Sigh

Downtown developers have complained that COTA passengers waiting for transfers near Broad and High streets, and buses lining the curbs make the area less attractive for retail stores and their customers...

Transit-dependent riders who are going through Downtown, for whatever reason, don’t shop… Large numbers of people waiting for a transfer can be intimidating for someone walking down the sidewalk.

Translation: People who buy things want to be protected from knowing about and interacting with people who are too poor to buy things.

From Sociological Images.

Even Goldman-Sachs

Even Goldman-Sachs will admit that unemployment insurance is good for the economy.

A Labor Department report shows that for every $1 spent on unemployment insurance, $2 are spent in the economy. If you don’t believe the Labor Department, maybe you’ll believe Goldman Sachs analyst Alec Phillips, who estimates that if unemployment benefits are allowed to expire, the American economy would slow by a half a percent.

From Robert Reich

Quick Keynsian Quote

From Marinner Eccles, chairman of the Fed, to Franklin D. Roosevelt, March 6, 1935 (quoted by Robert Reich):

Given the “totally inadequate” amount of money the administration is prepared to spend to jump-start the economy, there’s no reason “to expect any substantial improvement. If we spend some every year, but not sufficient to give the required stimulus to private expenditures, we can build up a large debt and still not be out of the Depression.”

Relatedly, from the Rally to Restore Sanity and/or Fear, we consider whether or not Obama is a Keynsian:

BMI and PPM

From bakadesuyo:

Compared with a normal population distribution of BMI, a population with 40% obese requires 19% more food energy for its total energy expenditure. Greenhouse gas emissions from food production and car travel due to increases in adiposity in a population of 1 billion are estimated to be between 0.4 Giga tonnes (GT) and 1.0 GT of carbon dioxide equivalents per year.

A reminder that reality is complex

From Saturday Morning Breakfast Cereal.

TV advertising induces consumer debt?

From Bakadesuyo:

We examine whether advertising increases household debt by studying the initial expansion of television in the 1950's. Exploiting the idiosyncratic spread of television across markets, we use micro data from the Survey of Consumer Finances to test whether households with early access to television saw steeper debt increases than households with delayed access. Results indicate that exposure to television advertising increases the tendency to borrow for household goods and the tendency to carry debt. Television access is associated with higher debt levels for durable goods, but not with the total amount of non-mortgage debt. We provide suggestive evidence that increased labor supply may drive our results. The role of media in household debt may be greater than suggested by existing research.

De-Mankiw

I like Greg Mankiw because, among conservatives, he's reasonable. The problem, however, with providing reasoning for opinions is that one can now argue against them.

From his recent NYT Op-Ed:

Suppose that some editor offered me $1,000 to write an article. If there were no taxes of any kind, this $1,000 of income would translate into $1,000 in extra saving. If I invested it in the stock of a company that earned, say, 8 percent a year on its capital, then 30 years from now, when I pass on, my children would inherit about $10,000. That is simply the miracle of compounding.

This is all correct, but his premise illustrates the first problem. The reason why we're not concerned about the wealthy (as he puts it, "almost completely sated") getting a big tax cut is because they can afford to save it. Saving is good, but it's not an economic stimulus. Give the same size of tax cut to someone who is in far greater need, and the person will spend it soon, and in aggregate, generate jobs.

After summarizing all the taxes that would impact this previous situation, his conclusion:

HERE’S the bottom line: Without any taxes, accepting that editor’s assignment would have yielded my children an extra $10,000. With taxes, it yields only $1,000. In effect, once the entire tax system is taken into account, my family’s marginal tax rate is about 90 percent. Is it any wonder that I turn down most of the money-making opportunities I am offered?

This is all also correct. But again: is this a problem? You are "almost completely sated." If you turn down the offer to write an article, then someone else gets that same offer. If all the people who are almost completely sated (as well as the completely sated ones) find the offer equally unimpressive, the person accepting the offer to write the article will almost certainly be in a position to spend it sooner and stimulate the economy, as well as advance his or her own career.

Perhaps you wish that your favorite singer would have a concert near where you live. Or, someday, you may need treatment from a highly trained surgeon, or your child may need braces from the local orthodontist. Like me, these individuals respond to incentives. (Indeed, some studies report that high-income taxpayers are particularly responsive to taxes.) As they face higher tax rates, their services will be in shorter supply.

This too is correct, but has an implied fear tactic. The subtext is, "tax your doctor too much and you won't get any health care!" There are, however, plenty of capable people who want to do these jobs, who are just waiting for others to step out of the way.

Though I am in fact a Dan Ariely fan.

I happened upon the original paper that was recently reported on in a number of locations, including here.

After reading the survey method, the declared results seem even more dubious. The participants were given three choices of wealth distribution: Perfectly equitable, Sweden's, and the USA's. These weren't marked with these titles, but merely indicated the percentage of wealth controlled by each quintile. People overwhelmingly chose the Swedish distribution, without knowing it.

More reasonable than "everyone wants Swedish wealth distribution" is "people were given two extremes and a moderate option, and they chose the moderate option."

The latter experiment as a little better, in that people could freely offer numbers. However (as previously mentioned) people may not be very good at thinking about the economy in terms of percent of wealth controlled by quintile. It's also not clear if the experiment was done on the same subjects in the same survey, because seeing Sweden's wealth distribution numbers in a context as the moderate distribution could inform the subject's later responses when given a blank to fill in.

Again, I'm not arguing for an inequitable distribution of wealth, just sensible survey methods. Wealth distribution should be more equitable not because everyone agrees to want it, but because the economy and society will be healthier if it is.

Education, poverty, crime, property

From Indexed.

Some of the comments indicate that a missing (and erroneous) chart would be the one showing a correlation between education funding and education. And, of course, there's the matter of to what extent public-work-induced housing value increases have been reclaimed in public revenue.

As I'm sure you're aware...

From bakadesuyo:

My estimates imply that 8% of the rise in obesity between 1979 and 2004 can be attributed to the concurrent drop in real gas prices, and that a permanent $1 increase in gasoline prices would reduce overweight and obesity in the United States by 7% and 10%.

Check out Smart Growth America's criticism of the Travel Time Index:

the Travel Time Index actually gets daily driving backwards: cities with longer daily driving times look better that those with shorter driving times. Why? The Index leaves out something just about any traveler knows to think about: distance. By focusing only on speeds, the TTI neglects what people actually care about: how long does it take me to get there?

