27 Mar 2017

Would a Carbon Tax+Dividend Scheme “Financially Benefit” Poor Households?

Climate Change 3 Comments

I point out that such claims can be misleading, even on their own terms. Excerpt:

Suppose gas is originally $3 per gallon. Our poor household in a typical week buys 10 gallons. In contrast, the rich household in a typical week buys 20 gallons, because they drive more and because they drive an SUV.

Now imagine the government imposes a draconian $4 per gallon carbon tax that more than doubles the price of a gallon of gasoline to $7. In response, the poor household practically stops driving; people take the bus whenever they can. They end up buying only 2 gallon of gas per week. So they implicitly pay 2 x $4 = $8 total in carbon taxes per week.

The rich household however is better able to shoulder the blow. They reduce their gasoline consumption to 15 gallons per week. At this level of consumption, they implicitly pay 15 x $4 = $60 in carbon taxes per week.

Now if the government took these tax receipts and then issued an even rebate, the $8 + $60 = $68 total would get split into payments of $34 each. So Schultz and Halstead would conclude that the poor household “gained” $34 – $8 = $26 per week in net dividends from the scheme, while the rich household lost $60 – $34 = $26 per week in net payments. (This makes sense: If these are the only two households, the gain to one must be the loss to the other.)

But would we conclude that the poor household in our scenario is better off? Not at all! Yes, the household would have an extra $26 per week in money, but now (by assumption) gasoline would cost $7 per gallon. This artificially high price led the household to “choose” much lower gasoline consumption, but this was a coerced choice. The extra $26 per week in monetary terms would not mean the same as it would have in the original scenario, when gasoline was cheaper.

26 Mar 2017

The Origin and Structure of the Universe

All Posts, Philosophy, Physics, Religious 9 Comments

I saw “Is Genesis History?” a few weeks ago and thought it was very well done. Given its heroic (some would say impossible) task–namely, to interview a string of PhDs to say that it’s not crazy to believe in the Genesis account–I thought it was very impressive. I’m not saying it is a slam dunk that would convince Bill Maher, but rather I’m saying that there are several very good points that it raises, which I think would trip up the average internet atheist. (Note that “internet atheist” is not the same thing as “someone on the internet who happens to be an atheist.”)

(Disclosure: I am friends with the guy who made the documentary, so I’m biased. I mean, beyond my bias of being a Christian.)

Now let me relate one item that is ironic. When the narrator interviewed the astronomy guy (who believed in Genesis as history), they brought up the awkward fact that some galaxies are billions of light-years away. So how could the universe be only ~6,000 years old?

(NOTE: Some Biblical literalists, including the famous commentator Vernon McGee, do not believe in a Young Earth. They think, for example, that the list of generations–the basis for the 6,000 year view–only touches on the important people from the list. So be aware that people in this camp could believe “Genesis is history” and have no problem with light traveling billions of years to reach us.)

At the time, I thought the astronomer’s answer was unpersuasive. He said something like, “Well, I admit it’s definitely a puzzle as to how light could have traveled that far to reach us, if the universe is so young. But that perspective simply assumes that the processes Nature obeyed in the past, occurred just as they do today. That’s just an assumption.” (I am very much paraphrasing what he said, but the spirit is right.)

As I say, at the time I was watching the documentary in the theater, I thought, “The geologist made some great points, but oh man the atheists would blow up over this astronomer. You can’t just assume the laws of physics were different in order to get your theory to work.”

Welp, I stand corrected. As luck would have it, not long after watching that documentary, I took my kid to the Houston planetarium. In a well-done show about cosmology, Neil deGrasse Tyson ended up telling us that 95% of the universes consisted of “dark matter and dark energy”; only 5% of the universe was observable to us. Such quantities of dark stuff were necessary in order to make sense of observations; rotating groups of galaxies should be spinning apart if they are just composed of the stars we see in them.

Now I had heard about that stuff before, but the part that was new to me was the discovery that the rate at which galaxies were moving away from each other was accelerating. Back when I was really on top of this stuff (like in the mid-1990s), my understanding at that time was that scientists were trying to figure out if there were enough matter to make the expanding universe slow down and then reverse, to fall back into a Big Crunch. OR, would it just keep expanding forever, because the gravity wasn’t strong enough (i.e. not enough mass)?

But either way, clearly you would have expected that the universal expansion would be slowing. Yet in fact, it’s doing the opposite, as revealed by observations of different pairs of neighboring objects (at farther and farther distances from us, meaning we are peering back further and further in time). It’s not surprising that this was news to me; I just checked Wikipedia and the discovery was made in 1998, and some of the people involved got the Nobel Prize for it–scientists weren’t expecting it.

