The US Chamber’s Analysis of (Hypothetical) Power Plant Rule
Last week the US Chamber of Commerce issued a report it had commissioned, which looked at the impact of a 40% reduction in US power plant emissions, relative to 2005 levels, by the year 2030. (That was a reasonable guess as to the Administration’s actual policy, which today was announced at 30%.)
In my latest IER post, I show that, if their analysis is correct, then the rule obviously fails a cost/benefit test, even using the Administration’s own “social cost of carbon” numbers. Of course, when Krugman saw the results, he told his readers that it showed just how cheap the policy was. An excerpt:
The crucial rhetorical trick here is that supporters of the power plant regulation focus on the total price tag, and utterly ignore what Americans supposedly get (in the form of reduced climate change)for this sacrifice. Imagine a wife looking over the monthly credit card statement and seeing that her husband has been going out to get sushi at lunch several times a week. When she complains that their food budget is really tight, the husband shoots back, “Hey! I only spend $60 a week on sushi. You spend way more than that at the grocery store. So you see, my food policy is incredibly cheap.”
That’s what’s going on here, with the Administration’s power plant regulations. For example, Krugman doesn’t actually quantify the benefits, in order to compare them with the quantified costs. Instead he just writes, “The Chamber’s supposed scare headline is that regulations would cost the US economy $50.2 billion per year…That’s for a plan to reduce GHG emissions 40 percent from their 2005 level, so it’s for real action.”
Does that sound like a proper cost/benefit analysis? In any other context, would it sound rigorous for a Nobel Prize-winning economist to contrast $50.2 billion in annual costs with benefits merely described as “real action”?
And my conclusion:
The U.S. Chamber study found that regulations imposing power plant emissions reductions would have enormous absolute impacts, to the tune of $50 billion in lost GDP per year. The supporters of the regulation (such as Paul Krugman) didn’tdispute the Chamber’s numbers; instead they tried to defend them as being “surprisingly small.” If we move beyond the absolute impact, and look instead at the cost relative to the ostensible climate benefit then things get even worse; on this score, the policy studied by the Chamber would have a relative cost almost 75% more than Waxman-Markey.
To add to the irony, the Chamber’s analysis shows that power plant regulations would fail the Obama Administration’s own cost/benefit criterion for climate regulations. The whole point of setting up a Working Group to issue estimates of the “social cost of carbon”—as dubious as this process is, as we’ve demonstrated here at IER—was to give federal agencies guidance when running cost/benefit analyses on their proposed regulations. Yet as this episode shows, nobody in Washington actually takes these SCC numbers seriously, if they get in the way of a pet policy.
Slavery and Reparations
My latest Mises Canada post. I make the standard point (i.e. that slavery and other racist institutions hurt white people too, on average), then make a point I haven’t seen others make regarding the latest call for reparations:
A recent essay by Ta-Nehisi Coates makes the case for reparations to be paid to black Americans. The subtitle of the essay provides a good summary of its main points: “Two hundred fifty years of slavery. Ninety years of Jim Crow. Sixty years of separate but equal. Thirty-five years of racist housing policy. Until we reckon with our compounding moral debts, America will never be whole.”
In this blog post I will make two points: (1) Racist institutions and policies historically hurt black people, obviously. But they also hurt the average white person. This undercuts the whole case for transferring money from the alleged inheritors of ill-gotten gains, since in fact they did not gain. (2) If we are going to discuss the “compounding moral debts” from injustices inflicted on past generations, I hope progressive intellectuals use the same very low discount rates in this context, as they insist be used when it comes to climate change policies.
H8ers Gonna H8
This might strike some (most?) of you as a “no kidding, Murphy” post, but maybe it will click with a few of you. If I can help just one reader…
On social media it’s fun to refer to implacable critics as “haters,” and the common explanation for their behavior is, “Haters gonna hate.” But I actually think that is more profound than most of the people using it realize. First, it crystallizes the choice we face: Are we going to approach others with love, or with hate? There’s no middle-of-the-road policy here.
Furthermore, what I’ve realized as well is that someone who is a “hater” to you, is not just picking on *you*. There are many recipients of that person’s hate on a daily basis. The person really IS a hater; that’s not just a cute term for “someone who really said rude things about my Throwback Thursday pic.”
What made me realize these things, was watching internet battles of late, where it was quite obvious to me that various partisans were hurling the most ludicrous of criticisms at each other, and apparently with righteous indignation. I previously would not have thought some of these exchanges were possible, had I not seen them with my own eyes. (Yes, the Piketty stuff is an example, but that’s just one of many, and I don’t even just mean arguments that have political ramifications.)