See the report at CEOs for Cities.

Economic Ideal, or Human Error.

A few people have passed around Matthew Yglesias's post about Americans' estimates of wealth distribution, in which people are asked to report both their ideal distribution and their perception of the actual distribution.

One thing I suspect might be happening that wasn't discussed: people may not be great at calculating distribution in this way. Perhaps people should be asked as well, "What do you think the average individual's wealth is in this highest (or lowest) quintile to create this distribution?" It seems like a simple enough math problem, but through the course of this survey, it's likely participants weren't doing it. People have much greater familiarity with a concrete bank account price tag than they do with percent of the nation's wealth controlled.

This is not, however, an argument for the status quo. At the very least, the report does indicate that people want much more equitable distribution than they think we have, even as that is far less equitable than what we actually have!

Video: Lisa Margonelli at TED

Democracy vs. Constitutional Democracy

Not really on subject here, but this video discusses minority rights in the face of majority opinion. When Truman ordered the racial integration of the military, most in the military were against it, and that didn't matter; our constitution protects the rights of minorities.

David Harvey, Capitalism, and a Dry Erase Board

An entertaining video about how our current version of capitalism is failing.

The Lasting Impact of Kindergarten

What's the effect of having a good kindergarten teacher? Common wisdom in social science is that it's nowhere near as important to the child's success as the education and socioeconomic status of the child's parents, but new research gives early education more importance. Based on a study in which students' kindergarten classes were randomized so that they "had fairly similar socioeconomic mixes of students and could be expected to perform similarly on the tests given at the end of kindergarten," similar scores were not found, nor were the students' futures similar:

Class size — which was the impetus of Project Star — evidently played some role. Classes with 13 to 17 students did better than classes with 22 to 25. Peers also seem to matter. In classes with a somewhat higher average socioeconomic status, all the students tended to do a little better.

But neither of these factors came close to explaining the variation in class performance. So another cause seemed to be the explanation: teachers.

Some are highly effective. Some are not. And the differences can affect students for years to come.

When I asked Douglas Staiger, a Dartmouth economist who studies education, what he thought of the new paper, he called it fascinating and potentially important. “The worry has been that education didn’t translate into earnings,” Mr. Staiger said. “But this is telling us that it does and that the fade-out effect is misleading in some sense.”

Mr. Chetty and his colleagues — one of whom, Emmanuel Saez, recently won the prize for the top research economist under the age of 40 — estimate that a standout kindergarten teacher is worth about $320,000 a year. That’s the present value of the additional money that a full class of students can expect to earn over their careers. This estimate doesn’t take into account social gains, like better health and less crime.

source.

Our Recession Continues...

The chart above (supplied by Greg Mankiw) illustrates one reason that our current recession is different from others: when people lose their jobs now, they lose them for a lot longer.

Another thing that's different now as our liquidity trap: the Federal Reserve's interest rate is effectively zero, and there's little left for the Fed to do to stimulate the economy, thus we're left with financial stimulus from our government (effectively financed through debt to other government). Though media attention has been on those who think this debt is out of line, Hale Stewart at 538 has a lengthy argument for why that's not the case. Summarized:

1. This new found love of lower government spending is politically motivated. It has nothing to do with altruism or love of country. It's about the November elections. Period.
2. Government spending has been and always will be part of the the GDP equation
3. Countries that tried austerity are worse off for it.
4. Countries that inject massive amounts of the proper stimulus (such as infrastructure spending) grow at high rates.

Also, "Why Unhealthy Food Is So Cheap"

Mint's blog offers a pretty good primer that covers how subsidies and economies of scale help nudge us toward obesity and heart disease in the checkout line, if the subject is unclear.

The Relationship of Where We Live to the Cost of Food

Click to enlarge, source.

Another reason why cheap oil has been deleterious to urban design

from this LA Times story:

Suburbia's original appeal came wrapped in visions of green earth, clear skies and backyard bliss. But to fulfill the dreams of home buyers on modest incomes, developers cut back on costly structural features such as movable window sashes, screens, awnings and eaves, high ceilings, thermal mass, cross-ventilated designs and attic fans. They bulldozed shade trees and began building instead for mechanical climate control. Families responded by spending more time indoors...

The relentless intensification of work and commuting patterns could not have been sustained summer after summer without the air-conditioned pipeline that conveys employees in cool vehicles from cool homes to cool offices and back, maybe with a stop at an even chillier supermarket or mall.

But the parking lots, roadways and buildings that support that efficient delivery system also trap and re-radiate solar energy, creating the so-called urban heat island effect. Cities and freeways now stay several degrees hotter than the surrounding countryside during the day and as much as 20 degrees warmer at night.

As a sidenote, posting here may be mere linking and blockquoting until I complete my interstate move, which is the cause of my recent absence.

What's in our deficit?

source

Are Stadiums Public Investments?

Stadium Status from Internets Celebrities on Vimeo.

There could be a number of reasons why a city would choose to build a new stadium for their sports franchise. Just be sure you don't mistake "economic development" for one of them. They are almost always a net loss for the public.

Personal Update (and a few non-personal)

Today is my final day at my current place of employment. This fall, I will be beginning this program, hopefully with a concentration in law, psychology, and human development.

My writing here, I've hoped, has addressed various issues at the intersection of human well-being and public policy. I anticipate that I will be studying and experiencing much more regarding the center point of that venn diagram, though perhaps particular topics might vary more, or I might find focus on other unanticipated subjects. I'm hoping you'll stick with me.

For example: Does our copyright law actually encourage artists to create? At the very least, copyright infringement doesn't appear to discourage it:

Yet, despite the popularity of the new technology, file sharing has not undermined the incentives of authors to produce new works. We argue that the effect of file sharing has been muted for three reasons. (1) The cannibalization of sales that is due to file sharing is more modest than many observers assume. Empirical work suggests that in music, no more than 20% of the recent decline in sales is due to sharing. (2) File sharing increases the demand for complements to protected works, raising, for instance, the demand for concerts and concert prices. The sale of more expensive complements has added to artists’ incomes. (3) In many creative industries, monetary incentives play a reduced role in motivating authors to remain creative. Data on the supply of new works are consistent with the argument that file sharing did not discourage authors and publishers. Since the advent of file sharing, the production of music, books, and movies has increased sharply.