Now here are two things that I think are really interesting, relating this to the Genesis documentary:

1) It’s not simply that scientists are saying, “Oh, turns out the universe has been accelerating all along since the Big Bang.” No, as Tyson’s remarks and the Wikipedia discussion both state (someone tell me if I’m wrong), the accelerating universe only started about 5 billion years ago; before then, the universe’s expansion had indeed been slowing down since the Big Bang. So notice what we have here: Modern physicists can only reconcile observations with their theories by saying cosmological forces were very different in the past from what they are now.

2) When I was growing up, the standard scientific tale went like this: “Einstein was an unbelievable genius. But alas, even Homer nods. Even though the most elegant and straightforward version of general relativity–what popped out of his thought experiments concerning a guy in an accelerating rocket or standing on a planet–would have predicted either a shrinking universe or one that was expanding but slowing down, that offended Einstein’s sensibilities and so he inserted a fudge factor called the ‘cosmological constant’ to make the universe static. He later said it was his biggest blunder, because had he trusted his theory it would’ve anticipated Hubble by more than a decade.”

Now, however, I see physicists saying stuff like this: “In an ironic twist of history, it turns out Einstein was right! We now use the cosmological constant, or what can be called dark energy.” (This NASA discussion is typical.)

Does everyone see the irony here?

I BESEECH YOU, please don’t recite to me the Scientific Method in the comments, and explain that we can’t use the pages of a holy book written by shepherds to do science. I know, I promise.

I am also aware of the fact that the use of dark energy, the “inflation” theory of the early universe, etc. etc., are heavily constrained by known physical laws and what happens in particle accelerators.

My modest point is that an intellectual move that would be ridiculed when pulled by a Bible-believing Christian in a documentary, is treated with awe as “how science proceeds” when pulled by an atheist in a planetarium.

I watched a bunch of videos after the planetarium show to learn more. The video below of Lawrence Krauss is excellent, both for his presentation of the science and also his smug jabs on religion. (The religious jabs and/or question-begging statements occur at 16:45, 17:15, 18:11, and 33:10. There are also some jabs in the very beginning from Dawkins and Krauss.) If I could clone myself, I would get a PhD in physics and then debate this guy.

This video from Alan Guth is also good:

Finally, if those two videos are too heavy for you, here are shorter ones that are not as technical:

23 Mar 2017

Who’s the Best Libertarian of All Time?

Humor 10 Comments

This guy (I don’t know him) seeks to answer the question.

20 Mar 2017

Yet Another Podcast Twin Spin

Contra Krugman, Health Legislation, Lara-Murphy Show, Shameless Self-Promotion, Tax policy, Tom Woods 38 Comments

==> In Episode 78 of Contra Krugman, we talk about Krugman railing against the anti-reality Republicans. I am swamped with work so I have to be brief in my outline:

6:00 I remind people that it was progressive Democrats who started using the phrase “fake news” as a political weapon.

8:25 Tom explains that he was the target of a Two Minute Hate.

15:20 Tom is a softie and takes Krugman’s side, in his criticism of Trump taking credit for job numbers.

19:40 I point out Krugman’s hypocrisy when he says CBO is “scrupulous about avoiding partisanship.” Nope, that’s not what Krugman thought in June 2015 when they warned about the deficit.

23:15 I clarify the recent CBO’s report that 14 million people will lose health insurance under GOP plan. CBO itself says most of the increase would be due to repeal of the penalties under ObamaCare.

29:15 I note that CBO also says $210 billion of the forces increasing the deficit (due to repeal and replace) is due to loss of penalties from the employer/individual mandates. That’s shocking… the “affordable care” guaranteed by ACA was so bad that Americans would rather pay $210 billion in fines over a decade, rather than buy this coverage.

33:15 I zing Krugman’s idiosyncratic use of language whereby 2% of the population turns into a “handful” of people.


==> Episode 36 of the Lara-Murphy Show: I explain the basics of “tax reform” from the perspective of pro-market economists. I’m not necessarily endorsing all of these principles, but it’s relevant to the current political debates.

19 Mar 2017

“The God of the Old Testament”

Religious 38 Comments

I think a lot of people–including me when I was younger–think that there are two separate Gods in the Christian Bible. First there’s the mean vindictive God of the Old Testament, and then there’s the nice guy Jesus in the New Testament.

