05 Jan 2015


Potpourri 14 Comments

==> Steve Landsburg has a good post explaining why falling oil prices don’t affect the case for a carbon tax.

==> Gerald O’Driscoll applies standard arguments for rule of law to Fed policy. (HT2 von Pepe)

==> This guy bought his own country off the coast of Portugal. The quotes are hilarious.

==> The awkward moment when your paper calls a suspect a “hulking brute” and then it turns out he was a cop.

==> Dan Sanchez on the “fat blue line.”

14 Responses to “Potpourri”

  1. Transformer says:

    Landsburg post actually give a hint as to how falling oil prices might affect the case for a carbon tax.

    “There is, as far as I can see, only one way to make Summers’s argument work, and that is to presume that the social marginal cost curve not only lies above the supply curve, but is steeper than the supply curve, so that the size of area X grows as the equilibrium quantity of oil grows. That is, the externality from carbon use is increasing at the margin.”

    Isn’t is quite possible that as pollution from oil use increases the harm it causes increases at a faster rate (low usage causes no harm, moderate use moderate harm, and high use causes extreme levels of harm). If this was the case then times of falling oil prices would be a good time to raise the issue of a carbon tax (or whatever the free market equivalent might be).

  2. Josiah says:

    A carbon tax is supposed to account for the negative externality of burning gasoline. If you had a carbon tax and falling oil prices lead people to burn more gasoline, then the amount of revenue from the carbon tax would increase. Which means that the amount of the negative externality is greater. Which means that the gain from having a carbon tax would be greater.

    • Bob Murphy says:

      Josiah I encourage you to post that in the comments of Steve’s post. He often responds.

      • Josiah Neeley says:
        • Bob Murphy says:

          Heh I know it sounds like that but I meant that straightforwardly. Steve has been thinking about it in terms of the graphs and total deadweight loss etc., so he could tell you instantly whether you’re right or wrong for framing it like that. I would have to translate it in my own framework.

          • Transformer says:

            Steve says ‘Ideally, oil would be supplied only up to the point where demand crosses social marginal cost and no further. Unfortunately, it’s supplied up to the point where demand crosses supply.’.

            The social loss is created when oil is produced beyond that point. As far as I can see volume of the revenue generated by any carbon tax is irrelevant. What matters is the difference between the qty supplied with and without the tax.

    • Harold says:

      Not sure, but I guess that although the gain is greater, the loss is also greater. For there to be net benefit the loss per unit of gasoline would need to be greater.

    • Tel says:

      You assume that falling prices are driven by a supply glut, and thus encourage customers to consume more.

      Actually, falling oil prices are (at least in part) driven by reduced demand, as people choose to consume less (or move to substitutes where they can). Buying a car is a major investment, so people will think ahead for at least 10 years when judging the price of fuel against the type of car they want to buy. Same with business, once they put the extra effort into streamlining the logistics in order to reduce fuel consumption, they are unlikely to then go and consume more just because the price came down.

  3. Joe Greene says:

    Transformer has basically said this already, but in the environmental literature CO2 emission damages are convex. They essentially have no marginal cost whatsoever up to a certain threshold, then they begin to increase steeply. A simple static model where marginal social costs are assumed to be constant isn’t appropriate in this context.

  4. khodge says:

    Driscoll did not sit quite right with me. In, what is labelled as a commentary, he put paragraphs 5 – 8 in the correct order, saying the correct things, but he really did not create a compelling narrative.

    Yes, Bear Stearns, Freddie and Fannie, and Lehman all had tough years: It is their responsibility to fix themselves or go out of business. If they collapse, it is the Fed’s job (actual day-to-day job, not a 9x per year meeting) to make whole the depositors and move on.

    Driscoll is correct when he says that there is a lag in monetary policy and yet somehow he thinks that not having a rule-based policy will …eliminate the lag? …give it extraordinary vision that it did not have a month earlier? …give the NY Times pundit/economist time to explain that austerity will destroy high-paying government consulting jobs?

  5. Tel says:

    That Dan Sanchez article is very good, he brings up an excellent point that the NYPD union has basically sided with the protesters against revenue raising with the hope of stinging city hall. Very hard to know where this will end up.

    It would be an excellent time for the Mayor to come out and admit that a lot of what went on was just petty revenue collection efforts, and to start promoting a policy of back to the basics. That will leave the city a bit short of revenue so the hard job is figuring out how to stop paying various vested interests.

    Stripping off the barnacles as we say in Australia.

  6. Tel says:

    There is, as far as I can see, only one way to make Summers’s argument work, and that is to presume that the social marginal cost curve not only lies above the supply curve, but is steeper than the supply curve, so that the size of area X grows as the equilibrium quantity of oil grows. That is, the externality from carbon use is increasing at the margin.

    That might be true. It might even be true for reasons that Larry Summers takes for granted because he knows them so well. But since it is absolutely central to his argument — that is, since his argument collapses entirely without this condition — I think it would have been nice if he’d at least mentioned it.

    It is very difficult to believe the two curves can be parallel, because suppose demand drops and drops until only a tiny amount of oil is being consumed… we would be tempted to say that if there are any social costs of oil, then reducing consumption to such a tiny amount would also imply those social costs were tiny.

    Going the other way, suppose demand increases, and we double or triple our oil consumption, by the Landsburg argument, this situation would be exactly identical social cost to the situation where tiny amounts are being burned (i.e. the size of that triangle between the parallel lines is always the same).

    I don’t see that as plausible. Mind you, it kind of works this way with the whole “social cost” caper, any valuation is as good as any other, because you can’t really measure them so just use whatever works for your argument. Maybe that’s what Landsburg is hinting at.

  7. Z says:

    The guy in the story who bought his own island is a pacifist also.

  8. Zack says:

    Looks like Bob’s paper is getting some attention:


    Notice how Piketty dismisses his major error about tax changes during the Hoover years as some sort of meaningless typo. And how he claims “Everybody recognizes that the Saez-Zucman series are indeed the best series on US wealth inequality we have so far.”

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