Of course, a site named after the founder of environmental economics will still continue to discuss such topics, perhaps merely with a very broad definition of both "environment" and "economics." Duly, you can pick up your free "Prosecute BP" sticker here.

Thanks, All.

Ugh

Oh, come on:

The federal judge who overturned Barack Obama's offshore drilling moratorium appears to own stock in numerous companies involved in the offshore oil industry – including Transocean, which leased the Deepwater Horizon drilling rig to BP prior to its April 20 explosion in the Gulf of Mexico-according to 2008 financial disclosure reports.

Incidentally, now that Jim Newell's at Gawker, does that lend him more or less credence than when writing for Wonkette?

(Image from NASA, who also has a 10MB hi-res.)

What would the accurate pigouvian tax be for alcohol consumption?

Erric Morris at the Freaknomics blog ponders:

In 1996, Donald S. Kenkel estimated that taxes would have to quadruple. Or, to think of it another way, taxes should about equal the price of the drink itself. Very roughly, this would hike the cost of a six pack of one of the mass-produced American beers from about $6.00 to about $10.00.

This four dollars includes merely the societal effect, i.e., the externality:

Many use alcohol responsibly, but one study found that thanks to DUI accidents, crime (impacts on victims, costs of policing, and costs of incarceration), shortened lifespans, medical and psychological care for drinkers, and impaired productivity, the total cost of alcohol abuse approaches $700 per American per year (about $860 in today’s dollars).

Who’s getting stuck with the tab? A large portion of the total cost falls on the drinkers themselves, which might reasonably be considered to be their own business. But much of the burden is also borne by drinkers’ families and friends, and by society as a whole.

Rather than merely considering it their own business, as we've discussed previously, it may be possible to incorporate our own "internalities" into the cost, i.e., raise the price of the product to adjust for our cognitive bias in evaluating our own futures and risks.

One author avaluated the effect of DUIs in proportion to societal effects of alcohol as a whole:

Kenkel estimated that if we could magically do away with DUI, we should still optimally raise taxes on alcohol (due to liquor’s other deleterious effects), but that the increase should only be about a dollar a six pack and not four dollars.

In fact, as previously mentioned, drunk driving crashes can be associated also with the cost of gasoline. It would be interesting to evaluate how these two prices, gas and alcohol, could synergistically conflate to reduce drunk driving. Which price has a greater impact on our cognitive biases? Do we tend to fill our tank before or after we've impaired our judgement?

Simplify, Simplify.

People are walking and biking more, perhaps thanks to some increased funding. From 1990 to 2009, the number of bike trips increased from 1.7 billion to 4 billion.

The New York Times has an excellent infographic illustrating that we've had a reduction in miles driven per year despite a lower gas price even though we typically only see such reductions when prices skyrocket (really, go there, it's an excellent images).

At the same time, people for the first time in ages are considering a wide array of consumer goods to be unnecessary. And we're starting to consider that sound financial advice might not just be to cut corners, but to live entirely on a smaller footprint.

Now if only the economic system didn't require reduced consumerism to have recessionary effects.

Oil Nuggets

Cleaning off oil-soaked birds is better PR for BP than it is for the birds. 99% of cleaned birds will die quickly, usually within seven days, usually from kidney or liver damage. Dying after being cleaned, however, would remove BP from any liability under the Migratory Bird Treaty Act of 1918, which would fine the corporation up to $500,000 for the death of a brown pelican.

How much oil has spilled into the gulf? Less than regularly spills into the ocean near Nigeria every year. 40% of American oil importation is from this region, and the environmental effects have reduced the life expectancy of its rural communities to 40 years. Needless to say, our price at the pump has not internalized that cost. Perhaps we as Americans would internalize it more if there were media coverage of events like this, but I'm not that optimistic.

Why else should gas cost more? Because it reduces drunk driving crashes.

What Should (and Could) Happen.

I think that one covert purpose of this video is to get us used to seeing her in that oval office set.

Anyway, Robert Reich thinks that maybe there could be a careful strategy to get a carbon tax implemented.

Also, Scott Adams reflects on the inverse perspective of our often-repeated refrain – that BP is merely keeping its duty to their shareholders in mind – by revealing his own strategy of buying stock in the most hated companies. If they're externalizing costs (such as by making a whole nation/planet cope with a deteriorated environment), they're probably doing wonders for shareholders' bottom line:

I hate BP, but I admire them too, in the same way I respect the work ethic of serial killers. I remember the day I learned that BP was using a submarine…with a web cam…a mile under the sea…to feed live video of their disaster to the world. My mind screamed "STOP TRYING TO MAKE ME LOVE YOU! MUST…THINK…OF DEAD BIRDS TO MAINTAIN ANGER!" The geeky side of me has a bit of a crush on them, but I still hate them for turning Florida into a dip stick.

Apparently BP has its own navy, a small air force, and enough money to build floating cities on the sea, most of which are still upright. If there's oil on the moon, BP will be the first to send a hose into space and suck on the moon until it's the size of a grapefruit. As an investor, that's the side I want to be on, with BP, not the loser moon.

It's hard to tell to what extent he's being satirical.

Beyond a basic sustenance level, of course.

Aside from payment being vastly misunderstood as an incentive – that greater payment results in no greater output when the task requires creative or cognitive ability – it turns out that it might just make you plain old less happy:

In a sample of working adults, wealthier individuals reported lower savoring ability (the ability to enhance and prolong positive emotional experience). Moreover, the negative impact of wealth on individuals’ ability to savor undermined the positive effects of money on their happiness... This article presents evidence supporting the widely held but previously untested belief that having access to the best things in life may actually undercut people’s ability to reap enjoyment from life’s small pleasures.

"Better Land Use = Less Oil Use"

Smart Growth America agrees that designing our cities better will reduce our oil consumption:

Almost any development in a central location is likely to generate less automobile travel than the best-designed, compact, mixed-use development in a remote location.

Encouraging growth in our town and city cores and discouraging sprawling growth way out at the edges means less automobile travel. Fewer miles in cars each day means less oil use. Less oil use means….you see where this is going, right?

But they don't quite get to talking about why our cities sprawl this way. Fred Harrison describes a little of how the tax structure results in poor infrastructure and, ultimately, poverty.



