02 May 2008

"Climate Change" &c.

- It's important to note that we didn't say no government, we argued for and will continue to argue for less government.

Every generation of government planners thinks they are smarter than the last, that they can solve the problems their predecessors could not through better targeted planning, etc.

Of course there is a role for government involvement through regulation and oversight, we just don't think government is the answer to all problems or even most problems.

Can anyone really point at Europe and say, "success!"? Their demographics can't support their welfare states and for the last 10 years, they've been pointing towards the U.S. and mimicking our regulation reducin', tax lowerin', ways. Eastern Europe is probably the best example of this trend, though the same thing has been happening with extreme success in Ireland and nearby Scotland, with their newfound power under devolution, is moving in the same direction.

The most successful Asian tiger? Hong Kong. And does anywhere have as low of taxes and little regulation as Hong Kong?

Ah, Milton Friedman.

- Have global warmists started calling it "climate change" because they don't really know what's going to happen to the weather? If so, how does that make them any different to the weatherman who can't predict what's going to happen beyond a 4 day forecast and even then, with very little accuracy.

(no, we don't doubt climate change just because weathermen can't predict the weather)

Don't call us climate change "deniers." We're skeptics.

Philosophically and broadly, we agree with Bjørn Lomborg. His prognosis for global warming is that the drastic measures many call for would have little impact and that the resources spent trying to reduce carbon output would be better spent helping the poor in lesser developed countries. And further, that a dynamic economy, unhampered by global warming restrictions, combined with human ingenuity, would best solve any future global warming problem.

Obviously this explanation is very simplistic, so don't dismiss Lomborg based on our explanation. He just seems eminently reasonable. And it's that reasonableness that seems to be lacking among most of the global warming true believers.

- What the latest problem global warming (er, climate change) hath wrought?

In U.S.-America, food prices tied even more than usual to rising fuel costs because of government mandated ethanol production and limits on ethanol importation.

(food responds to increases in fuel prices because.... corn prices respond to demand for ethanol, corn production responds to demands for ethanol, corn replaces other crops in production reducing the supply of wheat, potatoes, etc., food prices rise, the poor suffer)

But for the wine and cheese, Prius driving, San Francisco Democrats who patted themselves on the back for their green efforts, the costs are low. As so often happens with these ill-conceived and ill-implemented government mandates, the poor in lesser developed countries pay the price. The price? Starvation.

What if there is a more invidious force at work here than the simple law of unintended consequences? What if some global warmists wanted population reduction in lesser developed countries?

If you follow the intellectual history of the extreme left of the enviro movement, this won't seem like such a farfetched idea.

We don't normally traffic in conspiracy theories, but whacko environmentalists have been calling for population limits ever since Thomas Malthus. His ideas were retreaded by Paul Ehrlich and Jared Diamond.

Remember that idiot columnist from USA Today we linked to last week? Yeah. He called for population limits as a religious/moral duty.

And did anyone catch the news about the couple in Florida who decided not to have children in order to reduce their carbon footprint? Besides our obvious delight at them self-selecting themselves out of existence, their example highlights the incongruity of the population reductionists (double meaning intended).

If they have no children, for whom, exactly, are they preserving the environment?

We only wish that all idiots would make the same, no children decision.

*UPDATE 3 May 3:47pm MST: RD properly chided Clinton and McCain for their "summer break" tax cut. However, his "kudos" to Obama was misplaced. Though he opposes the summer break tax cut on gas, he wants to impose a windfall tax on oil companies. Yeah, that's a good idea. From today's WSJ op-ed on the three Presidential candidate's populist proposals:
This tiff over gas and oil taxes only highlights the intellectual policy confusion – or perhaps we should say cynicism – of our politicians. They want lower prices but don't want more production to increase supply. They want oil "independence" but they've declared off limits most of the big sources of domestic oil that could replace foreign imports. They want Americans to use less oil to reduce greenhouse gases but they protest higher oil prices that reduce demand. They want more oil company investment but they want to confiscate the profits from that investment. And these folks want to be President?
Domestic drilling? In favor. ANWR drilling? Also, in favor.

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Morgan said...

i prefer to use the term "climate change truthers" has a better ring to it and i like the conspiracy theory tie. it also works great when trolling on the internet and in person. try it out sometime. it is kind of like roscoe's.

RD said...

Great post overall. Some disagreements:

“Every generation of government planners thinks they are smarter than the last.” Jake: they are. Do you really think we've learned nothing during the last 100 years? Our knowledge of governing and economics has steadily increased over the years, and current government bureaucrats are much more qualified than previous ones. For example: after the great depression, Keynes and others demonstrated that one of the main causes was lack of government involvement. As a result, government leaders have modified practices to avoid future depressions – and we haven’t had another one.

