Yes Daniel, the OMB Did Have Climate Change in Mind When They Still Insisted on a 7 Percent Discount Rate
In the context of my recent Senate testimony on the “social cost of carbon,” my favorite Keynesian grad student said that for all we know, the OMB guidelines (which require reporting CBA in terms of a 7% discount rate, as well as 3% and others that might be appropriate to the situation) was just a general framework, and that they didn’t have climate change in mind.
I was stunned that Daniel could suggest this, since I had shown that the OMB in its 2011 primer specifically cited Martin Weitzman, who is probably Earth’s leading proponent of using very low discount rates in climate change analysis. Still, Daniel was not moved beyond a reasonable doubt.
OK Daniel here is the second paragraph of Weitzman article, “Just Keep Discounting, But…” that comes from Discounting and Intergenerational Equity (Portney and Weyant eds., Resources for the Future), which the OMB primer cited in footnote 9:
The seemingly arcane issue concerns how to discount events that come to pass in what I shall call the “deep future”–meaning they will happen many generations, even centuries, from now, long after we and everyone we know have passed away. At first thought it might seem that such projects are of limited practical importance. Maybe that was true once, but increasingly today we are being asked to analyze projects whose effects will be spread out over hundreds of years. The most prominent single example of this is the mother of environmental catastrophes–global warming. [Bold added.]
Now to refresh everyone’s memory, after the 2011 primary cited the above paper from Weitzman in its discussion of choosing a discount rate on regulations that will have intergenerational effects, it went on to say:
If the regulatory action will have important intergenerational benefits or costs, the agency might consider a sensitivity analysis using a lower but positive discount rate, ranging from 1 to 3 percent, in addition to calculating net benefits using discount rates of 3 percent and 7 percent. [“Regulatory Impact Analysis: A Primer,” p. 12, bold added.]
OK, so there are no ifs, ands, or buts about it: By failing to report the “social cost of carbon” using a 7 percent discount rate, the Obama Administration’s Working Group ignored the Executive Branch’s own rules for how to conduct regulatory analysis.
Now why would they do that? My strong suspicion is that it’s because releasing a range of social cost of carbon estimates that hits $0 or even negative–meaning carbon dioxide emissions confer “positive externalities”–would make it really hard for Senators Boxer, Whitehouse, and Sanders to compare me to tobacco executives when I “deny the obvious and immediate damages of climate change all around us” (not an exact quote but very much in the spirit of what they said to me earlier this week).
A Letter From Guantanamo Bay
Josie Harris reads a letter from a guy who’s been in Guantanamo Bay for 11 years without being charged with anything. In the background is rapper “Mos Def” actually being force fed to demonstrate how awful it is.
If you’re pressed for time, just start watching at the 1:00 mark. It’s disturbing but it’s important for Americans to realize what their government is doing to people.
With Friends Like Me, Sumner Doesn’t Need Enemies
Noah Smith launched a completely unfair attack on Scott Sumner when he wrote:
…monetarists like Scott Sumner often spend a lot of time “punching hippies” on every issue other than monetary policy, trying to avoid being tarred as hippies themselves for their lack of fear of inflation. (Note to Sumner: This strategem has quite noticeably failed to convince most conservatives to support anything remotely resembling NGDP targeting.)
This quote epitomizes what I can’t stand about guys like Smith and DeLong. They are sarcastic and snarky and think they are in the “reality-based community” as opposed to us ideologues, and yet the quotation above is utterly divorced from reality.
Indeed, as Scott himself points out:
Yeah. That’s why I’ve advocated carbon taxes, universal health care, progressive taxes to redistribute income, drug legalization, more immigration, etc. I’m hoping to piss off all those hippies and win over the conservatives. (Memo to young bloggers–wait until you are at least 50 years old before trying to judge the motives of other bloggers.)
But the second statement is what really set me off. When I started blogging I had no expectation of having any impact at all. After all I’m at Bentley (which is a college, not a car.) I still don’t really know how much impact I’ve had, but no one can deny that NGDP targeting has become the hot idea in macro, with lots of supporters on both the left and the right. I’ve recently done not one but two NGDP targeting papers for the Koch-funded Mercatus Center (the 2nd on NGDP futures is coming out very soon), and you see lots of conservative journalists jumping on the NGDP targeting bandwagon. I’ve also done pieces for Cato, AEI, the Adam Smith Institute, etc. Yes, I’ve failed to convince Taylor, Feldstein, and Meltzer, but I’m seeing lots of interest from younger academics. Noah Smith should check out my email inbox.