It's also worth reading Matt Yglesias's short post on our misplaced priorities:

Obviously you couldn’t reduce [auto fatalities] to zero without totally eliminating motor vehicles, but even ten percent of that number is more people than died on 9/11. And yet the difference between the resources you can mobilize for “cut driving fatalities by ten percent a year” and “help stop another 9/11″ is enormous.

Preventing Terrorism, if successful, reduces deaths from terrorism. Removing our energy/transport infrastructure from oil dependence can reduce auto deaths, and perhaps make the middle east a slightly less valuable land to divide and conquer. Change the tax structure, and you can reduce poverty (which will then leave fewer people driven to drastic measures to change their lot in life), fix our infrastructure, and thus reduce both auto and terrorism deaths. Maybe I should make a chart.

Who's responsible?

BP owns the deepwater horizon offshore rig. Halliburton may have done a shoddy cementing job. Americans have paid oil companies for over twenty million barrels of oil per day. And, of course, BP is legally bound to their shareholders to obtain it at minimal cost. If you drive a car or keep a retirement fund, it is very likely that some of your money was part of BP's incentive structure to do a poor job.

Does this mean that all Americans should be held liable for the cleanup cost, as John Boehner and the US Chamber of Commerce suggests?

I can't help but feel outrage at the presumptuousness, but I imagine that I have been liable, as have most Americans, paying into the oil market to give me cheap gasoline. If our federal tax system wasn't so closely dependent on income taxes, I might sympathize with Boehner a little more.

UPDATE: Tom Friedman agrees. But then again, he's a "barely literate cartoon mustache of oversimplification whose understanding of global politics is slightly less comprehensive than a USA Today infographic and who possesses about as much insight into world events as a lightly vandalized Wikipedia stub entry."

Nuclear Energy

Below is an excellent debate on nuclear energy. After viewing, it seems like our current nuclear technology is a much better option than our coal/oil infrastructure, but not nearly as good as full reliance on renewables. Practically, I imagine that we will have to rely on more nuclear plants in the short term. As Cambridge Physicist David McKay was quoted in the film, "I'm not trying to be pro-nuclear, I'm just pro-arithmetic."

That being said, I'm fully sure that powering reactors for energy infrastructure is a much better use of the uranium than for warheads. As mentioned briefly in the film, Megatons to Megawatts has been dismantling warheads and downgrading the uranium for use in power plants.

If you do it to yourself, is it an externality?

There has been brief discussion of taxing soda in an effort to pay for health care costs. There is some intrinsic sense to this, that the high sugar content puts you at greater risk of developing diabetes or obesity, and that the tax would prevent some people from developing the habits that lead to the diseases and pay for the treatment of those who are not deterred.

Strictly speaking, this is not an externality. The negative effects of the sugar overconsumption are primarily borne by the individual, not the community (though I might argue for a theory that would imply greater interconnectedness than most economists', I'll give them the benefit of the doubt for the sake of discussion). The word "internality" was anonymously proposed as a name for this effect, the negative effects with which we unexpectedly burden our future selves. The community bears the costs not essentially, but only when we've chosen to socialize medicine, wholly or in part, i.e.:

A third type of externality is a governmental financing externality, in which the activity of some people impose a cost on others because they are forced to pay taxes to pay for that activity. That applies to the consumption of unhealthy food when taxpayers pay for the medical costs.

Mankiw asks, however, "To what extent should we view the future versions of ourselves as different people from ourselves today?" i.e., is it right to correct our near-sighted cognitive biases with taxes, to make you internalize the cost you will bear in the future today? Should the additional tax reflect the future cost, or merely our bias in understanding the future cost?

Even if this is not practical, it might be of benefit to our quality of life to try. Certainly, as Mankiw agreed, we should start by eliminating corn subsidies first, rather than taxing the products that contain its high-fructose syrup.

If you had doubts that our current car-based, suburban version of the American Dream wasn't something that was heavily lobbied, you could also read about how the Reagan administration prevented you from driving more safely:

All that ended in January 1981, when the "Morning in America" team from the Reagan administration halted the RSV [Research Safety Vehicles] work...

After exploring whether the Smithsonian wanted any of the RSV cars (they did), NHTSA revealed under a Freedom of Information Act query that it had quietly sent all remaining cars to be destroyed. On July 1, 1991, the RSV showcar was crashed into a barrier at 50 mph with no dummies inside, and its airbags shut off.

Then-NHTSA chief Jerry Curry contended the vehicles were obsolete, and that anyone who could have learned something from them had done so by then. Claybrook, the NHTSA chief who'd overseen the RSV cars through 1980, told Congress the destruction compared to the Nazis burning books.

"Junking those cars was a terrible idea," said Kelley, who now teaches at Tufts medical school. "What is the benefit of keeping anything that's historically important? The future wants to know more about the past, and when you destroy the past, you destroy the future's access to knowing about it."

"I thought they were intentionally destroying the evidence that you could do much better," said Friedman.

How low our income taxes actually are.

Click to enlarge. Courtesy of the mint.com blog.

Found in your Wonkette.

And if that doesn't speak for itself, you can read Steven Pearlstein's endorsement of ending our national war on regulation.

Deepwater Horizon Digest

We shouldn't be to surprised to discover that oil companies pay millions to lease tracts of the gulf. Mother Jones attempts some indignation – "Where most people look at the Gulf, they see a vast marine ecosystem, wetlands, and, until recently, gorgeous beaches" – I find it difficult to be surprised when we've treated all our land-based natural resources this way for the entirety of our country's history. My question, which I couldn't seem to find addressed in the Mother Jones article, is: who is the recipient of the payments in these leases, as high as 53 million dollars? From whom do they lease?

Robert Reich continues to defend the idea that Obama should take over BP's American operation, specifically responding to the charge that, since the problem is not something that can be solved right away, it would be a political folly to take ownership of the mess when the conclusion is so far away. And true, it is a worrisome prospect to put the government in charge when many Americans are distrustful of government takeovers. My personal take at the moment would be closer to Reich's, that BP is still responding in the way that maximizes shareholder value. The government is answerable to its citizens – at least in theory – BP holds no such pretense.

Reich also suggests that BP should be required to hire unemployed youth to clean up the spill. BP, instead, is spending money trying to pick up some of your search results, undoubtedly so they can show you misleading charts.

If there isn't enough incentive already to tax carbon (or otherwise shift energy sources), evidence has been found that the presence of the industry enforces patriarchy:

Oil production reduces the number of women in the labor force, which in turn reduces their political influence. As a result, oil-producing states are left with atypically strong patriarchal norms, laws, and political institutions.

