Just in time for your barbecue on the 4th, the Office of Management and Budget released a 44-page response to critics of the White House’s handling of the Social Cost of Carbon. In this first of perhaps several posts at IER, I explain the deal with discount rates. An excerpt:
Present dollars are more important than future dollars. If you have to suffer damage worth (say) $10,000, you will be relieved to learn that it will hit you in 20 years, rather than tomorrow. This preference isn’t simply a psychological one of wanting to defer pain. No: Because market interest rates are positive, it is cheaper for you to deal with a $10,000 damage that won’t hit for 20 years. That’s because you can set aside a smaller sum today and invest it (perhaps in safe bonds), so that the value of your side fund will grow to $10,000 in 20 years’ time.
In this framework, it is easy to see how crucial the interest rate is, on those safe bonds. If your side fund grows at 7% per year, then you need to set aside about $2,584 today in order to have $10,000 in 20 years. But if the interest rate is only 3%, then you need to put aside $5,537 today in order to have $10,000 to pay for the damage in 20 years.
An equivalent way of stating these facts is to say that the present-discounted value of the looming $10,000 in damages (which won’t hit for 20 years) is $2,584 using a 7% discount rate, but $5,537 using a 3% discount rate. The underlying assumption about the size and timing of the damage is the same—the only thing we changed is the discount rate used in our assessment of it.
Hey kids, I am 95% sure that in December 2008 Ben Bernanke was called before Congress to testify about all the emergency loan programs etc. They asked him to divulge the names of the recipients of the loans, and he said no, it would defeat the purpose of the program (because investors/depositors would dump weak banks needing Fed life-support).
Can anyone provide a link to justify my recollection? Google has failed me.
I am in a debate on State-mandated vaccinations at FEE. Don’t bother voting for me, though; there’s a greater chance you will be struck by lightning than changing anyone’s mind. An excerpt from my side:
This is a crucial point, and it shows why the case for mandatory vaccines is so much weaker than, for example, the case for mandatory restrictions on carbon dioxide emissions or mandatory contributions to the national military. When a person gets vaccinated, the primary beneficiary is himself. And this benefit is all the greater the lower the rate of vaccination in the population at large. In other words, among a population of people who all believe that a vaccine is effective, the individual cost-benefit analysis of taking the vaccine will only yield a temptation of “free riding” once a sufficient fraction of the population has become vaccinated, thus ensuring “herd immunity.”
Josiah was cracking a joke, but he brought up something important: I really do not remember things that I wrote only a few years ago. So now I am amending my harsh view. When I see Krugman totally contradict some principle that he espoused in 2011 because now it hurts his political conclusion, I no longer think he is consciously contradicting himself and hopes his readers won’t notice. I think he doesn’t realize he’s doing it.
==> Tell me this isn’t the funniest headline for a real study. I have known this about male economists for a while. Women should not emulate them. No amount of career success is worth your soul, ladies!
==> I was googling a topic and stumbled across this National Review article from back in January, where I warned conservatives about a carbon tax. I didn’t remember seeing it, though my colleagues at IER tell me we circulated the link when it ran. Anyway, in case you forgot it as much as I did, here ya go.
==> In this post Scott Sumner says it’s been “smooth sailing” for the Danes, who aren’t afraid to establish a currency peg and inflate to the gates of Hell if need be. Scott doesn’t mention that the Danish central bank’s assets are up 50% year-over-year, amidst this “smooth sailing.” (I looked it up but don’t have a link for you. Their website has some stuff in English if you’re curious.) He still thinks he was right about Switzerland; they dropped his perfectly sound strategy for no good reason. He’s still right. (In contrast, when I say there was no reason for governments to abandon the gold standard in the 1930s, I really am right.)
==> My FEE article on the euro and Greece, from back in 2012, has found new legs. I think it holds up pretty well.
==> I have a new post at IER on the British Columbia carbon tax and “leakage.” Cool Excel chart at the end!
In this post Paul Krugman is happy about the Greek vote. He writes:
Tsipras and Syriza have won big in the referendum, strengthening their hand for whatever comes next. But they’re not the only winners: I would argue that Europe, and the European idea, just won big — at least in the sense of dodging a bullet.
…You don’t have to love Syriza, or believe that they know what they’re doing — it’s not clear that they do, although the troika has been even worse — to believe that European institutions have just been saved from their own worst instincts. If Greece had been forced into line by financial fear mongering, Europe would have sinned in a way that would sully its reputation for generations. Instead, it’s something we can, perhaps, eventually regard as an aberration.
And if Greece ends up exiting the euro? There’s actually a pretty good case for Grexit now — and in any case, democracy matters more than any currency arrangement.
On a hunch, I looked it up and apparently gay marriage is illegal in Greece. (I choose those words deliberately, if you go read the link.) Supporters of gay marriage are appealing to outside institutions, including the EU, to overturn the results of Greek democracy.
I await Krugman’s column on this important social issue.
Recent events have only confirmed for me something I noticed a while ago: There are plenty of people who share my political outlook–even some who say they are fans of my writing–who nonetheless have utterly different worldviews.
I am a libertarian anarchist in the tradition of Rothbard because I take moral and legal rules seriously, and don’t think they can be tossed aside just because people think awful consequences would ensue if we don’t violate them systematically. So for example, if theft, kidnapping, and mass murder are flat-out wrong, then how can someone support institutionalized taxation, military conscription (or jury duty), and modern war?
On the other hand, there are plenty of libertarians today who are attracted to the philosophy because they don’t want anybody–whether a politician or a priest–telling them what to do.
I understand full well that many American Christians have done a lot to sully the reputation of the faith in the eyes of neutral onlookers, but at the same time the past month has made me realize how little many libertarians would care if the U.S. government seriously cracked down on religious freedom. Don’t get me wrong, I’m not saying they would endorse it. But I’m saying they would certainly not lose sleep over it.
I got to know Adam when we drove to Atlanta to catch a Jordan Page house party. He has an interesting story in that he came back from Afghanistan–where he originally thought he was defending American liberty–only to find (as I think he would describe it) that the country had been sold out to bankers and others. You may also recognize him as the drummer from the Music City Friends of Liberty.