Yet this should be par for the course, for a Christian. No matter how ludicrous the criticism any of us receives from a hater, no matter how unfairly our wonderful efforts are despised by people who (in our minds) can’t hold a candle to all the hard work we’re doing… it is nothing compared to this:
10 Now He was teaching in one of the synagogues on the Sabbath. 11 And behold, there was a woman who had a spirit of infirmity eighteen years, and was bent over and could in no way raise herself up. 12 But when Jesus saw her, He called her to Him and said to her, “Woman, you are loosed from your infirmity.” 13 And He laid His hands on her, and immediately she was made straight, and glorified God.
14 But the ruler of the synagogue answered with indignation, because Jesus had healed on the Sabbath; and he said to the crowd, “There are six days on which men ought to work; therefore come and be healed on them, and not on the Sabbath day.”
15 The Lord then answered him and said, “Hypocrite![a] Does not each one of you on the Sabbath loose his ox or donkey from the stall, and lead it away to water it? 16 So ought not this woman, being a daughter of Abraham, whom Satan has bound—think of it—for eighteen years, be loosed from this bond on the Sabbath?” 17 And when He said these things, all His adversaries were put to shame; and all the multitude rejoiced for all the glorious things that were done by Him.
And as those of you familiar with the gospels know, this was a recurring theme. Just like Clinton’s partisans sent out the talking point of “does not rise to the level of impeachment” during the Lewinsky scandal, so too did Jesus’ enemies actually keep bringing up the fact that He was miraculously healing people on the Sabbath. With a straight (and indignant) face, they were publicly criticizing someone for miraculously healing people when He should not have been working.
So no matter how annoyed you get with unbelievably idiotic nitpicking critics, take it with a chuckle: It’s nothing compared to what Jesus put up with, and He still willingly died to save all of the haters, including you and me.
Spitznagel Snaps
Whoa, when he’s not taking calls from Dan Aykroyd, Eric Spitznagel goes off on people on Twitter. To get my Austrian fan base to read Eric’s NYT piece, I tweeted out:
This amused Eric (I’m using first names not because we’re buds, but because I don’t want you to confuse him with Mark the investor) such that he issued forth a string of comparable tweets, such as:
You won’t believe what happened next!
*Yawn* Two More Experts on Growth and Inequality Say Piketty Is Totally Wrong
Steve Landsburg links to this Note by Krussell and Smith on Piketty. These guys are experts in this field; for example here’s one of their joint papers on wealth and income inequality in the JPE. Short version of their current Note: Like Larry Summers, they claim that once you account for depreciation, Piketty’s whole case falls apart. Some excerpts:
Piketty’s predictions are not mere extrapolations from past
data but, instead, rest importantly on the use of economic theory. This is important, since
for the predictions to be reliable, one would want to feel some comfort in the particular
theory that is used. Our main point is to make clear that there are strong reasons to doubt
the specific theory that Piketty advances.We argue that one of the key building blocks in this theory—what he calls the second
fundamental law of capitalism—is rather implausible, for two reasons. First, we demonstrate
that it implies saving behavior that, as the growth rate approaches zero, requires the aggregate economy to save 100% of GDP each year. Such behavior is clearly hard to square with
any standard theories of how individuals save, and it is inconsistent with the findings in the
empirical literature on how individuals actually save.
…
[Piketty’s] argument [for predicting an explosion in capital’s share of income], in its disarming simplicity, may look attractive, but it is worrisome to those of us who have studied basic growth theory based either on the assumption of a constant saving rate—such as in the undergraduate textbook version of Solow’s classical model—or on optimizing growth, along the lines of Cass (1965) and Koopmans (1965) or its counterpart in modern macroeconomic theory. Why? Because we do not quite recognize the second law, k/y = s/g. Did we miss something important, even fundamental, that has been right in front of us all along?
I just love the opening of that one sentence: “This argument, in its disarming simplicity, may look attractive, but it is worrisome to those of us who have studied basic growth theory…” Pretty much.
I’m going to go out on a limb and say that this won’t faze Piketty’s fans at all. Who cares if his theory is totally at odds with the existing literature and can’t be squared with historical data? Damnit Jim the man’s a visionary, not an accountant.
Mark Spitznagel Uses a Chokehold to Teach His Brother About Mises
OK not quite. But some of you will find this NYT magazine story by Eric Spitznagel cute. (Mark Spitznagel is the author of The Dao of Capital, for which I was a consultant on the chapters dealing with Austrian theory.) Some excerpts:
For the last four years, my brother and his family lived in a house with a moat. The house — a four-bedroom French villa in Bel Air previously owned by Jennifer Lopez and Marc Anthony — is pretty impressive even without the moat, but that unnecessary protective trench gives the house a certain surreal charm. It’s nice to know that when you visit your family for the holidays, you don’t have to worry about Spanish conquistadors.
