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At Last, A Little Bipartisan Deficit Reduction

June 17th, 2011 . by economistmom

The Senate voted to repeal the ethanol tax credit on Thursday.  The significance of this wasn’t in the size of this particular tax expenditure (about $1 billion/year in forgone excise tax receipts, according to footnote 4 in this JCT publication), but in the fact that the proposal to end the credit and actually raise revenue from it actually received bipartisan support.

Here is the roll call vote.  The yeas and nays are nearly perfectly evenly divided among Ds and Rs, with the nays easily explained by geography (corn-producing states).  Some of those who voted no, like Senate Budget Committee chair Kent Conrad (one of the Democratic members of the Gang of Six-now-Five), no doubt would have favored a more sweeping reduction of tax expenditures–but would argue (I’m pretty sure) that picking on the ethanol tax subsidy alone and thus their particular (agricultural) part of the country is unfair.

I think this is a really good sign.  (And I have more good news to share in my very next post…)

“We Cannot Consign Our Children To This Future”

June 15th, 2010 . by economistmom

Tonight the President acknowledged that the BP disaster is more than a lesson for BP and the oil industry. It’s a lesson for all of us that we’ve known about for a long time but found it more comfortable to ignore. But even the BP tragedy/debacle isn’t enough to get even the President to really “tell it like it is.” He speaks of the need for climate change policy this way (emphasis added):

So one of the lessons we’ve learned from this spill is that we need better regulations, better safety standards, and better enforcement when it comes to offshore drilling. But a larger lesson is that, no matter how much we improve our regulation of the industry, drilling for oil these days entails greater risk.

After all, oil is a finite resource. We consume more than 20 percent of the world’s oil, but have less than 2 percent of the world’s oil reserves. And that’s part of the reason oil companies are drilling a mile beneath the surface of the ocean: because we’re running out of places to drill on land and in shallow water.

For decades, we have known the days of cheap and easily accessible oil were numbered. For decades, we’ve talked and talked about the need to end America’s century-long addiction to fossil fuels. And for decades, we have failed to act with the sense of urgency that this challenge requires.

Time and again, the path forward has been blocked, not only by oil industry lobbyists, but also by a lack of political courage and candor.

The consequences of our inaction are now in plain sight. Countries like China are investing in clean-energy jobs and industries that should be right here in America. Each day, we send nearly $1 billion of our wealth to foreign countries for their oil. And today, as we look to the Gulf, we see an entire way of life being threatened by a menacing cloud of black crude.

We cannot consign our children to this future. The tragedy unfolding on our coast is the most painful and powerful reminder yet that the time to embrace a clean-energy future is now. Now is the moment for this generation to embark on a national mission to unleash America’s innovation and seize control of our own destiny.

…and yet he couldn’t seem to bring himself to talk about the kind of climate change policy that would not only avoid consigning our children to this awful environmental future, but would also avoid subjecting our children to an awful fiscal future.  The policies President Obama mentioned sounded like vague “carrot” approaches–suggesting we ought to somehow encourage clean energy technologies (i.e., more subsidies!  more spending!)…

This is not some distant vision for America. The transition away from fossil fuels is going to take some time. But over the last year- and-a-half, we’ve already taken unprecedented action to jump-start the clean-energy industry.

As we speak, old factories are reopening to produce wind turbines, people are going back to work installing energy-efficient windows and small businesses are making solar panels. Consumers are buying more efficient cars and trucks, and families are making their homes more energy-efficient. Scientists and researchers are discovering clean-energy technologies that someday will lead to entire new industries.

Each of us has a part to play in a new future that will benefit all of us. As we recover from this recession, the transition to clean energy has the potential to grow our economy and create millions of jobs, but only if we accelerate that transition, only if we seize the moment, and only if we rally together and act as one nation: workers and entrepreneurs, scientists and citizens, the public and private sectors.

You know, when I was a candidate for this office, I laid out a set of principles that would move our country towards energy independence. Last year, the House of Representatives acted on these principles by passing a strong and comprehensive energy and climate bill, a bill that finally makes clean energy the profitable kind of energy for America’s businesses…

…except for this only hint that maybe there would be taxes involved (shhhh!..don’t say the dreaded “T” word!–emphasis added):

Now, there are costs associated with this transition, and there are some who believe that we can’t afford those costs right now. I say we can’t afford not to change how we produce and use energy, because the long-term costs to our economy, our national security and our environment are far greater.