Speaking of gender norms, comedic genius Sarah Palin suggests in a post titled "Less Talkin', More Kickin'" that Obama should solve the oil leak by talking to a few more people, including all of Tony Hayward, "experts," and, um, her.

There is no economic magic...

Just as with the compulsion to lie to children and make them believe in a magical gift giver, a belief in economic magic, and government as gift giver, is deeply embedded in our culture. Most people are blindly culture bound, so they are invulnerable to economic logic. Few people, even social scientists, can transcend their culture, and so pernicious cultural practices persist. Thus disasters such as war, the Great Depression, and the giant oil spill in the Gulf of Mexico.

From Fred Foldvary

Economic policy has not kept up with the science of motivation and happiness.

After viewing this, it makes perfect sense that paying volunteers reduces their volunteerism. On top of it, when you learn that our dissatisfaction and subsequent desire for more money is based on how much money our peers have, or that even high school popularity (a notoriously fickle business) has a demonstrable effect on our financial success, it sort of makes you want to ensure our economic system relies a little less on free market incentives in which we're susceptible to all sorts of cognitive biases and environmental factors. At least one of those biases – in this case, committing to a situation with sunken costs – diminish with age.

Infographic

Be sure to check out this NYT inforgraphic to learn where the oil has gone, the destruction it's causing, and what has been tried to stop it.

We are still in a recession

Job numbers are poor, and the stimulus that wasn't big enough in the first place has been spent.

We're still in a liquidity trap, as this chart from Greg Mankiw illustrates what the interest rate should be, compared to what it is.

(That leveling out in the past year is right around a federal interest rate of zero, hence the trap.) A corporatist drumbeat is beginning that we should start to raise the interest rate, out of fear of inflation, even though that isn't really a risk at all right now, deflation is.

Likewise, the tea party and libertarians don't want any more stimulus because they think we're too far in debt already, (though no one actually wants to cut anything from the budget, and taxes are of course anathema) but it's pretty easily demonstrated that we can handle more debt than we already have.

Not that we'd even have too big a problem raising taxes now, because the top income tax rate has never been lower (not that income tax is the only reasonable means for revenue, as frequent readers may note). And, contrary to the corporatist drumbeat, it would likely have an expansionary effect, as Paul Krugman's chart to the right shows, a high top income tax rate has the greatest rate of expansion, and that if you lower taxes on the rich, growth slows, i.e., Ayn Rand was way wrong about that Galt character.

In the short term, we need more stimulus immediately. It should be paid for shortly thereafter by higher taxes – on high income for expansion and upward mobility, and on land and carbon to save the planet and improve our lives. Robert Gibbs could say something like this.

In the long term, I'm not sure we could survive without an entirely new economic system.

You should watch Rachel Maddow's coverage of how this oil spill is exactly like one from 31 years ago, including all the failed attempts to stop the leak.

More on BP.

A Petroleum engineer describes how BP is doing the minimum to clean up (as expected) and suggests what they should be doing. His suggestions summarized:

1. Stop releasing dispersants.
2. Mobilize every possible tanker to siphon up crude from as close to the leak points as possible.
3. Restart work on the second pressure relief well.

Robert Reich discusses how it is both possible and necessary for BP to be placed under temporary receivership of the U.S. government. His reasons (summarized, again) why it must be done:

1. We are not getting the truth from BP.
2. We have no way to be sure BP is devoting enough resources to stopping the gusher.
3. BP’s new strategy for stopping the gusher is highly risky.
4. Right now, the U.S. government has no authority to force BP to adopt a different strategy.
5. The President is not legally in charge.

Again, it's worth reading in full both the problem as he sees it and the legal precedent for taking over.

One thing that kind of bugs me about the public response to the disaster is the idea that we can punish the BP corporation by not shopping at the BP gas station and instead shopping at the gas station across the street. BP's profit is determined largely by the cost of oil on a globally traded market, and boycotts of individual gas stations will tend to cause more harm to the proprietor of the station (and the benefit will largely be to the station across the street) than to the corporation at large. If you really want to cut into the BP's profits, you need to cut into the entire oil industry.

In addition to the more obvious pigouvian incentive of the carbon tax, a land tax will also reduce our overall oil consumption:

We spend a lot of money heating and cooling older homes many miles from where people actually work. People commute long distances -- most of them via private cars because there aren't viable alternatives. Why do they live so far from their work? Usually because they can't afford to live closer.

The selling price of most housing within a commutable distance of any vibrant city is mostly land value. And most people don't know it.

Also, xkcd speculates on the worst case scenario:

Click to enlarge, there's a hurricane of fire and alligators.

Oh, and as long as we've made it to the comedic section of this post, you can also read about how Sarah Palin is trying to reconcile this disaster with the "Drill, Baby, Drill" slogan, because it's funny.

There's a lot to work through as oil still flows into the Gulf of Mexico.

David Friedman opines that Obama missed an opportunity to energize the country similar to Bush's reaction to 9/11. Aside from the rather obvious observation that this hasn't been nearly as seismic an event on the psyche of the country as 9/11 was, I do appreciate the oft-read columnist endorsing the pigouvian gas tax.

Ready to be terrified? Think about what happens when hurricaine season hits the Gulf of Mexico. Firstly, the darker surface of the water has the effect of absorbing sunlight, creating more heat in the gulf and thus more intense storms. Aside from that, I'd merely worry that storms could theoretically throw oil onto the usually-hit coastal cities. Maybe THAT could be the seismic event Friedman was hoping for.

Ed Glaeser laments that the existing climate bill (The American Power Act) isn't as simple, aesthetic, and efficient as a carbon tax. Of course, the bill is designed to pass (and the word "tax" is anathema), not to be ideally effective. He concludes that "it is hard to relish either this ornate piece of legislation or the prospect of inaction on global emissions."

It is also worth reading about whether the tea party's agenda – and their newly anointed libertarian leader – is mired in racism.

Misplaced priorities, again

Terrorism was a name based on people's psychological reactions to a set of events, and if they're concerned about terrorism, they might ask what causes terror, and how can we stop people from being terrified...

In raw numbers, these are very tiny accidents. We already know, for example, that in the United States more people have died as a result of not taking airplanes because they're scared and driving on highways than were killed in 9/11.