However, you do see all of Jesus’ character traits in the “God of the Old Testament.” For example, I grabbed the following from Baker’s Theology of Exodus:

On this occasion, Moses receives a special revelation of Yahweh’s character. He requests a look at God’s glory (33:18 ). The audacity of the request is overlooked, and Yahweh promises to reveal all his “goodness” ( 33:19 ). Whether the “glory” and the “goodness” are the same is not explained. But when Yahweh passes Moses on the mountain, six words or phrases are proclaimed that provide one of the fullest descriptions of the Lord’s character, no matter whether glory or goodness. Yahweh is compassionate, gracious, slow to anger, abounding in steadfast love, abounding in faithfulness, and forgiving ( 34:6-7 ).

According to the Bible, Jesus and the God of Abraham are the same. (Jesus said, “[B]efore Abraham was, I AM.”)

I have said this before, but the way I interpret the “two different personalities” is that in the Old Testament, you see God in His role God Almighty, creator of the heavens and earth. So yes He sends plagues and orders massacres, but you must keep in mind that He is in control of everything that happens and whether you die from a heart attack, an avalanche, or Joshua’s sword, in a sense “God killed you.” In this setting, God taught us how to live by issuing a long string of commands and giving rewards and punishments accordingly.

However, in the gospel accounts, God has become a man in order to teach us how to live by showing us through His own personal example. He didn’t contradict the Law, but fulfilled its spirit. He showed us how to understand it at a much deeper level. And since He had became one of us, He acted the way a perfect human would act. Jesus in His role as one of us didn’t use violence to resist evil.

If you object that this is all really complicated, yes I agree, but on the other hand if the Bible account were true, then you would expect it to be a bit difficult for a mortal to comprehend.

18 Mar 2017

A Huge Problem (?) in Martin Feldstein Et Al.’s Argument for Border Adjustment Tax

Trade 4 Comments

It’s not all karaoke and Krugman bashing around here. Sometimes I roll up my sleeves and do straight econ…

Some of the rank-and-file Republicans pushing the border adjustment tax (BAT) are doing so on explicitly protectionist grounds. (If you don’t know, the BAT would tax imports at 20% and exempt exports, implicitly subsidizing them 20%.) Or rather, they are saying the current tax code unfairly privileges imports and thus the BAT will level the playing field, thereby boosting exports and hurting imports.

However, the actual economists who are for the BAT (or at least think it’s not a terrible idea, like Krugman) think that such talk is uninformed. Martin Feldstein in particular has been writing op eds and blog posts, and making TV appearances, assuring everyone that the BAT won’t hurt imports.

If you haven’t read Feldstein’s argument, you need to please read this example of his position. Otherwise my own reaction is useless.

Now that you’ve read Feldstein, read my critique.

Here’s my strategy in that blog post:

  1. I first show what Feldstein has in mind, and how his argument basically goes through if we start with a country that has equal imports and exports.
  2. Then I show that if the government of this country were to exempt one-quarter of the exporters from its subsidy, the original result would no longer hold. Rather than being a wash, on net the scheme would act as a net impediment to trade.
  3. Finally, I argue that our current situation–where the US has a third more imports than exports–is equivalent to point (2) above, except where the one-quarter of the exports are “stocks and bonds.” If you think of US operations exporting a good called “stocks and bonds,” then it becomes crystal clear that Feldstein’s analysis must be wrong. The dollar won’t appreciate enough to fully offset the direct impact of the tax on imports.
16 Mar 2017

On Trade Deficits: Murphy vs. The World, Part 2 of 3

Trade 7 Comments

In a previous post, I objected to Mark Perry’s own post about the U.S. trade deficit. The title of Perry’s post captures his point: “US has a net inflow of goods and a net inflow of capital. Team Trump wants the opposite?”

I pointed out that if a populist in Japan tried to impose schemes to keep Japanese savings “working for us here in Japan,” then surely Mark Perry and other free traders would object–and rightly so. But if a free trader would assure someone in Japan not to worry about their capital account deficit, then how can free traders assure Americans that a capital account surplus is self-evidently a good thing?

(For an analogy, if a free trader looked at kids swapping lunches at school, it would work to say, “Ah, you value what you got more than what you gave up. So this makes you better off.” But it wouldn’t work to say, “Billy got a cookie instead of spinach. And Team Trump wants the opposite?”)

Now Don Boudreaux defends Mark Perry over at CafeHayek. Don writes:

Mark’s point (in summary) is that if the voluntary economic decisions of Americans and foreigners result in a U.S. current-account (“trade”) deficit – which is to say, a U.S. capital-account surplus of the very same amount – Americans should not be upset.  The reason is that a U.S. capital-account surplus means that the American economy is a net recipient, not only of imports, but also of capital.  And being a net recipient of capital is not only not necessarily a bad thing for Americans, but is likely a good thing.