So I’m happy to look at other ideas and approaches from either party, as long as they seriously tackle our addiction to fossil fuels. Some have suggested raising efficiency standards in our buildings, like we did in our cars and trucks. Some believe we should set standards to ensure that more of our electricity comes from wind and solar power. Others wonder why the energy industry only spends a fraction of what the high-tech industry does on research and development, and want to rapidly boost our investments in such research and development.

All of these approaches have merit and deserve a fair hearing in the months ahead. But the one approach I will not accept is inaction. The one answer I will not settle for is the idea that this challenge is somehow too big and too difficult to meet.

…yet tonight he very carefully avoided explicitly acknowledging that the best way to encourage such clean technologies would be to (shhhh!–guess what?) make dirty energy less profitable to the industry and more expensive to the consumer–i.e., to take a  more “stick”-like approach.

Like the way he talks about getting back to fiscal sustainability, the President says the one answer he will not settle for is that the challenge is “too difficult.”  But like the way the President doesn’t like to spell out exactly what sorts of policies are needed to get us back to fiscal sustainability (entitlement cuts and tax increases), he also did not utter the phrase “carbon tax” tonight–precisely the kind of policy that could save our kids from both an unsustainable environment and an unsustainable debt.

Theoretically, none of these huge policy challenges are actually that hard to solve.  In practice, the politics are just so screwed up that these huge problems (which seem to get huger by the day) seem impossible to solve.

The BP Disaster: Still, a Very Public Problem

June 1st, 2010 . by economistmom

bp-stock-drop-cnn-money-060110

Hard to believe it’s been almost a month since I first wrote about the BP oil spill–which I noted at the time was more appropriately considered an “explosion” and not just a “spill.”  (Actually, an “unstoppable gusher” is a still better description, as we’ve since learned.)

I wrote at the time that the temptation would be to say it’s all BP’s fault and just punish and fine the hell out of BP until we’ve squeezed every last dollar out of them.  We would get very angry and shout that BP got us into this mess, so BP would have to fix it.  I said then that taking such a position might be emotionally accommodating (it’s always someone else’s fault, not our own), but it wouldn’t be very smart from a public policy perspective.  I made the argument that if government has a goal of “maximizing social welfare,” the best policy response would be to recognize this as a classic “negative externality” situation and use the best policy tool we have to address it–some sort of tax or charge on fossil fuels–explaining it this way (emphasis added):

The right policy needs to indeed spread the burden of the costs of cleaning up the oil spill to all participants in the oil marketplace, including those of us who innocently just fill up our tanks with gasoline.  Only when the extra social costs of the environmental risks associated with both fossil fuel production (e.g., risk of offshore drilling mishaps) and fossil fuel consumption (e.g., global warming, pollution) are incorporated into the prices all of us face in the fossil fuel markets we participate in, will we be led to make the correct, or at least better, decisions from a social welfare standpoint, not just from our own selfish standpoints.  These better decisions include the oil companies using safer production methods (which likely means producing less offshore), and consumers buying less gasoline.

But what I neglected to consider is that a tax or charge on fossil fuels in general would not really get at putting a price on the extra social costs associated with the risky offshore drilling methods.  A carbon tax would be able to price the external costs associated with global warming (a cost that quite appropriately should be designed to hit both consumers and producers), but would not put an extra marginal cost on riskier versus safer ways of producing (or more specifically, extracting) oil.   That additional social cost needs to be imposed on the producers making the decisions about how to produce the oil, or else the incentives to produce using safer methods (especially if they are more expensive than dangerous methods) won’t be there.

So, I want to make an addendum to the post from almost a month ago.  I stick by my position that this is a very public problem in need of a very public (policy not just relations) solution.  But imposing higher prices on fossil fuels in general, to correct for the global-warming-type environmental costs, is not enough.  To get this right, we need to somehow price the expected marginal external costs of offshore oil production as well, if we determine that that production method in particular indeed imposes social costs that exceed private costs.  The lump-sum punitive fine on BP imposed after the incident (as well as what has just happened to BP stock prices, pictured above) may have a deterrent effect on other oil companies who engage in offshore drilling, but it’s not an offshore drilling policy.  If the government’s response is just an ex-post fine on BP alone, going forward, oil companies in general will still have the incentive to produce at least expected private cost regardless of potential external social costs associated with potential (but still low-probability) accidents.