…
I asked him once what he does, and here’s how he explained it: “I exploit the distortions of our interventionist monetary policy as they manifest themselves in the financial markets. I do this specifically using very asymmetric payoffs of derivatives.” Make sense? If it does, then you’re probably rich, too.
…
When he suddenly had more money than Bruce Wayne, it seemed as if we had even less to talk about. I still adore him, but our lives became fundamentally different. During the last election, I felt that I was making a political statement with my Obama bumper sticker. Mark hosted a $2,500-a-plate campaign fund-raiser for Ron Paul at his house. Yes, the one with the moat.But something changed last summer. I was in Los Angeles on business, and I spent the night at my brother’s place. I had dinner with him and his family, and then we stayed up far too late drinking very (very) expensive Scotch. As we do every time we’re together, we tried to reconnect, catching each other up on the recent happenings in our lives. He told me about an op-ed he wrote for The Wall Street Journal and talked about his favorite economists, like Ludwig von Mises and Frédéric Bastiat. I told him about how they opened a Trader Joe’s in my neighborhood, and I’d already purchased a case of three-buck Chuck.
Ellsberg vs Kerry on Snowden
I didn’t know some of the legal facts Daniel Ellsberg relays in this piece:
As I know from my own case, even Snowden’s own testimony on the stand would be gagged by government objections and the (arguably unconstitutional) nature of his charges. That was my own experience in court, as the first American to be prosecuted under the Espionage Act – or any other statute – for giving information to the American people.
I had looked forward to offering a fuller account in my trial than I had given previously to any journalist – any Glenn Greenwald or Brian Williams of my time – as to the considerations that led me to copy and distribute thousands of pages of top-secret documents. I had saved many details until I could present them on the stand, under oath, just as a young John Kerry had delivered his strongest lines in sworn testimony.
But when I finally heard my lawyer ask the prearranged question in direct examination – Why did you copy the Pentagon Papers? – I was silenced before I could begin to answer. The government prosecutor objected – irrelevant – and the judge sustained. My lawyer, exasperated, said he “had never heard of a case where a defendant was not permitted to tell the jury why he did what he did.” The judge responded:well, you’re hearing one now.
And so it has been with every subsequent whistleblower under indictment, and so it would be if Edward Snowden was on trial in an American courtroom now.
Indeed, in recent years, the silencing effect of the Espionage Act has only become worse. The other NSA whistleblower prosecuted, Thomas Drake, was barred from uttering the words “whistleblowing” and “overclassification” in his trial. (Thankfully, the Justice Department’s case fell apart one day before it was to begin). In the recent case of the State Department contractor Stephen Kim, the presiding judge ruled the prosecution “need not show that the information he allegedly leaked could damage US national security or benefit a foreign power, even potentially.”
We saw this entire scenario play out last summer in the trial of Chelsea Manning. The military judge in that case did not let Manning or her lawyer argue her intent, the lack of damage to the US, overclassification of the cables or the benefits of the leaks … until she was already found guilty.
Without reform to the Espionage Act that lets a court hear a public interest defense – or a challenge to the appropriateness of government secrecy in each particular case – Snowden and future Snowdens can and will only be able to “make their case” from outside the United States.
Potpourri
==> BusinessWeek explains why the 1% (annualized) drop in GDP in the first quarter is good news for the economy. Hint: it involves inventories. Oh boy.
==> Be careful, this article says the government is reporting that “food price inflation” is running at a 22% annual rate, YTD. But no, if you click the link to the source, you find that the government was reporting beef and veal prices are up a 22% annualized rate, YTD. Obviously, I think the government is downplaying actual price inflation, but the Breitbart piece was claiming the government’s own figures showed food was up 22%. Nope.
==> Randy Holcombe has some good points about capital & interest theory in his review of Piketty.
==> Howard Reed does a good job laying out the different data sets on which Piketty and Giles drew for their respective (and vastly different) trend constructions. Reed says it boils down to Piketty adjusting for discontinuities between the original sources. I have no real problem with Reed’s arguments. What made me flip out is when people initially said that Giles’ results were basically the same thing as Piketty’s.
==> David Beckworth goes over the historical evidence to judge the odd claim put out by Williamson and a few others (?) that the Fed’s low interest rates must yield low price inflation (to maintain equilibrium).
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