Not the least interesting thing to be found in this TED talk (this quote at about minute 24).

Dan Gilbert asks later, "which problem would you solve, terrorism or poverty?" And though the host (and, as it generally appears, the audience) agrees that poverty would be a more productive thing to solve, there seems to be no particular recognition that poverty could be a causing factor of terrorism, making it of course even a more productive solution than originally intended.

Also, one questioner near the end challenges the rather unsympathetic presentation of those who buy lottery tickets, indicating that from his interviewing of lottery ticket buyers, they buy it not because they think they're going to win, they buy it because it makes them feel good, and they get a serotonin release. My response, perhaps a little more direct than Gilbert (since I have the freedom of not confronting the person directly), is that: if the person really believed they weren't going to win, they wouldn't get the serotonin response. The serotonin response is an indication that they still believe they could win.

Some interesting charts at Sociological Images question whether Americans truly are more individualistic than other nations. Their findings are that, when you define individualism as "giving priority to personal liberty," you find that many other unexpected countries are more individualistic.

Some possible explanations are provided by the researcher, Claude Fischer:

(1) Americans aren’t really individualistic (anymore).

(2) Americans means something else by individualism (like freedom from government or pulling yourself up by your bootstraps). Fischer thinks that these are different values, though: anti-statism and laissez-faire, pro-business economics.

(3) Americans are individualistic, but they are also religious and sometimes religion outweighs individualism. If that’s so, Fischer argues, then maybe it is true that we’re not that individualistic.

(4) American individualism is found not in people’s opinions, but in how we organize our society. Fischer calls this “undemocratic libertarianism.”

Finally, (5) maybe what is meant by individualism is really voluntarism, the right to leave and join groups as we see fit.

I might be curious if her findings were the same if, when she asked questions such as “In general, would you say that people should obey the law without exception, or are there exceptional occasions on which people should follow their consciences even if it means breaking the law?” she were to replace the word "people" with "you" whenever it occurs, i.e., "would you say that you should obey the law without exception...?" There's a chance that we might find, when asking those questions, more of what we mean by American individualism (i.e., inherent cognitive biases).

I'd also be curious if there was a way to control for priming. Were the people who were asked the question “People should support their country even if the country is in the wrong,” most recently reminded of the Iraq invasion, the TARP bailout, or the Health Care Bill? I imagine, too, that if we were able to control for such priming, you'd find that the responses might split down demographic or party lines.

Fred Foldvary evaluates who is liable – and who should be liable – for the Deepwater Horizon accident.

It is not a puzzle why the planet is being plundered and ruined. The plunder is being subsidized by governments worldwide. These giant corporations have the political clout to obtain tremendous subsidies, and democracy is not stopping it. Something is terribly wrong as the world is falling apart, and governments are causing this by their failure to protect the property rights of the people.

Who gets the revenue of auctioned carbon permits?

The Kerry-Lieberman "American Power Act," also known as the cap and trade climate bill, would initially auction only 24.8% of the carbon allowances.

The Brookings Institution has broken down who would get that revenue. Summarized:

None of the auction revenue is used to reduce high marginal tax rates on income or capital, although some revenue is used for “consumer relief,” which includes a tax credit for households above 150 percent of the poverty line, which is phased out starting at 250 percent of the poverty line. Some of the auction revenue is also used for a “universal refund,” which is a lump-sum payment made to all eligible taxpayers, adjusted for family size.

Only a small percentage of the allowance value is used for deficit reduction.

Probably time to stop driving.

Once your company starts selling stock on a publicly traded market, your company's chief end becomes "make money for shareholders." Your shareholders can sue you if you don't. If you, as a CEO, decide to place the sanctity of nature above your profit, you are likely to be in hot water with your shareholders unless you can make a convincing case that the good PR will eventually reap rewards in future profits. If lawmakers are considering regulating measures that would cost your corporation money, it is your legal duty to your shareholders to fight it.

Clearly, the word for this sort of social structure is "horrible," but it is the existing structure of corporations that we tolerate today. Keeping that in mind, how can we possibly react to BP when they have a record of fighting regulation and as they seem to be preparing for only as much cleanup is required to maintain their business's image? If you were a legislator with the opportunity to speak with BP's CEO in a committee hearing, what would you say?

I might ask Tony Hayward if he recalls the assumptions of perfect markets, those that he must have learned in introductory economics. Surely he has fully internalized the theories of markets that rely on these assumptions, if he does not keep in mind their requisite assumptions. I might ask if he recalls the meaning of the assumption of 'perfect information,' that people deciding which products to buy understand fully the products they have available to buy, the processes used to create them, and the businesses that supply them. I would then ask about BP's advertising, in that they purport to be an environmentally friendly oil company, and whether or not it represents their actual practices. I would ask how they could be trusted with free market capitalism when they can use advertising to so easily undermine its requirements.

I'd also tell him that it's probably not the time to mix up gulfs and oceans in public statements.

Image is from Andy Singer.

Bernanke on... Happiness Science

Lo and behold, the US Federal Reserve Chairman has given a commencement address to the University of South Carolina, and his chosen subject was: Happiness.

He covers some important points, such as how after a certain income level, wealth and happiness become dissociated:

First, he [economist Richard Easterlin] found that as countries get richer, beyond the level where basic needs such as food and shelter are met, people don't report being any happier. For example, although today most Americans surveyed will tell you they are happy with their lives, the fraction of those who say that they are happy is not any higher than it was 40 years ago, when average incomes in the United States were considerably lower and few could even imagine developments like mobile phones or the Internet. Second, he found that--again, once you get above a basic sustenance level--on average, people in rich countries don't report being all that much happier than people in lower-income countries.

And that the little happiness disparity that there is once you're above the basic sustenance level is because of the effect you might call "keeping up with the Joneses":

...though, in any given country, the rich say they are happier than the poor do...

If I live in a country in which most people have only one cow, and I have three cows, then I will have lots of social status and self-esteem and will thus feel happy. But if everyone around me has a luxury car, and I am hung up on status, I won't feel very special unless I have both a luxury car and an SUV. This relative-wealth hypothesis can explain why rich people are happier than poor people in the same country, but also why people in richer countries are not on average much happier than people in poorer countries. It's the big fish in a little pond phenomenon.