It seems to me that in our negligence regarding public policy toward the oil and gas industry, we have greatly underpriced the cost of fossil fuels produced from offshore drilling methods for two reasons:  (i) for the potential social costs associated with the global warming caused by the consumption and use of fossil fuels in general, and (ii) for the expected environmental costs associated with offshore oil and gas production in particular.   The first problem would be solved by turning to a carbon tax or charge, but the second requires another tax or fee that would be charged to any oil company who engages in offshore drilling based perhaps on the quantity of oil they produce offshore or wells drilled or whatever is best correlated with the imposed social risks.  The revenue from these latter fees/taxes could go into some sort of trust fund designed to cover the (large) costs of cleaning up (low-probability) accidents.  This sounds a lot like an insurance policy, doesn’t it?  But it’s like a social insurance program, because these are social costs and a very public problem.

What I describe above is a public policy approach that relies on creating the right market incentives, correcting how the price system allocates resources in the case of a “market failure.”  The alternative or additional public policy tool is regulation.  It may be the case that we need both better prices and more “command and control” requiring safer production methods.

I don’t know much at all about the Superfund program, but it strikes me that there may be some similarities there in terms of the “insurance” quality of the system I describe.  As explained by the Tax Policy Center, Superfund taxes that went into the Superfund fund expired in 1995, but the Obama Administration’s budget proposes to reinstate them.  I’d love to hear from any of you who know more about Superfund regarding any public policy lessons there for the current mess we’re in with this BP disaster.

Should It All Be Greek to Us?

May 17th, 2010 . by economistmom

The IMF’s Fiscal Monitor released on Friday should be troubling to us Americans for what it says about the required adjustments we’ll have to make to get to sustainable levels of public debt–because it puts us in the same category as Greece.  From page 32 in the report:

26. The extent of fiscal adjustment required to achieve certain debt targets varies significantly across advanced economies.

The adjustment is highest—close to or above 10 percent of GDP in the baseline scenario described above—in countries with high initial CA primary deficit and debt levels (Greece, Ireland, Japan, Spain, the United Kingdom, and the United States) (Figure 13 and Appendix 2).

…and yet the report also explains why the U.S. will find such a large adjustment especially difficult to achieve given our projected age-related spending needs.  From page 36, where Figure 14 shows the U.S. as the top-rightmost data point in a graph that plots the required fiscal adjustment against projected age-related spending increases:

29. The fiscal adjustment described above will be made more challenging by the spending pressures that will arise in the decades ahead, particularly in advanced economies.

The adjustments discussed above do not take into account those needed to offset the spending pressures already in train due to population aging and other spending trend increases. In particular, for several countries, total adjustment required goes well beyond the net improvement needed in the primary balance, as measures will also be required to offset higher health and pension spending (let alone pressures arising from global warming). On average, spending increases in health and pensions are projected at 4 to 5 percentage points of GDP in advanced economies over the next 20 years (see IMF 2010c). The relative position across countries along these two dimensions—the needed change in the primary balance to lower public debt below 60 percent of GDP for advanced economies, and the increase in spending pressures for pensions and health—is illustrated in Figure 14. Countries with adjustment requirements clearly above the (simple) averages in both dimensions—those located far in the upper right quadrant—include the United States, Spain, the United Kingdom, France, and the Netherlands.

That’s why the IMF report also explains that although the challenges are created by pressures on the spending side of the federal budget, “achieving large fiscal adjustments will require a variety of measures”–and they examine a variety of specific revenue measures (VAT, excise tax increases, and carbon fees/taxes–as shown in Table 11 on page 47) that for the U.S. could contribute a total of over 6 percent of GDP, or just about half the 12 percent of GDP adjustment needed over the next couple decades to stabilize debt/GDP to around 60 percent.  That doesn’t even include any possible base broadening of the current federal income tax.

Their point being that age-related spending may be driving most of the longer-term problem but it can’t be all of the solution, because it’s doubtful we could damp down such spending enough, and even if we theoretically could, would we really want to (as a compassionate society)?  On the other hand, there are a lot of ways to raise revenue in a socially-optimal, economically-efficient way–by as they put it “strengthening broad-based taxes on relatively immobile bases and increasing externality-reducing taxes” (pg. 45).