“Can anyone really point at Europe and say, ‘success!’?” This is a perfect example of how naïve Americans can be about European economies. This is Romneyism at its best (“old Europe”). Actually, many experts would argue that Europe is a tremendous success in the post-War years. You should find a copy of the February 10th 2007 edition of The Economist (if you have a subscription to Economist or LexusNexis you can get it on the web), which included a special report about the many economic areas in which Europe is consistently outperforming the United States — including for various countries worker productivity, return on equity, number of world’s top 1000 companies per capita, and various other measures. Jonah Levy has argued powerfully that the European center-left parties are finding ways to avoid the tradeoff between efficiency and equity by “redeploying the state.” As the euro continues to gain market share due to the many problems with the dollar, America’s ability to run chronic budget deficits (thank you, Bush) and even trade deficits will decline while Europe’s increases, which will actually make Europe more capable of handling its welfare states (some great work on this topic by Menzie Chinn and Jeffrey Frankel). European (and many American) economists have for several years criticized the economic policies of the United States, and indeed, I think we will see major differences in inflation in the future since the ECB is more committed to managing it than the FOMC. Further, the US Right’s strange addiction to supply-side economics is likely to create increasing problems in the future, including massive inflowing FDI (which means decreasing American ownership of American capital). Germany’s ‘social market’ model has been a success by nearly all accounts, and other European countries have found similar ways to do capitalism the European way. In short, while Europe certainly has its problems, and it must indeed make changes, America does too; and, Europe is nothing near the failure that uninformed Americans want to think it is.

Funny that you mention Asian Tigers. Yes, Hong Kong has low taxes, but you’re forgetting the substantial influence the government has had in the rise of all four Tigers, including HK. These countries all practiced Export-led growth policies, which were harshly criticized by the Washington Consensus economic liberals (like yourself) due to their heavy government involvement, until they showed that they were far more successful than WC policies for development and growth. Governments played a major role – including in Hong Kong - and were very successful. Most importantly, Hong Kong has low taxes but it doesn’t have a $9 trillion debt; lowering taxes in the US right now only hinders long-term growth (and it’s irresponsible) and transfers wealth from the future to the present.

Just mentioning Milton Friedman doesn’t automatically give credibility to your argument. (1) He is definitely not the only economist in the world, nor the smartest (though definitely one of the two most influential), and the economic discipline has evolved substantially (read: increased in knowledge) since his time. (2) There were times when he argued for government involvement.

These things aren’t to argue that the government should be heavily involved in the economy. It shouldn’t be. I point them out only to demonstrate that there are some major flaws in your argument, both about Europe and about government involvement. These are myths that are common among uninformed American pundits, but the experts just don’t agree with Hannity &co. Basically, the problem in America is that anyone who pushes for some government involvement gets labeled a socialist. The best path is actually somewhere in the middle, between the unsound laissez-faire ideas of the Right and the unsound planned ideas of the Left.

As for global warming (sorry, I know that’s the real topic of your post), I’m agnostic. I actually don’t care if it’s man-caused or not; I often team up with the global warming people because I have major concerns about energy dependence, and many of their ideas would soften the dependence problem. Some things that won’t fix the long-term problem, however, are drilling in ANWR (I think it’s necessary but not a long-term fix) and cutting the summer gas taxes as McCain and Clinton have argued (that idea is just plain stupid, and will only exacerbate the problem – kudos to Obama for avoiding this kind of populism). That said, you have made me feel like I should read Lomborg, so I will.

Spikers said...

Rd - great points. Not only does Europe often outperform us economically, it outperforms us in terms of equity, social solidarity, standard of living, etc. We have much to learn from Europe.

But a question to Rd - Why do you support drilling in ANWR? I too support energy independence. In my opinion the only way to do so it to drastically reduce our dependence on oil. ANWR offers at best a partial short term fix to high gas prices. It will do nothing to decrease our dependence on oil, and will likely increase it. Drilling there will not only damage the environment, but will retard our efforts to create alternative energy. High gas prices may be the best impetus for change in energy policy. Thus, I cannot support drilling in ANWR or McCain's tax holiday.

RD said...

Another thing for Jake: Your comments about ethanol are dead on. This is a good example of when government intervention is bad - very bad. The current subsidies for biofuels and the resultant increases in food prices - which will likely cause at least 100 million people to move from the $2 a day income level to utter poverty ($1 a day) - is, in my opinion, a genuine travesty. This is indeed the greatest danger of government involvement: political capture. Now that biofuel interests are subsidized, it is unlikely that we will be able to fix the problem for many years.

