person who uploaded it onto you tube stated in the comments on it that it is a spoof. Here is a link that discusses why it is known it is a spoof as well as linking to the video itself and its comments. It has reportedly been widely distributed on the internet by many conservatives who think it is for real, and when I pointed out it is a spoof, my friend defriended me from Facebook.  I am frustrated.

So, for those who do not view it,  it purports to show a talk show in Egypt where a brief clip of Obama speaking last May to graduating military officers about how climate change is and will be a serious national security issue, something the Pentagon has claimed.  He did  not say it was the most serious such issue, and at least in the clip he said nothing about Daesh/ISIS/ISIL, although of course he has said a lot about it and not only has US drones attacking it but reportedly we have "boots on the ground" now against them in the form of some Special Ops.

So, the video then goes back to the supposed talk show where they are speaking in Arabic with English subtitles.  According to these subtitels, which are partly accurate translations but also wildly inaccurate in many places (my Arabic is good enough that I have parsed out what is what there) the host asks, "Is he insane?"  A guest suggests he is on drugs.  Another claims he just does what Michelle says and that his biceps are small.  Finally a supposed retired general pounds the table and denounces him over Libya policy (that part is for real, although his name is  never mentioned) and suggests that Americans should act to remove him from office.   Again, conservative commentators have found hilarious and very insightful, with this even holding among commenters to the video aware that it is a mistranslated spoof.  Bring these guys on more.  Obviously they would be big hits on Fox News.

So, I would like to simply comment further on why Egyptians would be especially upset about Libya, but that them being so  against the US is somewhat hypocritical (I also note that there is reason to believe that the supposed general  is not a general). Of course Libya is just to the west of Egypt with its eastern portion (Cyrenaica under Rome) often ruled by whomever was ruling Egypt at various times in the past.  So there is a strong cultural-historical connection.  It is understandable that they would take Libyan matters seriously, and indeed things in Libya have turned into a big mess.

However, the move to bring in outside powers to intervene against Qaddafi in 2011 was instigated by an Egyptian, Abu Moussa.  This was right after Mubarak had fallen in the face of massive demonstrations in Egypt.  Moussa was both leader of the Arab League and wanting to run for President of Egypt.  He got nowhere with the latter, but he did get somewhere with getting
the rest of the world to intervene in Libya.  He got the Arab League to  support such an intervention, with that move going to the UN Security Council and convincing Russia and China to abstain on the anti-Qaddafi measure.  Putin has since complained that those who intervened, UK and France most vigorously with US "leading from behind" on the effort.went beyond the UN mandate.  But in any case, Qaddafi was overthrown, not to be replaced by any stable or central power, with Libya an ongoing mess that has remained fragmented since, especially between its historically separate eastern and western parts, something I have posted on here previously.

So, that went badly, but Egyptians blaming the US for this seems to me to be a bit much, pretty hypocritical.  It happens to be a fact that the US and Obama are now very unpopular in Egypt.  I looked at a poll from a few months ago, and the only nations where the US and Obama were viewed less favorably (although a few not polled such as North Korea) were in order: Russia, Palestinian Territories, Belarus, Lebanon, Iran, and Pakistan, with me suspecting there is now a more favorable view in Iran since the culmination of the nuclear deal.  I can appreciate that many Egyptians are frustrated that the US supported an election process that did not give them Moussa or El-Baradei, but the Muslim Brotherhood, who proceeded to behave badly, leading to them being overthrown by an new military dictatorship with a democratic veneer, basically a new improved version of the Mubarak regime, with the US supporting it, if somewhat reluctantly.

Yes, this is all pretty depressing, but I must say that ultimately the Egyptians are responsible for what has gone down in their own nation.  And even if those Egyptian commentators, whoever they actually are, are as angry about Obama as they are depicted as being, the fact is that Obama is still more popular there than was George W. Bush at the same time in his presidency, something all these US conservatives so enamored of this bizarre video seem to conveniently forget.

Addenda, 5:10 PM:

1)  The people on that video come across almost like The Three Stooges, which highlights the comedic aspect that even fans of Obama are supposed to appreciate, although it does not add to the credibility of the remarks of  those so carrying on like a bunch of clowns.

2)  Another reason Egyptians may be especially upset about the situation in Libya is that indeed Daesh has a foothold in a port city not too far from the Egyptian border in Surt, as reported as the top story today in the NY Times.

3)  Arguably once the rest of the world got in, the big problem was a failure to  follow through with aiding establishing a central unified government, although that was always going to be a problem, something not recognized by all too many involved, including Abu Moussa.  As it was once his proposal got going, it was then Sec. of State Hillary Clinton who was the main person leading the charge for the US to get in over the reluctance of Obama.  This was probably her biggest mistake in all this, even though most Republicans think the irrelevant sideshow of the unfortunate incident in Benghazi is the big deal.

4)  Needless to say, Republican views at the time of the intervention were just completely incoherent, as symbolized at one point by Senator Lindsey Graham, who within the space of a single sentence simultaneously argued for the US to do nothing and also to go in full force with the proverbial "boots on the ground."

Further Addendum, 7:10 PM:

     One of the pieces of evidence given that supposedly shows that the video is a spoof is that the supposed retired Brigadier General Mahmoud  Mansour cannot be found if one googles his name, except in connection with this video.  There are some other Egyptians named Mansour who show up, but this guy does not.  However, it occurs to me that he might be for real, but simply obscure.  After all, Brigadier is the lowest rank of General, one star, with Majors being two star, Lieutenants being three star (even though Majors are above Lieutenants), and with four and five star not having any other rank assigned to them.  Furthermore, Egypt has a large military that has run the country for decades, so there may well be a lot of these Brigadier Generals, with many of them amounting to nothing.  So, if he is for real, his claim to fame will be from jumping up and down, pounding on a table and calling for the overthrow of the POTUS.

Barkley Rosser