And if we don’t take advantage of the luxury of having adjustments like these available for us to make gradually over the next couple decades, we may be forced instead to make that huge adjustment suddenly.  And then suddenly we may look a lot more like Greece.

The Very Picture of a Very Public Problem

May 12th, 2010 . by economistmom

how-big-is-the-oil-spill

For inside-the-Beltway-obsessed (“DCist”) types, here’s a picture worth at least a thousand words and several billions of dollars that ought to get your attention: the size of the BP oil spill superimposed over the DC metropolitan area.

This is clearly not just BP’s problem or that of any other private interest who could be blamed, and we’re all going to have to pay to clean it up as best we can, as we all should.

Wow.

Who Should Pay the Costs of the Oil Spill? All of Us, Really.

May 6th, 2010 . by economistmom

bp-oil-spill-photo-from-cbsnews-050310

A story on CNN-Money today by Steve Hargreaves asks “What will BP really pay?”  I think a more fundamental question to ask at this point is “What should BP pay?  And should no one else?”  As the story explains (emphasis added):

NEW YORK (CNNMoney.com) — The Gulf oil spill is going to cost billions to clean up, a tab BP has publicly pledged to pay in full.

But thanks to the unpredictable nature of the oil slick and the legal maze surrounding maritime law, what BP will pay and to whom is very much an open question…

Start with the costs. Estimates to clean the spill and compensate other parties for the economic damage run from $2 billion to $14 billion. One politician even said it could run into the hundreds of billions

…which is a lot of money, too much for even BP to cover (whose profits were (coincidentally) around $14 billion last year).

BP’s public pledge notwithstanding, there are limits on what the government can make them pay, and the question is what can be done about it.  Policymakers are starting to realize that if the costs are paid through anything more than a simple one-time fine on BP only–which BP would just have to “suck up” (pun intended)–that the burden of those costs will be spread (emphasis added):

BP’s liabilities may be capped by a federal rule that limits the payouts for economic damages stemming from an oil spill to $75 million. Once that threshold is reached, a federal fund kicks in, covering an additional $1 billion. The federal fund is paid for by a 8-cents-a-barrel tax on oil produced or imported into the United States…

To ward off any confusion, lawmakers in the House and Senate have introduced bills raising the liability cap from $75 million to $10 billion, an initiative they’ve dubbed the “Big Oil Bailout Prevention Act.” Lawmakers say there’s precedent for making the law retroactive: Witness the Superfund, which forced polluters to reimburse the government for toxic cleanup.

Given the public outrage over the spill, and the fact that it’s an election year, the bills stands a good chance of passing.

But not everyone thinks it’s a good idea. If the cap is increased, Nelson predicts that it will only raise the cost of buying insurance for all companies producing offshore oil.

“You’re going to pay for that at the gas pump,” he said.

There’s certainly an appeal to covering the costs of cleaning up (or trying to clean up) the oil spill entirely through a fine levied solely on BP, but that’s only on fairness and public-perception grounds.  Such a fine would be an example of what economists call a “lump-sum tax”–a tax which could not be avoided by changing behavior, in this case because it’s based on something that already happened.  (Any tax on anything that happened in the past–any “retroactive” tax–is a lump-sum tax.)  Economists generally like lump-sum taxes, because they don’t distort economic decisions.  And when such a tax cannot be avoided by changing economic behavior, the burden of such a tax is also unable to be shifted to other participants in the taxed market.  In the case of the BP oil spill (perhaps better called an “explosion”?), this probably seems good and “right” on fairness grounds, at least to most of the American public who aren’t directly employed by or invested in BP.

But it turns out that on economic efficiency grounds, the fact that a tax or fine on BP alone would amount to a lump-sum tax that would not get passed along to any of the other participants in the BP marketplace or the oil market more generally is a bad thing.  Because the BP oil spill reveals more than any lack of adequate quality and safety controls in BP’s production operations.  It reveals more generally the risks associated with oil production, risks that translate into large social costs that go unpriced in the oil market.  It is a classic case of a “negative externality,” where the social costs of producing and consuming a good exceed the private costs paid through market prices.  In such a case, economic theory says that intentionally distorting market prices through public policy–in the case of a negative externality, through a tax representing the excess of social marginal costs over private marginal costs–would improve economic efficiency.