Spikers - I believe that drilling in ANWR is permissible if and only if it is part of a comprehensive alternative energy solution. It should only be used temporarily to decrease dependence on foreign oil while a concerted effort is directed at alternative energy. When a plan for alternative energy is in place and the wheels are rolling, the increase in ANWR production should be used to push real prices down, and simultaneously, gas taxes should be increased to maintain demand at current or lower levels. I've written about this here.

I know, this is basically a pipe dream. I support ANWR drilling if it is accompanied by these several conditions. If not, I'm with you - mostly because it is a short-term solution that would likely exacerbate the long-term problem.

buruboi said...

Yes. Europe has been successful in many things thanks in part to solid government policy. The European Union is the only IGO ever to function effectively, and it’s largely responsible for creating a huge market that is not just an admirable but perhaps even a superior rival to the American economy. Europe has done far better than the US with respects to mitigating peak oil, especially in France, Lithuania, and Sweden—thanks to a steep gas tax, and government subsidized university educations heavy in sciences, and innovative minds. Europe has a higher average voter turnout largely because of better electoral mechanisms. For those that believe Europeans are truly godless folk, their abortion rate is far lower than the US. They take better care of the average citizens health care needs (oh gee, here we go!), and some states, like the Netherlands, give more in aid than the US as a percentage of GDP. These rewards were reaped by Europeans thanks largely to good government policies. And these are just some off the top of my head. Ryan pointed out some good ones too. Give praise where praise is due.

Your point on European demographics is a good one, but it doesn’t invalidate Europe’s welfare model. There is potential for troublesome times in the old continent because Northern European countries are not reproducing themselves. But that doesn’t prove the welfare model doesn’t work. It merely means that a welfare state must provide more and better incentives to its citizens to reproduce at a higher rate (one more child per domestic couple should do the trick).

As for your main contention, I think climate change is real. I like a cap and trade system to start moving things in the right direction. However, I think the concerns and implications of climate change are overstated (as you pointed out). Climate change shouldn’t stonewall domestic oil exploration nor should it adversely hurt business. Moreover, it’s self-righteous of the developed world to impose environmental standards that curtail the developing world’s ability to industrialize when we ourselves weren’t required to abide by any such standards. Furthermore, the epitome of moral hypocrisy is made evident upon considering that these standards are imposed in order to protect an environment that we, the imposers (the developed world), damaged through our own industrial revolutions.

You’re right on ethanol. It’s spiked food prices, and its adversely affecting the developing world’s access to food. Ryan, I appreciate the environmentalists end to protect the environment by decreasing the demand for gas, but I disagree with their means. They’re the one’s pushing the ethanol agenda down our collective gas tanks. We may just end up starving the developing world, so we keep our air clean (and gas guzzling 4x4 trucks and sports convertibles running…). How’s that for environmentist’s moral hypocrisy?

Ethanol will never significantly decrease our demand for foreign oil anyway. Even if the entire US corn crop were used for ethanol production, it would only meet approx. 4% of our demand for gasoline. And if we used every bit of US farmlands for ethanol production, it would meet only 15% of our demand for gasoline. Ethanol is hurting our economy and we have environmentalists, US farmers, and political capture, as Ryan pointed out, to thank for that. The US government’s poor intervention and failure to place the common good ahead of narrow interests is discouraging when compared to Europe’s more effective energy policy. I think it’s ironic, too, considering one of the premises of this post.

buruboi said...

I don’t find anything about domestic drilling reprehensible. We pay other countries to drill for oil, and those countries often don’t abide by rigorous standards. We don’t complain about the potential adverse environmental affects of oil drilling there, but when it comes to Alaska, all the sudden we're up in arms. In the case of domestic drilling, we can at least set and regulate safety standards. That’s leverage we simply don’t have elsewhere. Moreover, domestic drilling and exploration can detach our reliance on foreign oil in the short-term, so I say drill, explore, and drill some more. Just do it safely.

Spikers said...

Buruboi - We differ on one important point: The value of short term reductions on foreign oil dependence. To me, short term, partial fixes to foreign oil dependence are not worth the environmental harm. Furthermore, America cannot be energy independent while hooked on oil because we are unable to produce enough to meet our own oil consumption. Drilling in Alaska will allow us to continue our oil dependence, retarding the incentives for alternative energy development.