All of this is an important distinction that policymakers should take into account far more than they ever do. Here's where Bernanke loses me:

Another thing that most people value is a clean environment. Air and water quality are not included in the broadest measure of economic activity emphasized in government statistics, the gross domestic product (GDP), although some economists have worked on ways to do so. But again, rich countries have more resources to devote to maintaining a clean environment and do tend to have better air and water quality than poor and middle-income countries, notwithstanding the fact that rich countries by definition produce more goods and services. Rich countries also generally provide people more leisure time, less physically exhausting and more interesting work, higher education levels, greater ability to travel, and more funding for arts and culture. Again, these linkages, together with the benefits of enjoying a wide variety of goods and services, are the reason that economic policymakers--at the behest of the public--usually put heavy emphasis on job creation and growth.

Emphasis mine to illustrate the non-sequitur. Maybe it's my mistake to interpret them as part of the same idea because they're in the same paragraph. Maybe it's his mistake to place the segment about the environment before the concluding segment about job creation and growth, so that the environment could be more clearly depicted as an exception. When policymakers place an emphasis on job creation and growth, it is most often with ambivalence toward the environment (though there are ways to promote job creation while keeping nature sacrosanct). It's a little misleading.

But the speech altogether is quite worth reading.

The Overtime/Heart Disease Relationship

The BBC reports that working overtime increases the risk of heart disease. That's a shame, because all that time-and-a-half on the paychecks was doing wonders for GDP.

As a brief departure before coming back: the trouble with Galtism is that taxing higher income brackets actually increases upward mobility of the population. The reason for this is that as your income rises, so does your labor elasticity: you are free to take or leave additional work based on how much it pays. If higher taxes cut into your payment for this marginal labor, you'll be less likely to take the additional hours, leaving more work to be done by others, who will then move up the income ladder.

The overall effect is that people wind up working at higher-paying jobs for fewer hours each week, leaving you with both more leisure time and – returning now – less of a risk for heart disease. GDP suffers, but the people flourish.

Entering the Job Market in a Recession

The OMB has released some numbers that pertain to some previous posts here on the subject of starting your career in a recession. The key chart appears here:

So, if cohort X enters the job market under conditions of just 1% higher unemployment than cohort Y, even 15 years later, cohort X's wages are still 2.5% lower.

Quoth the OMB:

The long-term effect isn’t just a residual of low first-year wages: the author suggests that poor job match, lower prestige placements, and fewer opportunities for training and promotion also play a role.

I'd be curious, too, what effect could be developmental: does understanding of employment and adulthood tend to form through the start of one's career, and then stick with the individual, leaving less motivation or ambition? Perhaps a way to test this would be to displace people who began their career in locations with chronic unemployment/recession (such as, um, my hometown) and see if the wage effect still exists compared to those whose entire career has been built in the new location.

Tim Wise

It is well worth reading in full Tim Wise's recent article asking us to imagine if the tea partiers were black. Unlike the blog post that has been circulating lately, Wise's original post contains annotations for all his quotes and anecdotes.

Petrol Consumption Per Capita

From the Infrastructurist (click to enlarge):

Carbon Emission Trends

Take a look around NPR's infographic tool for evaluating carbon emissions and trends worldwide.

Chickens and Private Health Care

From Paul Krugman:

Conservatives don’t like this; if few of them propose paying in chickens, there is nonetheless a constant refrain of calls for making the market for health care more like the market for bread, with consumers paying out of medical accounts and engaging in comparison shopping. There is, for example, vast romanticizing of things like Lasik and cosmetic surgery, which are held up as models for health care as a whole — even though they’re actually very poor models. (They’re discretionary and fairly cheap — not at all like the procedures that dominate health costs in the real world.)

Fighting Terrorism

One of my favorite new sources of information is a site called "Barking up the wrong tree," which appears to be written by someone who spends all his time looking through recently published research and abstracts to report to us, as he says, "just the interesting stuff." He recently reported from the Copenhagen Census on the subject of whether it is worth it to combat terrorism with anti-terrorism measures:

Three of the five “solutions” proposed here – business-as-usual, increased proactive responses, and enhanced defensive measures – have very adverse benefit-cost ratios under a wide range of scenarios, even when the most promising assumptions are invoked. The most effective solutions are the cheapest, but they must overcome the greatest obstacles that require either greater international cooperation or more sensitive and farsighted policymaking. Such qualities seldom characterize rich countries’ actions.

It's been my suspicion that the best way to react to acts of terrorism is to treat it like a natural disaster (and no, oil rig explosions don't count as "natural"). We should react quickly and maturely to help those in need and repair any damage done, but any large-scale response demonstrating fear of terrorists tends to justify that method of getting one's point across – and is also about as effective as attempting to stop all earthquakes or hurricanes.

It's possible the metaphor could extend further – that, much like we could look at global climate issues that could elevate the frequency and severity of hurricanes, if we are serious about reducing terrorism, we should look at global economic (and religious?) issues that could lead people to consider drastic methods to change their lot in life.

Some pretty imporant information regarding the disaster in the gulf

The WSJ reports that the flow of oil could have been cut off via the use of an acoustic trigger system that the rig in question lacked. The cost of the trigger would have been merely $500k (which you can compare to the rig's replacement cost at 560 million, or the billions that would be required for clean up of the disaster (which will probably not include billions more in undocumented externalized costs)).

William Galston of the New Republic documents some of the reasons why the rig might have lacked it. It wasn't required, and the Minerals Management Service (a division of the Interior Department) had experienced a shift in their policy recommendations between 2000 and 2003 regarding whether it should be required for every rig. If the insinuation is unclear or unpresumed, they previously advocated the requirement for each rig to be a regulation, later they thought they maybe the cost was a little too much.

I found the following particularly revelatory:

After the Bush administration took office, the MMS became a cesspool of corruption and conflicts of interest. In September 2008, Earl Devaney, Interior’s Inspector General, delivered a report to Secretary Dirk Kempthorne that has to be read to be believed. One section, headlined “A Culture of Ethical Failure,” documented the belief among numerous MMS staff that they were “exempt from the rules that govern all other employees of the Federal Government.” They adopted a “private sector approach to essentially everything they did.” This included “opting themselves out of the Ethics in Government Act.” On at least 135 occasions, they accepted gifts and gratuities from oil and gas companies with whom they worked. One of the employees even had a lucrative consulting arrangement with a firm doing business with the government. And in a laconic sentence that speaks volumes, the IG reported: “When confronted by our investigators, none of the employees involved displayed remorse.”