The BP oil spill provides us a new and very in-your-face lesson: that the excess of social costs over private costs (the “external costs”) associated with fossil fuels go beyond the “biggie” of global warming via the consumption (burning) of fossil fuels–a very long-term phenomenon that is very difficult to predict the economic and social costs of (and hence is easy for us to ignore).  The BP oil spill reveals that there are more immediate and clear (and very visual and quantifiable) social costs associated with fossil fuels in terms of the risks to the environment on the production/extraction side of the market.  So now there are at least two major reasons why for economic and social efficiency, fossil fuels should be taxed:  (i) because of the external costs associated with global warming resulting from the consumption of fossil fuels; and (ii) because of the external costs associated with the risky extraction strategies used in the production of fossil fuels.  And both these reasons suggest that there is no way that the right policy response to the BP oil spill–from an economic efficiency, maximize social welfare standpoint–is just to “fine the hell out of BP” (alone) and run BP (alone) out of business.  (Even from a fairness perspective, it’s not at all clear that this kind of accident couldn’t have happened with any other company’s well.)  The right policy needs to indeed spread the burden of the costs of cleaning up the oil spill to all participants in the oil marketplace, including those of us who innocently just fill up our tanks with gasoline.  Only when the extra social costs of the environmental risks associated with both fossil fuel production (e.g., risk of offshore drilling mishaps) and fossil fuel consumption (e.g., global warming, pollution) are incorporated into the prices all of us face in the fossil fuel markets we participate in, will we be led to make the correct, or at least better, decisions from a social welfare standpoint, not just from our own selfish standpoints.  These better decisions include the oil companies using safer production methods (which likely means producing less offshore), and consumers buying less gasoline.

Unfortunately, politicians won’t see it that way.  Even pro-environment types in Congress were cold to President Obama’s climate change proposal last year that would have raised gasoline and other fossil fuels prices.  (Psst:  That’s how climate change policy is supposed to work, by the way, and the President’s proposal was a good one.)  See, the U.S. isn’t in the practice of taxing environmentally-harmful activities (besides via our very/too low-by-international-standards gasoline tax); in fact, we’re in the habit of subsidizing the oil and gas industry via tax preferences.  We get that wrong in two ways:  we increase the deficit, and we worsen the economic inefficiencies (and just plain environmental damage) associated with fossil fuels.  Now with the BP disaster to more clearly and immediately remind us that we’ve been getting this all wrong, we should be trying to make those two wrongs two rights.  This should motivate policymakers to implement smart climate change policy–i.e., a policy that would actually raise fossil fuel prices (that all of us pay) and raise revenue for deficit reduction (or to avoid deficit increases)–as soon as possible.

Steadfast Steny

March 1st, 2010 . by economistmom

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House Majority Leader Steny Hoyer gave a speech on fiscal responsibility at the Brookings Institution today. He reaffirmed his strong faith in PAYGO (pay-as-you-go) budget rules as “so valuable” to the cause–although he acknowledged the large exemptions for current policy and at the same time brushed that qualification aside a little too easily (for my tastes).

But my favorite part was when he talked about how the politically easy choices are the economically devastating ones:

The most important lesson we can draw from the years of recklessness is this: when it comes to budgeting, what is politically easy is often fiscally deadly. It is easier to pay for tax cuts with borrowed money than with lower spending; easier to hide the true costs of war than to lay those costs before the people; easier to promise special cost-of-living adjustments than explain why an increase is not justified under the formula in law; easier to promise 95% of Americans that we won’t consider raising their taxes than to ask all Americans to contribute for the common good. Those kinds of easy choices are so often selfish choices—because they leave the chore of cleaning up to someone else. Easy choices may be popular—but the popularity is bought on credit.

Washington’s behavior will only change when the incentives change: when voters demand more responsibility, and when the political price for easy choices rises sharply. As I said, I’m hopeful that just that is happening. But the public has a responsibility, too: to educate itself about the sources of the deficit and the range of realistic solutions—not to demand that government continue to escalate entitlement payments and lower the deficit at the same time.

