This Ezra Klein post echoes what has rather rapidly become conventional wisdom among progressives on climate legislation, and it makes me want to tear my hair out.
The idea is that climate legislation will inevitably hurt people financially in the short-term, in order to secure environmental benefits in the distant future, so the only way to get it through is with a bunch of obscurantist double-talk to bore or distract people in the hopes that you can sneak something through before anyone notices.
If you accept that, as Ezra does, then you will be highly, highly pessimistic about the chances of getting decent legislation passed, as Ezra is.
But here's the thing. Listening? OK. [clears throat]
It ... is ... not ... true!
(Times like this I miss the blink tag.)
Believing and acting as if it is true considerably raises the chances that you will design legislation that makes it true, so it's really important -- the most important thing in the climate world right now -- that people stop thinking like this.
This is properly the subject of a very long post that I don't have time to write right now. For now I'll just point out that even the pessimistic economic models shaping debate in D.C. show a very small hit to the economy from a cap-and-trade system. And those models make a number of absurd theoretical assumptions that are woefully disconnected from reality. So-called "bottom-up" studies -- the ones that look at what actually happens in the world -- consistently find that a push to renewables and efficiency generates economic growth and jobs. (Distributional effects are another matter, but this is about the general case.)
And this becomes more and more true as energy costs rise. Oil, natural gas, and coal are all going up and are almost certain to continue rising in the mid- to long-term, no matter the short-term volatility. As those prices rise we're shoveling money out of our country into the pockets of oil regimes and paying to blow up our own mountains. Every dollar that shifts from fossil spending to R&E spending generates comparatively more jobs, keeps comparatively more money in the economy, and has comparatively more positive multiplier effects. Every dollar that is saved by end-use efficiency moves investment from an extraordinarily low labor intensity sector (fossil fuels) to a higher one (virtually anything else, but particularly renewables).
It is long past time to stop acceding to the absurd notion that money spent to avoid high fuel prices is just sunk inflationary cost. It's not. It is investment in other things, and those other things will generate economic activity and jobs.
The economy is headed for serious, serious trouble. Reducing our carbon intensity will reduce both energy demand and energy prices and spur a wave of productive investment. Sane climate policy is not a burden to bear or castor oil to choke down -- it's going to save our f*cking hides.
Roger Wicker (R-Miss.)
Carl Levin (D-Mich.) [UPDATED]
Arlen Specter (D-Pa.) [UPDATED]
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Delay And Deny Posted 12:31 am
02 Jul 2008
I'm on the S.S. Climate Change, and the weather is great. Warm and sunny in Kent, WA! I feel better. Winter was like before climate change -- people got sick, no Vitamin D.
On the S.S. Climate Change it's full steam (oh yea, fuel cell) ahead!
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setb Posted 1:49 am
02 Jul 2008
An obvious choice for telling this story is the American automobile industry-- which is dying, in part, because of their stubborn insistance to tie themselves to oil.
"We don't want America to collapse like GM"
Any other ideas?
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stevenearlsalmony Posted 1:55 am
02 Jul 2008
How do rich and famous people, who live large and have huge ecological footprints, as well as corporate `citizens' that cast giant shadows over the Earth today, so easily get away with socially irresponsible behavior which could soon precipitate an ecological catastrophe?
As everyone knows but few openly discuss, wealth and power buy freedom. What is all too obvious but often cloaked in silence is this: A small minority of individuals in the human family with great fortunes and virtually all large corporations exercise their great wealth and power in ways that allow all of these self-proclaimed masters of the universe to live lavishly as well as to willfully refuse assumption of the responsibilities which necessarily come with freedom.
Steven Earl Salmony
AWAREness Campaign on The Human Population, established 2001
http://sustainabilitysoutheast.org/index.php
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Kenny B Posted 4:32 am
02 Jul 2008
The biggest problem, I think, is inertia. Creating a change in our energy economy takes some thought and effort, and most folks who have found success under the current circumstances are more than willing to try and stop anyone else's thoughts and efforts. At this point, there are too many of those people.
Once we can finally get the ball rolling on this though, I predict that it will benefit us in ways we can't even imagine. It will require some risks and some fundamental changes, which most are averse to, but it will have to happen eventually.
