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"Tell the chef, the beer is on me."
'It's going to be an incredible pipeline, greatest technology known to man - or woman,' Trump bragged from the Oval Office.
Read more: http://www.dailymail.co.uk/news/article-4345754/Trump-administration-approves-Keystone-XL-pipeline.html#ixzz4cGOKoyZ
Apologies to those of you who have missed me the last few weeks (hi mom!) as I have recovered from taking care of some lingering neck issues from my years of head banging to 80's hair bands. I'm back on my feet (computer) and ready to go (from the confines of my family room).
Anyway, I know John posted about our article that (finally) came out in the Review of Environmental Economics and Policy, describing the set of issues upon which a sample of AERE members appear to have consensus, and those for which they don't. Here are few highlights from the survey in light of President Trump's budget, keeping mind that the survey was conducted before the thought of a Trump presidency was even a twinkle in the eye, and some of my thoughts on the results.
Thought: I contend that many people who advocate for free markets fail to recognize the important distinction between 'free' markets and 'unregulated' markets. From most economists' perspectives, a truly 'free' market is a market in which all of the costs and benefits associated with production and consumption (current and expected future) are fully encumbered by actors in that market today.
Ok, try this:
'Free' markets have no unintended consequences.
Still too technical?
OK, how about, one more:
'Free' markets have no spillovers.
I could go one, but hopefully you get the point. If there are benefits or costs that come from making or consuming somethings, and those benefits or costs can't or aren't captured in the market from which they originate, the market is failing to do it's job. That's why we call it a market failure.
An externality occurs when a cost or benefit from making or consuming something ends up costing or benefiting someone else, at that someone else has no choice in the matter. For example, the health effects of air pollution from coal-fired electricity production in Ohio on the good people of Boston (I assume there are at least some good people in Boston), or the effects of second-hand smoke on those stuck in an airplane with a smoker, or the spill-overs from improved workforce productivity and social benefits of decreased crime from increased education.
Each of these are example of costs or benefits that are generated by activity in a market, but spill over to people outside the market. The result is that, in these cases, unregulated markets tend to underproduce good things and overproduce bad things (too much pollution, too much second-hand smoke, too little education).
Why then don;t the people in the markets, through the generosity of their hearts, just do the right thing?
Unfortunately market forces are powerful. If a good-hearted electricity producer in Ohio decided to voluntarily absorb the costs of pollution, the Ohio electricty-producer's costs of production will go up. The producer then has the choice of trying to charge higher prices to those buying electricity, or settle for lower profits. If they choose to raise prices, they are now at a competitive disadvantage to the less-good-hearted producers. Most consumers don;t really know (or care?) where they get their electricity, so they are going to choose to buy from the cheapest seller, which now causes a big dilemma for the good-hearted producer: raising prices is off the table, so I either settle for lower profits or I abandon my morals and pollute.
Stakeholders are going to be less than pleased with lower profits, to the point that voluntarily lowering profits is not a long-tern sustainable business strategy. So ruling that out, the good-hearted producer has to either pollute or shut down.
Sorry, that was a long way to go to make the point that this is NOT a 'free' market. It is an 'unregulated market.' And in the case of an externality, an unregulated market will overproduce bad things and underproduce good things (in the case of education, do you consider the positive benefits you provide to society when you decide how much education to get? Or do you just consider your personal benefits?).
That is why, 96% of AERE members who responded to out survey think that unregulated markets fail to provide optimal quantities of public goods (an extreme form of externalities). And it is also why:
Eighty-percent of environmental economists surveyed think cutting EPA regulations will not benefit the U.S. economy
Environmental economists are not market-killers. In fact, most are advocates for truly free markets: markets that fully capture all benefits and cost of production and consumption through market-based regulations. Afterall,
Eighty-six percent of respondents agree that emissions taxes or marketable emissions permits are a more economically efficient approach to pollution control than emissions standards.
Sensible market-based regulations makes sense.
Maximilian Auffhammer at the Energy Institute at Haas blog:
Maybe the most significant development is President Trump’s call for a review of the Corporate Average Fuel Economy standards, which were updated under the Obama Administration requiring the auto industry to deliver a fleet average of at least 54.5 mpg by 2025. This means that the average new car sold would achieve roughly the fuel economy of a current day Toyota Camry Hybrid. This is no doubt ambitious and US manufacturers have complained publicly about the significant costs this would entail, which would be largely passed through to consumers (or so they claim). ...