Galston conjectures the administration's role, "What we do know is that unfettered oil drilling was to Dick Cheney’s domestic concerns what the invasion of Iraq was to his foreign policy – a core objective, implacably pursued regardless of the risks."

Thanks, guys.

Trucks v. Bicycles

Will trucking in the United States suffer because Ray LaHood wants to focus on alternate transportation? Should it?

The Infrastructurist pulls from the American Trucking Association Blog:

Economic catastrophe aside, the trucking industry’s argument centers around the use of TIGER funds, which they worry will be diverted to new bike lanes instead of projects with “national importance” (aka highways). “Secretary LaHood’s comments suggest that an important sector of our economy will suffer in order to boost bicycling and walking, which always will be overwhelmingly recreational pursuits,”

Yes, it seems impractical that bicycles will ever be the medium of transporting large-scale freight. But to argue that they will always be recreational pursuits ignores quite a bit about the sustainability of our current infrastructure. Predictions are now that the US oil surplus will disappear in 2 years and global shortages will occur in 5. No, giving a little focus to bicycles is not a replacement for freight, but it is certainly a demonstration of a little bit of wisdom to have a little bit of infrastructure in place for when driving can no longer be supported as a primary form of transportation.

The ATA's real concern (which they conflate with the concern about bicycling) is that the DOT's policy will "shift more freight to barges and rail." Is there any reason aside from the short-term employment effect not to make this switch? Our economy is largely dependent on trucking freight today because of lobbying by GM and the energy industry in the postwar period – because if we have to drive cars and trucks on highways to get around rather than take trains, they make more money – not because it's any demonstration of market efficiency.

If it seems dismissive to refer to the lag in the trucking industry as "short-term unemployment," I would refer you first to the broken window fallacy before then additionally suggesting that if a lot of freight is diverted to barges and rail, would not most of the required labor also be diverted? That industry could then have greater revenue to spend on employees, since much will be saved by shifting toward energy efficiency.

What a Toothless Climate Bill.

No wonder it has bipartisan support. From Mother Jones:

The bill would remove the Environmental Protection Agency's authority to regulate carbon dioxide under the Clean Air Act, and the states' authority to set tougher emissions standards than the federal government.

There will be no fee—or "gas tax"—on transportation fuels. Instead, oil companies would also be required to obtain pollution permits but will not trade them on the market like other polluters. How this would work is not yet clear.

Agriculture would be entirely exempt from the cap on carbon emissions.

Manufacturers would not be included under a cap on greenhouse gases until 2016.

The bill would provide government-backed loan guarantees for the construction of 12 new nuclear power plants.

It will contain at least $10 billion to develop technologies to capture and store emissions from coal-fired power plants.

There will be new financial incentives for natural gas.

The bill would place an upper and lower limit on the price of pollution permits, known as a hard price collar. Businesses like this idea because it ensures a stable price on carbon. Environmental advocates don't like the idea because if the ceiling is set too low, industry will have no financial incentive to move to cleaner forms of energy.

The energy bill passed by the Energy and Natural Resources Committee last year will be adopted in full. This measure has sparked concerns among environmentalists for its handouts to nuclear and fossil fuel interests.

Agriculture is exempt? "Manufacturers" are temporarily exempt? Oil companies are regulated in a separate market? That doesn't leave much. What about when agricultural industries buy from oil companies? This seems to leave loads of room for loopholes.

I suppose there's a tough line between what is politically feasible for progress and what is ideal. I would think that a flat carbon tax or 100% auctioned carbon permits (if a cap-and-trade system must be used – but it seems that this is even mere terminology to appease free-market mindset at times) would be the least bureaucratic way to go about it, and also the most productive. Make people internalize the damage they do to the planet in the price. It's also the one that would carve deepest into the energy industry's profits. Thus, both parties support a bill that does next to nothing.

I will save up for that cheeseburger.

Not only to we fail to charge for the destruction of natural resources, we actually pay you to do it instead, with discounts funded by the government:

Two hundred dollars for a hamburger. A gallon of gasoline, $15. The price of clothes: double. Milk, $6 a gallon. These are what things would really cost without subsidies, according to some estimates.

Three-fer, er, Four-fer

New research gives us a little bit of a problem for the presumption that we behave rationally in economic thinking. Think of this when people argue that increasing agricultural regulation is stripping our freedom of choice.

I had a religion professor in College who used God's instructions for distribution of Manna as an argument that God is a socialist.

When Dan Gilbert wrote his iteration of "the Sentence' – the one that starts with "Humans are the only animal that..." – he predicted he would someday be proved wrong. His assertion, that only humans think about the future, was (satirically) challenged.

Also, I think it's safe to say I'll be doing this in the Fall.

Take that, LaHood detractors.

I try to avoid (unsuccessfully) the practice of reposting without comment, so let me at least point out that LaHood should feel vindicated in his assertion that "this is the end of favoring motorized transportation at the expense of non-motorized."

Source: Smart Growth America

A compliment, I guess?

Not sure what to make of this, but it appears to be what would happen if you took this post of mine and ran it through google translate through a few languages back to English.

Targeting Automobiles

Here's a nice chart illustrating why automotive gasoline would be a good candidate for a deterrent tax:

Click to enlarge

Source: Goddard Institute for Space Studies at NASA!

Incidentally, I have now posted more in the first three months of 2010 than all of 2009.

I am a Grocery Bag

No reason not to cite this post in full (except perhaps creative integrity, etc):

PLASTIC BAG TAX IS INSANELY EFFECTIVE: THIS ONE IS FOR D.C. PEOPLE, as well as behavioral economists, who surely make up the rest of you: our beloved new five-cent plastic bag tax decreased plastic bag usage from 22.5 million to 3.3 million in the first month alone. Washington D.C. is now sparkly clean! We are so insane about taxes in this country. FIVE CENTS! Whatever. Some of us need to clean litter boxes and will continue to pollute like the dickens.

Washington Post via Wonkette.

It doesn't appear to be a major revenue stream, but that may not be the point. What should the total tax revenue represent? Perhaps the total cost of cleaning up littered grocery bags and housing D.C.'s share of grocery bags in landfills. When it's factored on a per-bag ratio, it should work out pretty well that any lost revenue from the deterrent effect should cancel out the cleanup costs that are no longer needed.