That other countries choose to drill in unsafe/environmentally harmful ways should not affect our domestic policy. Each nation must decide how to use its resources. American's, at least many, feel it is more important to preserve Alaska'a environment than access its oil. You are right to point out that we cannot influence how other nations drill; we can influence how our nation approaches domestic oil resources.

Spikers said...

There is much literature on energy economics and ANWR. Much of this literature is contradictory. One of the more interesting articles I have read is How Does ANWR Exploration Affect OPEC Behavior� —A Simulation Study of an Open-loop Cournot-Nash Game vpublished in 35 Energy Policy. This paper concludes that preventing cartel collusion by OPEC is more effective than the ANWR exploration in alleviating short petroleum supplies of the United States in the near future.

Should we drill in the ANWR? An economic perspective in 35 Energy Policy is also an interesting read. This paper concludes that "the average breakeven willingness to accept compensation to allow drilling in ANWR ranges from $582 to $1782 per person, with a mean estimate of $1141."

RD said...

Spikers, what does the cournot study say is the best way to prevent collusion? (Cournot is a form of oligopoly in which firms compete on quantity; different from a strict cartel). Dan Yergin argues that the real issue is excess capacity. The US, one of the worlds 3 largest oil producers, operates at full capacity, providing 40% of our own oil. The two largest foreign suppliers for the US are Canada and Mexico (which means Obama's NAFTA ideas would really hurt), also, I believe, and full capacity. OPEC's influence on prices is due to its excess capacity - a condition which really began in the early 1970s and partly caused the two oil shocks of 73 and 79.

Your ANWR study looks interesting. Jagdish Bhagwati has argued that the tradeoff between environment and income is approached wrong from both sides - the right placing zero value on the environment and infinite value on income; the left placing infinite value on the environment and zero value on income (generalizations, of course).

How to value the environment, however, is at the center of the questions raised by the environmentalists, and needs more scrutiny. . . .

These groups write as if public policy is wrong when any environmental damage is observed. But this criticism is mistaken unless one puts and infinite value on [the environment]. In the absence of such an extreme valuation, which puts zero weight on income and infinite weight on environment, the optimal outcome will be characterized by some trade gains and some environmental damage. Once this is recognized, it follows that, except in the few situations where it makes senses to attach an infinite weight to environmental preservation, the environmentalists are more credible if they ask, quite properly, for a rise in the relative valuation of environment to income.

Of course, Bhagwati is a trade economist, but the principles apply here. Rather than asking the question, "Will ANWR drilling harm the environment?" or "Will ANWR drilling increase income?" then drawing our conclusions, we should be asking, "How much harm will ANWR drilling cause, and what is that worth to us?" Spikers shows us that Americans (I'm assuming) value it at somewhere between $582 to $1782. I'm probably somewhere at the high end of that valuation. I think ANWR should only be drilled if (1) it is strictly regulated for environmental impact, and (2) it is part of a comprehensive energy solution which includes subsidization of alternative energy projects, building nuclear plants, international cap and trade cooperation, the Mankiw gas tax idea (which is set off by income tax decreases), etc.

However, these individual valuations may be deceiving. What if it is a 'Tragedy of the Commons' situation, in which overall benefits would end up being more (or less) than each person values it? Hard to say, but I'm sure someone has studied it.

buruboi said...

Those are fair points. I think you hit it on the noggin—we simply attach different values to short-term reduction of foreign oil. For me, the costs of potentially damaging the environment are outweighed by the negative externalities of purchasing foreign oil—you know, like wars in Iraq, too close for comfort ties to less than free and transparent regimes like Saudi Arabia, etc. Moreover, much of the dynamics of oil has changed over the last few years. The technology to safely explore and drill for oil has greatly improved. It’s simply not a matter of whether we’ll hurt the environment as Ryan pointed out. That’s inevitable. The better question is how the benefits of oil drilling and exploration compare to the costs of environmental damage. As I said, I think the technology is there. Furthermore, the increasing price of a barrel of oil is certainly making the benefits of domestic drilling considerably more economic.

On the other hand, I’m not strong in my convictions. I like the environment, and too a certain extent, feel genuine guilt for possibly neglecting it. My European Green friends would truly be disappointed with me.

I guess this all bores down to the values we place on the environment, short-term foreign oil reduction, what the numbers say about drilling in ANWR in both cases, and whether better alternative policies exist. I think much of my opinion is an extension of my frustration with the apparent disregard for the adverse effects foreign oil has on our less than savory foreign policy. This may be misleading me. I need to take a closer look at the numbers. How did the cournot study suggest reducing OPEC collusion?