The CAFE standard was introduced after the 1973-4 oil embargo and is so complex that a number of my colleagues are spending significant parts of their careers understanding it and its consequences. The most recent version of the standard regulates vehicles by class (passenger cars vs. light trucks) and within class by footprint (trackwidth times wheelbase). ...
If you do the back of the envelope calculation, this is equivalent to a roughly 28% improvement in gallons per mile (the right measure) from the 2017 model year to 2025 for all passenger cars and small footprint light trucks and a 17% improvement for the bigger “light” trucks. This sounds like a lot. And the car industry is crying wolf. A number of think tanks are immediately translating this burden into massive domestic job losses. However, if you read the collected works of the brilliant former EI student Chris Knittel, you will know that auto manufacturers have funneled technical progress into more power rather than into more fuel efficiency. For example, a 1980 Honda Civic in its base model had 55 horsepower which got 34 mpg. The 2017 base model has 158 horsepower and gets roughly 35 mpg. Same fuel economy – thrice the power. The argument has forever been: “Power. It’s what consumers demand”. Chris’ paper suggests that the historical improvements in fuel efficiency amounted to about 2% per year. The Obama goals are about 3% a year. So an acceleration would be required, yet it’s not a moonshot.
In other words, 1 million jobs are not at risk from higher fuel economy standards.
See for yourself: http://www.igmchicago.org/surveys/the-cbo. And here is the information on the survey and panel:
This panel explores the extent to which economists agree or disagree on major public policy issues. To assess such beliefs we assembled this panel of expert economists. Statistics teaches that a sample of (say) 40 opinions will be adequate to reflect a broader population if the sample is representative of that population.
To that end, our panel was chosen to include distinguished experts with a keen interest in public policy from the major areas of economics, to be geographically diverse, and to include Democrats, Republicans and Independents as well as older and younger scholars. The panel members are all senior faculty at the most elite research universities in the United States. The panel includes Nobel Laureates, John Bates Clark Medalists, fellows of the Econometric society, past Presidents of both the American Economics Association and American Finance Association, past Democratic and Republican members of the President's Council of Economics, and past and current editors of the leading journals in the profession. This selection process has the advantage of not only providing a set of panelists whose names will be familiar to other economists and the media, but also delivers a group with impeccable qualifications to speak on public policy matters.
And these economists understand the task. In contrast, politicians who don't understand the task put little credibility on CBO forecasts. I don't understand the dichotomy other than politicians are notoriously partisan and therefore prone to saying whatever and behaving however to accomplish their goals.
Here is a screenshot:
Carlo Carraro (REEP editor):
This issue of REEP also features four regular articles (we have indeed increased the number of articles per issue) on topics that I believe will be of great interest to our readers. ... The fourth article, “What Do Environmental and Resource Economists Think? Results from a Survey of AERE Members,” by Timothy C. Haab and John C. Whitehead, discusses the results of a survey of Association of Environmental and Resource Economists (AERE) members on their opinions and beliefs concerning environmental and resource economics issues. ...
Finally, this issue of REEP also brings some important changes to our editorial team. Charlie Kolstad is stepping down on December 31, 2016, after 11 years of service, including being a founding coeditor and serving as editor for 5 years (2009–14). On behalf of the editorial team, all readers of REEP, and all members of both AERE and the European Association of Environmental and Resource Economists (EAERE), I would like to express our sincere thanks to Charlie for his outstanding contributions to REEP over the last 11 years. Without him (and Robert Stavins), REEP would not have risen in just a few short years to its prominent position among economics and environmental studies journals. Thanks to Charlie and his vision, REEP has consistently been ranked among the top 20 economics journals (out of more than 340) and among the top 10 environmental studies journals (out of more than 120). Charlie has worked hard to attract excellent authors and articles. Together with his profound knowledge of environmental economics and his strong reputation and credibility in our field (and beyond), Charlie has enriched the journal and contributed greatly to its success. He will be greatly missed.
Our thanks to Charlie as well. We cold-submitted a proposal for this paper (that he liked) and he worked with us through 3 (I think) revisions to get it into publishable form. The date on the first email is February 1, 2013 so the proposal to publication process took ... [awkward pause while he does the math] ... over 4 years. We collected the data in Sept/Oct 2012 so you can expect a 10 year follow-up survey in a little bit over 5 years. Here is the link to the paper and a screenshot:
"Tell the chef, the beer is on me."
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