It’s clear to me that old monetarism is dying. It might be replaced by Austrianism, but I believe that bright young conservative academics will find market monetarism to be more appealing.
Exactly right. In fact, I’ve been surprised at just how willing the supposedly conservative sites are to embrace Scott’s viewpoints, when the only “conservative” thing I see him doing is frequently quote Milton Friedman. I mean, the guy wants to help the people in Bangladesh, for crying out loud–does Larry Kudlow know that?!
So no, Noah, you are totally wrong. In my view, Scott is the #1 threat to hard money and the Austrian perspective (since the people who might go Austrian aren’t going to be seduced by standard Keynesians). And what makes that fact all the more surprising, is that he is such an interventionist on so many other topics, that I can’t believe he’s so big among people with a knee-jerk faith in free markets.
There ya go, Scott, who’s your buddy? I’ve got your back against these young punk Keynesian bloggers.
Who Said It?
Look at this guy talking about China:
China is in big trouble. We’re not talking about some minor setback along the way, but something more fundamental. The country’s whole way of doing business, the economic system that has driven three decades of incredible growth, has reached its limits. You could say that the Chinese model is about to hit its Great Wall, and the only question now is just how bad the crash will be.
Start with the data, unreliable as they may be. What immediately jumps out at you when you compare China with almost any other economy, aside from its rapid growth, is the lopsided balance between consumption and investment….
But it also means that the Chinese economy is suddenly faced with the need for drastic “rebalancing” — the jargon phrase of the moment. Investment is now running into sharply diminishing returns and is going to drop drastically no matter what the government does; consumer spending must rise dramatically to take its place. The question is whether this can happen fast enough to avoid a nasty slump.
And the answer, increasingly, seems to be no. The need for rebalancing has been obvious for years, but China just kept putting off the necessary changes, instead boosting the economy by keeping the currency undervalued and flooding it with cheap credit….These measures postponed the day of reckoning, but also ensured that this day would be even harder when it finally came. And now it has arrived.
Sounds almost like Peter Schiff, doesn’t it?
Actually it was You Know Who.
(Also, I’m just being cute here, following Alex Tabarrok’s lead on Twitter when he said Krugman is using Austrian business cycle theory. Especially if you read the stuff I cut out with ellipses, it’s not totally ABCT, but it’s a kissing cousin.)
Murphy Testimony to the EPW Senate Committee
Here’s my full written testimony, and below is my 5-minute summary. Needless to say, Senators Boxer, Whitehouse, and Sanders didn’t care for my thoughts on the social cost of carbon.
Potpourri
==> You know how whatever plane the president gets on, becomes Air Force One by definition? Well today and tomorrow my laptop+nervous system are operating out of the DC offices of IER, so that’s where Consulting By RPM now is.
==> The best abstract for a scientific paper ever?
==> Common but improper uses of phrases.
==> Tom Woods comments on the recent discussion over Rand Paul’s social media director.
==> On the one hand it’s astounding that this got through, but on the other you can imagine the time crunch news broadcasts are on. Still, it shows how this stuff works. They broadcast it because (they claim) they got the NTSB to sign off on the names.
==> Bryan Caplan and David R. Henderson discuss the demise of the Chicago School. Neither mentions Scott Sumner. (zing!)
Promotional Update
==> On Wednesday IER has its carbon tax conference; will be some great stuff in our presentations. If you’re in the DC area you should come by; otherwise I’ll post the videos here when they’re ready.
==> On Thursday I’ll be testifying before the Senate on the “social cost of carbon.”
==> What’s the current market price of my package? Details here.
My Son On How to Help the Third World
I asked my 8-year-old how the rich United States could help horribly poor Bangladesh. He said, “Have 747s fly over Bangladesh and dump $100,000,000,000 out of the cargo bay. It will make them richer and help us at the same time.” Cute, huh?
Ha ha, got you. That wasn’t my son at all, it was the guy many of you consider the world’s most important economist.
(And this commenter nails it.)
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