We can’t meet this challenge unless the public is ready to confront tough choices, and unless leaders in both parties are ready to be honest about tough choices. When deficit solutions meet resistance, which they will, and when they are painful, which they will be, it’s our job to explain why they are also correct—and essential.

“Steadfast Steny” can talk like this without being a hypocrite, as he’s taken a lot of courageous positions and votes, even in his role as Majority Leader where he’s supposed to be worried about the politics.

UPDATE Tuesday morning: The NYTimes’ Jackie Calmes points out that Steny bravely “challenged the sacred cows in his own party” by suggesting some fairly specific options to damp down spending on Social Security and Medicare. My observation is that for most in Steny’s “own party”–including the President himself–the (Bush) tax cuts for that very-broadly-defined middle class of households with incomes under $250,000 have (bizarrely) become another “sacred cow” of theirs (the Democratic Party). And that’s the problem. How can the Democrats work in a bipartisan manner with Republicans if what they would otherwise negotiate on–in terms of “I’ll give up this (entitlement spending) if you give up that (tax cuts)”–is not really bargaining for anything they really want?

It’s Hard to Do Cost-Benefit Analysis When the Benefits Aren’t Quantified

September 20th, 2009 . by economistmom

BRITAIN SCOTLAND POLAR BEAR

Last Thursday, the Congressional Budget Office released a report on “The Economic Effects of Legislation to Reduce Greenhouse-Gas Emissions.” The report attempts to quantify the economic cost of the proposed policy changes–answering the (relatively narrow) question:  what would be the negative effect on GDP caused by higher prices of carbon-based energy?  The trouble is the report doesn’t attempt to quantify the benefits of the proposed legislation–so it’s not clear how useful this report will be to policymakers who should ideally at least implicitly be weighing social costs against social benefits in deciding whether policies are in fact worth pursuing.

In his blog, CBO director Doug Elmendorf summarizes their conclusions (emphasis added):

CBO concludes that the cap-and-trade provisions of H.R. 2454, the American Clean Energy and Security Act of 2009, would reduce GDP below what it would otherwise have been—by roughly ¼ to ¾ percent in 2020 and by between 1 and 3½ percent in 2050. By way of comparison, CBO projects that real (that is, inflation-adjusted) GDP will be roughly two and a half times as large in 2050 as it is today, so those changes would be comparatively modest. In the models that CBO reviewed, the long-run cost to households would be smaller than the changes in GDP because consumption falls by less than GDP and because households benefit from more time spent in nonmarket activities. Moreover, these measures of potential costs do not include any benefits of averting climate change.

In fact, the CBO report acknowledges (on pages 3-4) that they avoid the thorny issue of valuing the cost of climate change itself (and the benefit of avoiding climate change).  They explain (emphasis added):

Despite the wide variety of projected impacts of climate change over the course of the 21st century, published estimates of the economic costs of direct impacts in the United States tend to be small. Most of the economy involves activities that are not likely to be directly affected by changes in climate…

[A] relatively pessimistic estimate for the loss in projected real gross domestic product is about 3 percent for warming of about 7° Fahrenheit (F) by 2100. However, even for the levels of warming that have been examined, most of the estimates cover only a portion of the potential costs. Other costs in the United States could come from nonmarket impacts (which are not measured in GDP) and from the potential for abrupt changes…

They go on to explain that the “nonmarket impacts” of climate change:

are very difficult to evaluate in monetary terms because they do not directly involve products that are traded in markets. Although such difficulties apply to effects on human health and quality of life, they are particularly significant for biological impacts, such as loss of species’ habitat, biodiversity, and the various resources and processes that are supplied by natural ecosystems. Experts in such issues generally believe that those nonmarket impacts are much more likely to be negative than positive and could be large.

(Note the mention of this problem measuring “nonmarket” benefits as applicable to “effects on human health”–and hence the debate over health care reform–as well.  I’ve said before that the reasons to expand health care coverage shouldn’t be limited to “because it will save money”–even over the longer run.  Presumably we choose to “buy” things, and on net pay out money, for a reason.)

