Some Links

Michelle Bachman's solution to high gas prices: another recession?
This always bears repeating. We live in one of the most peaceful times of the modern era.
Get up or pay!
The revenue-neutral carbon tax.
Diaspora bonds? Color me skeptical. Previous attempts to use active policy to sop up more of emigrants' surplus have not been so successful.
Biggest parenting mistakes ever? Mine, I'm sure, are still to come.
News flash: cash transfers dominate in-kind gifts.

Republican Tax Increases

Alex Tabarrok is on the Republicans today for wanting to increase taxes. I'm not in full agreement with him about tax increases in general (he thinks they should not be increased in general, and that less government and low taxes are roughly synonymous), but I wholeheartedly agree with the notion that the temporary payroll tax cuts proposed by Obama should not be allowed to expire.
Some things that puzzle me about the issue:
1. Payroll taxes are regressive (they affect lower-income workers more). Why would they want to raise payroll taxes during economic recession?
2. Payroll taxes are a direct impediment to private sector hiring. Why would they want to raise payroll taxes during economic recession?
3. One could argue that they aren't technically raising taxes; they're allowing existing cuts to expire, but the Republicans have argued that allowing tax cuts for the rich to expire would themselves be tantamount to tax increases. Why would they want to raise payroll taxes during economic recession?
4. Republicans have argued against cap and trade (not technically a tax) as well as against carbon taxes, both of which have been supported by economists of both parties as good ways to deal with emissions (subsidies for clean technologies that Republicans support are not as good) on the grounds that any tax on energy would disproportionately hurt low-income working Americans. So.... why would they want to raise payroll taxes during economic recession?
Lining up for payroll tax increases also seems to be a political no-win for Republicans politically. It only seems to cement the narrative that they don't really care about the economy itself, but rather that they represent the rich (sometimes at the expense of the poor).

The solution is growth (Daron Acemoglu - HBR Blog)? Will growth curb the debt problem or will debt reduction stimulate growth?

A neat randomization technique to facilitate truth-telling (Freakonomics).

As Greenspan says - we'll never be "forced" to default. Greece didn't have this option. Whither Euro? (Financial Times)

The downside of self-regulating occupational licensing boards (Jay Parkinson)

More policy options that would be dominated by a carbon tax. (Freakonomics)

Another way of looking at the value-added problem in trade statistics. Not all of the "Made in China" product's value should be counted as China's exports? But where do the profits really end up? (NYTimes)

I'm guessing the blockquote here is toungue-in-cheek. (Caplan) I worry about students who only learn a particular algorithm for applying knowledge to specific situations. Those students will be easily replaced by computers. Learn to think.

Playing by the real rules of Monopoly. (Game Night)

Cocktail Party Economics.

Emission trading begins to go international. (Economist) For any "cap and trade" scheme to be effectively binding, it must be globalized; else I still prefer a tax, for that and other reasons.

Gender bias and agricultural technology. (Economist)

Media - back to coffee houses? (Economist)

A sad outcome for property rights theories of environmental protection.

Quick summary: Tim DeChristopher, environmentalist and former economics major at Utah bids on oil and gas permits and wins some while pushing the prices of others up; gets sentenced to 2 years in prison.

I've long thought that if environmentalists wanted to reduce environmental damage, one they should do is bid on (and buy) some of the permits to extract resources or otherwise pollute the environment. If the government's position is that this is criminal behavior, then it strengthens the case for Pigouvian taxation.

Commodity Prices

I generally don't read Krugman much anymore. This post, on commodity prices, seems reasonable. Specifically, on food prices (which some have pointed to as evidence that QE has been inflationary):

this is straightforward supply and demand. Demand may be up to some
extent because of that emerging-market boom. But if you look at the FAO reports
it becomes clear that the key thing for cereals prices is that
production is down in advanced countries, largely owing to terrible
weather.

But if it were coming from monetary pressure, it would likely be a demand-side pull rather than a cost-side push. Also, it might be temporary, since it has to do with weather (unless it is also linked to longer-term climate change).

What about those gas prices? Tyler Cowen is saying that this time it is different, and that there will probably be a change in the long-term trend in energy prices in the coming years. (Note: the long term trend in real resource prices has been negative since about the start of the 20th century.) Yglesias largely agrees. The theory is that during previous increases in price, growth in demand was led by technological innovation, which made us richer, but also better able to pull stuff out of the earth. During current price increases, growth in demand has been led by countries catching up (China and India, for example), and therefore less likely to be accompanied by adjustments on both supply side (better extraction) and demand side (enhanced efficiency). 