No, I have to cry foul. If *that* is what Perry had written, then you wouldn’t have heard a peep out of me. But as I took pains to emphasize in my original critique, that’s *not* what Perry wrote. There’s nothing in there about “…is likely a good thing.” No, go read Perry’s post again if you don’t believe me. Clearly, his argument is that it’s self-evidently a good thing when your country has (a) more goods and (b) more capital flowing into it than out of it. And that’s clearly not a good argument, unless you think all of the countries on the other side of the equation are in trouble and that their people should fret about the trade statistics.

But beyond me thinking that Don is being too generous to Perry in his summary of his post, Don and I actually have a substantive disagreement. Here’s Don:

I believe that Bob’s objection misses the mark.  A capital-account deficit (that is, a current-account surplus) is indeed more likely than is a capital-account surplus to signal a problem with the national economy.  If Japan consistently runs capital-account deficits, this fact is likely evidence that good investment opportunities in Japan are too few – and made too few by poor government policies that make the investment climate in Japan less attractive than it would be absent these poor policies.

I understand what he’s getting at, but I simply disagree. One last thing before I dive into my example. After reading Don push back against me, someone in the comments wrote: “Once again, you are confused. The current account deficit is not the same as the trade deficit.” To which Don gave an exasperated response, wondering how this guy could possibly think Don doesn’t understand this distinction.

OK, so now I’m going to give an example of what I think these critics have in mind. As I always say on these types of posts, on policy matters Don and I are in perfect agreement. But I think I see how Don sometimes is misunderstanding his critics, and they are talking past each other. So please keep that in mind when you try to understand, “What is the purpose of Bob giving us this scenario?”


A certain nation loves Adam Smith’s quote that what is prudence for a household can’t be folly for a great kingdom, and its people heed the wisdom of Deuteronomy 15:6 that says, “For the LORD your God will bless you as he has promised, and you will lend to many nations but will borrow from none. You will rule over many nations but none will rule over you.”

So in practice what happens is that the people of this nation save a large fraction of their income every year. After a while they have exhausted the great investment opportunities in their country and on the margin, it is more attractive to invest abroad. Thus, in a typical year, the people in this nation acquire more foreign assets on net than foreigners acquire of financial assets that are claims on the nation. That is to say, our hypothetical nation consistently runs large current account surpluses / capital account deficits, both in absolute money terms and as a share of their GDP. (The people always save a large fraction of their income, even as it grows rapidly because of their frugality.)

Now at first, you might think that this means our people end up sending more goods out of the nation than they import each year. But that’s wrong. What actually happens is that their nation runs a trade deficit while they nonetheless experience a current account surplus.

For example, in the most recent year the foreigners held (I’m converting to US dollars for our convenience) $10 trillion worth of foreign assets, in the form of bonds, stock, real estate, etc. That generated an income over the course of the year of $500 billion to our hypothetical people, because on average they earned 5% on their foreign assets.

In contrast, foreigners around the world only owned $4 trillion worth of assets in our country, in the form of corporate stock. (Remember, these people are wary of outside control, so they don’t issue bonds or sell real estate to foreigners. They do allow foreigners to buy shares of corporate stock in IPOs though.) These foreigners earn an average of 2.5% on their stock, meaning they earned an annual income of $100 billion.

Now in addition to these facts, I’ll report to you that our people sold $600 billion worth of goods to foreigners, while our people imported $750 billion worth of goods. In other words, there was a trade deficit of $150 billion. More goods flowed into the country as imports, than flowed out of the country as exports.

However, notwithstanding the trade deficit, there was still a current account surplus of $250 billion. That means our people had a capital account deficit of $250 billion. That is to say, our people invested (on net) $250 billion more in additional foreign assets than vice versa.

If you want to step back and see what’s happening: Our hypothetical people earned $500 billion in (gross) investment income from their foreign assets, and they earned an additional $600 billion from exporting goods. Then with that $1,100 billion in total income in foreign currencies, they paid $100 billion that they owed as corporate dividends to the foreign holders of their stocks, they bought $750 billion worth of imported goods, and with the remaining $250 billion they acquired additional foreign assets.

Now I’m not saying that this is necessarily the goal; certainly you wouldn’t want governments passing measures to try to achieve the above outcome. (For one thing, it’s impossible for every nation to be a net lender to every other nation.) But I think my example is the kind of thing that many of Don’s critics have in mind, and why they think free traders who keep telling Americans that a capital account surplus is a good thing, are missing something.

14 Mar 2017

Murphy Podcast Twin Spin

Contra Krugman, Shameless Self-Promotion 4 Comments

==> I don’t have time to outline it, but here’s Episode 77 of Contra Krugman.

==> I was on the Johnny Rocket Launchpad. Hilarity ensued.