The CBO report also discusses the small possibility of a potential abrupt and catastrophic effect of climate change which could have large economic costs (as well as broader social costs) but (again) which economists don’t really know how to quantify given the tremendous scientific uncertainty:

Experts believe that there is a small possibility that even relatively modest warming could trigger abrupt and unforeseen effects during the 21st century that could result in large economic costs in the United States. Two examples of such possible effects are shifts in ocean currents that could change weather patterns and affect agriculture over large areas, and rapid disintegration of ice sheets, which could dramatically raise sea levels around the world. The sources and nature of such abrupt changes, their likelihood, and their potential impacts remain very poorly understood.

What I see as the trouble with CBO–known as the official “scorekeeper” for legislation being considered by Congress–doing a quantitative analysis of the “economic effects” of climate change policy, is that all their qualifying statements about their inability to quantify (in dollar terms) the main point of climate change policy (avoiding environmental damage and what that means for the broader well-being of our society) will be lost on the policymakers, and hence on the public as well.  People look for the numbers in a CBO report and will surely use the numbers about what’s bad about climate change policy as a reason not to enact that policy, as long as there are no concrete numbers to support the merits of the policy.  In other words, it’s hard for CBO to be the unbiased arbiter on policy evaluation if they’re only “tooled up” on one side of the debate.

That’s why the report released this week on alternative measures of well-being (getting beyond aggregate, market-based GDP in particular), commissioned by French President Sarkozy and written by Nobel laureates Joseph Stiglitz and Amartya Sen is particularly relevant and timely.  There’s a nice summary of the report’s findings on the International Political Economy Zone blog.  And here’s a link to a Bloomberg article on Stiglitz’s position, which contains this “money quote” (ironic pun intended):

“So many things that are important to individuals are not included in GDP,” said Stiglitz, a Columbia University professor.

How about that? Even very wise economists understand that well-being and true happiness go beyond things that have dollar signs in front of them.  ;)

EconomistMom: A Glimpse of the Video Version

September 14th, 2009 . by economistmom

Today I gave a 90-minute talk (well 20-some minutes “presentation” followed by an hour of Q and A) to a group of 20 journalists here for a conference at the University of Maryland’s Knight Center for Specialized Journalism. They live webcasted it and put the video up on their website. This is a first glimpse of EconomistMom: The Video Version–although 90 minutes is far from a “glimpse” and far from what my “vlog” posts will be on my video channel that I’ll eventually get up on the Thomson-Reuters Project Insider network. (By the way, please don’t watch the whole thing if you are not my own mother, or I will worry about you and your undue fascination with me…) If you watch any more than a few minutes you’ll have to put up with a lot of my personal stories and perhaps-biased (but nonpartisan) opinions, but then you can decide if you would be inclined to watch my vlog as much as you read my blog.

At some point late in the Q&A I talk about how GDP doesn’t measure economic welfare; how economists think we should be able to put dollar values on everything, including environmental quality, but the fact is we’re not very good at translating social values into dollars when there’s no real market in which to observe market prices. And then this evening while driving home from work I heard this story on NPR which was right up that alley.  Apparently French President Sarkozy and I think alike…

It’s hard for me to watch myself. I move around way too much. And I should have brushed my hair. And did I really need to wear my reading glasses when I wasn’t reading?!  I really should get lasik–but of course, I can’t afford it on my Concord salary as “frugal” as Concord is (as I note in the talk).  I hope I don’t get in trouble for this…

Oh–look out for the sound…They had to adjust it after the first few minutes when it was obvious that I talk too loudly, too.  I was a cheerleader before I was an economist or a yoga teacher, after all…  ;)

**CORRECTION:  My oldest daughter is not a “senior in college“; she’s a senior in high school.  Obviously getting ahead of myself and maybe a little preoccupied with the college application process coming up.  (”College on the brain”…)

Talking Points for Courageous Democrats

September 3rd, 2009 . by economistmom

cowardlylion

I’m currently reading a “self-help” book on “humane virtues” by a favorite writer/therapist (the book is “Forgiveness and Other Acts of Love” by Stephanie Dowrick).  The first of the “virtues” she discusses is courage.  So I’m reading these wise words about courage and thinking that not only is personal courage often required in order to live our individual lives honestly and fully, but these days, political courage seems very necessary on the part of our leaders if we’re to get our nation to a better place as well.  On “courage,” Stephanie Dowrick writes (my emphasis added in bold):