They may be right, especially in the short and medium run, but I'm skeptical for a few reasons. First, we've heard the Malthusian trap story before, and it's turned out to be false each time so far. Second, I'm not entirely convinced that their history is spot-on; during previous spikes there was also considerable catch-up growth in Southeast Asia (in fact, the 60s and 70s are a textbook example of "catch-up" growth for countries like Japan, South Korea, and other "Asian Tigers"). Third, prices are incentives, and thus if there is a significant increase in the real price of resources, there is likely to be a supply-side adjustment of some sort, including a shift to new sources of energy (nuclear?). Policy will also play a role in incentives (carbon tax?).

Some links: Climate, China Trade, and Inefficiency

Exchange rates (if relevant in the first place) aren't the whole story with China (Economix)
Rebalancing (Brookings)
Green energy won't create jobs (Economix)
Green energy shouldn't be used to create jobs (Free Exchange) Right. A carbon tax (or if an international mechanism can be designed, cap and trade) would nudge the market to do the job with fewer unintended consequences.
Inefficiency in the tax code; good for somebody (Economix)

Some Links: The Census, Online Gambling, and College Consumerism

The census: Not just enabling taxation anymore (Economist)
Online gambling: End prohibition, begin regulating it... and taxing it (Economist)
Trade: (1) Freight costs on the decline (Economist); (2) should we fear offshoring? (Economist) A couple of good sentences (in response to a claim that the US will have "little left in the comparative advantage department"):

The idea underlying comparative advantage is that a country always has one. The brilliance of the theory is that even when one nation is better at every last type of economic activity than another, it will still be advantageous for both nations to produce and trade. China isn't going to do everything.

Supersize me, Wal-Mart (Working paper)
Taxing "capital" - the devil is in the details (Economix)
Climate Change Reform (Economist)
The old joke is true: Colleges are becoming bars with a $100,000 cover charge - the country-clubification of colleges. (NY Times)

Some Links, Featuring Tourette's, Dilbert, and a Baseball Mystery

Advantages to Tourette's (British Psychological Society HT: TC @ MR)?
Dilbert, "cheaper" copies, and teaching managers about opportunity cost (Freakonomics).
Why are there so many power-hitting middle infielders these days (Economix)?
A couple of links on "cap and trade" vs. the carbon tax (Economix and Economist)
Libertarianism explained: a review of Jeffrey Miron's "Libertarianism, from A to Z." (Economix). Here is an interesting excerpt:

Professor Miron writes that “antipoverty spending is the most defensible kind of redistribution,” because “the goal of this redistribution – helping the poor – is reasonable and the costs of a well-designed limited antipoverty program (e.g., a negative income tax set on a state-by-state basis) are modest.”

Another interesting quotation on libertarianism (From Raj Pate's "The Value of Nothing"; HT to Atin Basu and Greg Lippiatt):

"There are two novels that can transform a 14 year old kid's life: The Lord of the Rings and Atlas Shurgged. One is a childish daydream that can lead to an emotionally stunted, socially crippled adulthood in which large chunks of the day are spent inventing ways to make real life more like a fantasy novel. The other is a book about orcs."  

Some Links, Featuring Conservatives for Higher Taxes, and Evil Cul-de-Sacs

Conservatives for Higher Taxes (Economix)
Cul-de-Sacs may not be evil but they are inefficient (Infrastruturist)
Facebook's progression of suckiness over the years (AllFacebook)
Awesome Dinosaur shirt for kids
Which type of cognitive bias are you? (via Freakonomics)
No Reservations (more here)
Gas tax or hybrid subsidies? Free Exchange makes economic sense of why a gas tax is better for the environment.

Some Links, Non-conserving Republicans and Onshoring

Wham-O returns to the USA (Daily Show).
A program in California makes Democrats conserve, and Repulicans anti-conserve (Slate summary, gated original paper here).
Tolerance lowers HIV rates (MR summary here, ungated research paper here).
Trade surplusses are not always good (FE explains how to shrink them).
Chickenomics of Health Care (Krugman)
The State of Macroeconomics (Economist)

More links, including more grade inflation and granger causation for hangover searches

A confession (here), grades for sale (here), and what my office is going to be like in about a week or so (here).
Searches for "mixed drinks" empirically cause searches for "hangovers" on google (HT to Hal Varian, here).
Yuan-na revalue? (Ouch! here)
5 private sector bureaucrats per doctor (here)
Should I rent or should I buy? (here)
Five cool graphs, in case you wonder why fuel efficiency hasn't improved (read: don't blame producers, here)

Some links, Old news, but things I might still bring up in teaching

Self-hating Austrian Economists (here, here, and here)

Potonomics (Ok, probably won't come up in class, but here)

Are government salaries really that relevant? (here)

Broken windows, or broken record? (here) Seriously. Austrian wannabes really need to find a new argument. Broken windows doesn't necessarily apply to every form of government spending, and with the environment, a subsidy to change over might be better for society in resolving the externality - as long as we price/tax future damage appropriately.

Cartel enforcement does decline when prices are high. Go figure. (here)

Will your house appreciate? (here) Maybe, but as I've said through the whole thing, a house's value is in what you use it for.

Houses pay hefty dividends to their owners in the form of living space — that’s
the real return on housing investment

And finally, more on curbing grade inflation (here)

Dueling Fallacies

This Free Exchange piece does a good job of confronting the "Broken Window Fallacy" anti-stimulus argument. To be sure, some of the "shovel-ready" projects funded by the stimulus are a case of solutions in desperate search of a problem (i.e. there's nothing wrong but we'll fix it anyway). But some of the things are things that need fixing anyway and are things that are will only be fixed with help from a little 'nudge'. In other words, the current owners of some buildings might have installed better windows, but for the fact that the crappy window they have is already there and paid for - it's the "Sunk Cost Fallacy" and I'm starting to feel like I'm trapped in it with my current car, but that's another story.
As RA puts it:

can we really say, in a world in which the sunk cost fallacy has power, that the
broken windows fallacy is a fallacy? Let's say my old window is a cruddy window,
and I would derive net benefits from replacing it, but I am reluctant to because
I've already paid for the original window and throwing it out would seem like a
waste. If some delinquent then throws a rock through my window, I'm made better
off.

Trust me, I've hoped more than once on my drive home the last few weeks, "boy, wouldn't it be nice if some redneck rearended me just enough to total my car?" Or, since I'm theoretically gonna save tons with compact flourescent bulbs, why haven't I replaced my incandescents?

Some Links, Featuring Academic Wages and Pro-Immigration Seniors

Academic Wage Stickiness (short summary here; long version here)
New Index of Financial Conditions (I would prefer a factor analysis approach to a components analysis approach, so we could isolate underlying dimensions of financial conditions, but it's a start)
Property Rights for Indian Emigrants
Remittances to Tajikistan during the Downturn
Old People should Love Immigrants (but my guess is that they don't, for non-economic reasons)
How (and When) Best to to Cut Deficits?
A Couple of Dead, Liberarian Economists in Support of ARRA (the Bastiat excerpt here, courtesy of the right-leaning, Austrian-school-supporting, libertarian Library of Economics and Liberty)
Carbon Emission Policy

Underestimating the human cost of environmental harm...

... by 1/20.
From Ezra Klein:

Bush stopped weighing the costs and benefits of deregulation ... providing industry lobbyists with a back door to block regulations. OIRA also instructed agencies to discount the value of future lives in constructing cost-benefit analyses by 7 percent a year, so that 100 lives in 50 years would only be worth 3.39 current lives. (Such logic can be used by conservatives to argue that the present cost of regulating greenhouse gases outweighs the future benefits of stopping climate change.)

7 percent! Can you imagine earning 7 percent real return on a risk-free bond (after inflation, so nominally, about 9-10 percent nominal return!)? Ridiculous!
From James Kwak:

Over the last five years, the ten-year Treasury yield has generally been between 4 and 5 percent. Call that 4.5 percent. Inflation has been in the low 2 percent range, so at best this is a risk-free return of 2.5 percent. ... Since the legal value of a life is primarily based on future income, this means that the real value of a life increases roughly with productivity. Productivity growth runs at about 2% per year. So if you are getting 2.5 percent on your risk-free investment, 2 percentage points of that just goes to make up for the fact that the people your policy is killing are getting more expensive, which means your discount rate should be 0.5 percent. ... Shouldn’t we also be discounting for risk? The textbook says you should adjust your discount rate based on that probability distribution — the wider the distribution (the riskier the investment), the higher the discount rate. This makes sense because of basic risk aversion. ... That leaves us with a discount rate of about 1 percent, not 7 percent. And instead of 3.39 lives today, you get 60.80 lives today.