Without courage there can be little consciousness.  Increasing our consciousness or awareness of who and what we individually and collectively are–and may be–demands courage and allows it.  It takes courage to wake up to how mysterious and profound life is, and not to avoid, deny, scorn, repress or contain what doesn’t fit easily with our world view.  It takes courage to know how wrong we can be, and allow our minds to be changed as well as broadened

There is a great deal in everyday life that pulls us away from being courageous.  We do not live in courageous or even heroic times.  In a culture that overtly and persistently thrives on divisiveness and competition, that lauds winners then cuts them down, and that condemns losers while also relying on their complicity, it is all to easy to see ourselves as victims and to blame others for the difficulties that are part of every human life.  Within such a culture it takes a deliberate commitment to the cultivation of self-love and care for others to remain responsible for each and every banana skin we drop–and to look around us to check that no one else is skidding.

We live in a culture that adores talk.  Despite that, it remains a rare and moving experience to hear someone actually take responsibility honestly for something they have done, to hear someone say: “I did that.  I am sorry. How could I do things differently?”, or “I am sorry that happened.  I deeply regret it.  How can I now help?” Such simple honesty requires courage.  And it builds trust.

Instead we are far more likely to hear others or ourselves say versions of “I only did it because…”, or “She made me”, or “I never did it at all.”…

–from Stephanie Dowrick, Forgiveness and Other Acts of Love, 1997 (pages 15, 56-57).

A few days ago I argued that the Republicans are showing a lot of hypocrisy when it comes to the health care reform debate.  I’ve thought about what bothers me about how the Democrats are handling the fiscal policy issues, and I realize they don’t deserve the charge of being “hypocrites.”  But I do think they deserve to be called “wimps”–in that they have lacked courage in their control of the legislative and (now) executive branches of government over the past couple years.  President Obama and the Democratic leaders in Congress have the power to really change things, and in fact were elected to change things.  They no longer have to roll over on their backs about the “unaffordable” and “unfair” Bush tax cuts.  They no longer have to put up with a president who wants to continue to subsidize the oil industry through tax preferences and doesn’t believe that climate change is a real problem.  And they no longer are powerless to do something about the millions of Americans who are uninsured.

They’ve got control now and hence the potential to really change things for the better, yet it seems they still lack the courage required to turn their convictions into policy.  The missing link is a fully honest presentation of those convictions to the American people–a courageous “telling it like it is” about how things have to change in order to achieve policies that are consistent with the deeply held values and desires, not just of the politicians and policymakers, but of Americans more broadly.  Change is always difficult, but especially when it involves tough choices.  Only when the politicians start talking honestly with the American people will they earn the people’s trust and gain support for their policies.  As Stephanie Dowrick put it above:  “Simple honesty requires courage”–and that courage “builds trust.”

How would the Democrats talk about policy choices if they were more courageous?  I have just a few ideas/examples of some “talking points for courageous Democrats”:

  • On the Bush tax cuts and letting them expire:  “You’re damn right it’s the largest tax increase in American history–because we refuse to continue the largest and most fiscally irresponsible tax cut in American history.”  (By the way, the banana peel reference in the Stephanie Dowrick quote brings me great joy!)
  • On health care reform:  “We cannot afford to subsidize every form of medical care, no matter how costly it is, for everybody, no matter how rich they are.  And anyway, some of the health care we buy right now is inefficient, no matter who pays for it.”  (”And here are the specific ways in which we’re going to save money on our health care spending: [fill in the blanks!]“)
  • On climate change policy:  “In order to reduce global warming, we do have to reduce our carbon-intensive energy consumption, which means we do need a policy that will indeed raise the price of (carbon-based) energy.”
  • Regarding President Obama and reconciling the proposals in his budget with the economic reality and his campaign promises:  “Yes, I did that (promised no tax increases for households under $250,000 and then proposed to keep most of the Bush tax cuts–that I actually don’t like that much).  I am sorry. (I didn’t think the budget outlook would be this bad.)  I still want to do health care reform though.  How can I now help?“…and then some smart advisor of his or maybe even the American people will tell him they’re actually ok seeing their taxes come up if it helps pay for better health coverage, and they understand that it will be easier to keep up with rising health costs if we reduced the largest tax expenditure which happens to be tied to health expenditures (the exclusion of employer-provided health insurance).

Can any of you suggest some other “courageous” Democratic talking points?

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