Is that a pro-life policy?

Some Links, Featuring Ugly Criminals and Short Men

Are criminals ugly?
Do shorter men pay a premium to get married?
China's newfound assertiveness in the WTO
An interesting discussion of comparative advantage and trade
The tariff Laffer Curve, Post-Bellum America
Illegal immigration on the decline
Changing the balance of components in aggregate expenditures
Simpson's Paradox and environmental conditions during the Industrial Revolution
Why is carbon tradin so high?

Random Links

1. The economists: coal is cheap and getting cheaper, so subsidize solar (note: they also support a carbon tax).
2. Trade is on the downturn. Does it matter that much?
3. Export-enhancing immigration.
4. Ronald Coase, still one of the best at age 99 (and I don't even hold the narrow-mindedness of the rest of the Chicago School against him).
5. Liberal arts education: a long-term investment.
6. If a corporation can have free speech, can it also run for office?

Your Climate Change Probability Score

From Andrew Gelman:

What probability do you assign to the following statement: increasing the atmospheric carbon dioxide concentration above 800 ppm will change the global average surface temperature by more than 2.5 degrees C (4.5 F)? This would imply a climate sensitivity somewhat below the extreme low end of what the Intergovernmental Panel on Climate Change says is credible.

I think I'm a 0.95 (or a 95-percent-er). What's your number?

Thoughts on Global Warming, Broken Windows, and Emissions Taxes

Yesterday, TC at MR had some interesting thoughts on "good versus evil thinking" about the Climategate issue. To summarize, he basically says that there is a chance that the people (who, in this case did something somewhat dishonorable) were acting with good intentions at heart. In other words:

One response is: 1. "These people behaved dishonorably.  I will lower my trust in their opinions." Another response, not entirely out of the ballpark, is: 2. "These people behaved dishonorably.  They must have thought this issue was really important, worth risking their scientific reputations for.  I will revise upward my estimate of the seriousness of the problem."

One other thought I have is, to look at the other side of the debate over climate. What if views and opinions are not only unfounded in rigorous scientific methodology, but are also inconsistent? What credibility do we owe them? For example, some opposers of "green job creation" liken the problem to the "Parable of the Broken Window" by Frederic Bastiat. It's a reasonable comparison in the sense that subsidizing the cleanup does marginally incentivize polluting behavior. This is precisely why most mainstream economists recommend a pollution tax over a cleanup subsidy. A cleanup subsidy (paying for the shopowner to fix the window) creates a moral hazard, or more simply, a modest incentive to produce in sectors that create the mess (break more windows). Two things: one, to accept the parable, you must admit that damage has been done (to the environment); and two, the next question is how to implement the proper incentive mechanism.
In the case of the broken window, the optimal mechanism is to tax (punish, fine, etc.) the breaker of the window above and beyond the simple replacement cost. In the case of the broken environment, it would be appropriate to "punish" firms (and consumers who buy those goods for that matter) that do most harm to the environment. The least discriminatory way to do this might be a carbon tax, but cap and trade has its advantages, too.
I've discussed these options before, and all else equal, the cap and trade auction is probably the most efficient. But there is another twist to things that I recently considered, which is, "How do we charge domestic carbon emitters without implicitly subsidizing foreign emitters?" Not only might it discriminate against domestic producers, but it might even result in more worldwide emissions - emissions intensive production may get offshored to an even greater extent to countries that allow even dirtier modes of production than previously occurred in the US. Thus, I am increasingly leaning towards a carbon tax, which could be levied against the carbon content of all goods sold (domestically produced or imported - cumulative of the carbon emitted in-transport). It lacks the elegance of an auction, but without an international trading block for emissions it is the next-best option.
But this sort of punishment (tax) on vandalizing the environment is not what the "broken window gang" argues for. In fact, they argue against both strategies. In other words, they argue against punishing window-breakers and against compensating shopowners (the future generations who are likely to be impacted by environmental degradation). In doing so I do not really see much benefit of the doubt that can be granted to the opposition. I can think of two scenarios. Either: one, they deny the science of climate change, and thus will construct any convenient argument to oppose it, without actually admitting their state of denial; or two, they do not think climate change is an important issue. I do not think that the first is the case because I think that most of the "broken-windowers" acknowledge climate change. Maybe there is a face-saving third alternative, but I'm skeptical.