Here's hoping it's sooner than later.
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PermieWriter Posted 5:50 am
02 Jul 2008
It drives me crazy that people keep saying that doing what's necessary to save the planet's carrying capacity will hurt the poor. No, business as usual is hurting the poor and making a few people obscenely wealthy. It's the sustainable, small-scale projects that really help folks out, and that's just what we need to battle climate change - just a lot more of it.
Eat what you grow, grow what you eat
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CelsiasEditor Posted 7:24 am
02 Jul 2008
Addressing climate change is a great way to solve the economic crises that are here and the one's that are coming.
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georgia Posted 11:58 am
02 Jul 2008
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Matt Rognlie Posted 10:21 am
03 Jul 2008
"It is long past time to stop acceding to the absurd notion that money spent to avoid high fuel prices is just sunk inflationary cost. It's not. It is investment in other things, and those other things will generate economic activity and jobs."
I'm not sure what exactly "sunk inflationary cost" is supposed to mean -- certainly it's not a phase in any wide use among economists. That said, I think that your follow-up perfectly encapsulates the flaw in your reasoning.
Almost anything will "generate economic activity and jobs." If the government decides to spend $1 trillion launching pointless wars in the Middle East, it may increase overall GDP. This is a complicated point, because you have to pit the GDP-lowering distortionary effects of taxation against the GDP-raising income effects of taxation, and any countercyclical stimulus effects from military spending against the destabilizing effects of the resulting war. But let's say, for the sake of argument, that $1 trillion war expenditures would increase total GDP.
This is still not good for the economy in any meaningful way. Sure, overall "output" might rise, but since the output is directed toward something that generally doesn't contribute to the welfare of society (war), Americans in general will be worse off. Yet using your logic, one could deploy the same generic rhetoric about "economic activity and jobs" to justify this spending. This shows the flaw in your discussion of economic benefit.
Now let's indulge another thought experiment for a minute. Say that the damages from global warming didn't exist, and that we were utterly positive that no harm would come from increased emissions of greenhouse gases. (Obviously, this is ridiculous, but that's why it's a thought experiment!) Every piece of your reasoning here about why fighting climate change is good for the economy would still be valid. With your logic, the economy would be better off if we retooled to fight crises that didn't exist. In fact, your logic justifies any labor-intensive public expenditure as "good for the economy." Under the rubric implicitly laid out in your post, hiring millions of Americans to build towers out of toothpicks would be a good economic decision -- after all, it "keeps money in the economy," is extremely labor-intensive, and has positive multiplier effects!
The fact that your reasoning leads to such absurd conclusions indicates that there is something fundamentally wrong with it. Again, one important flaw becomes clear with the "$1 trillion war" example: what matters isn't the total amount of economic output, but rather how that output is directed to make people's lives better.
There are other instances of economic naivete. "Multiplier effects" are only beneficial when we're in a cyclical downturn and want to lift ourselves out of it with government spending -- otherwise they would be a justification for spending almost anything, at any time. "Keeping money in the economy" is a classic protectionist fallacy. "Generating more jobs" is meaningless: the aggregate rate of employment in a country is determined by large-scale macroeconomic factors and the Federal Reserve, not by individual sectors "adding jobs." Maybe the jobs associated with alternative energy will tend to be higher-paying ("green collar") than other occupations available to low-skill workers, but you have to balance this potential distributional benefit against the fact that higher energy prices disproportionately affect the poor.
Please don't interpret my response the wrong way: I am not saying that we shouldn't take strong measures to stop global warming. In fact, I am in support of a strong carbon tax or cap-and-trade regime, because I think that the possible damages from climate change are enormous. But I think it is dangerous to spread the idea that fighting global warming is somehow costless, because it isn't. Action should be taken because the benefits outweigh the costs, not because of the fantasy that there aren't really costs after all.
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David Roberts Posted 11:22 am
03 Jul 2008
Regardless. Obviously I'm not saying green policy will be costless -- I don't believe in magic -- I'm saying that a) the kinds of pessimistic projections put out by the CGE models dominating the Congressional debate (and CW generally) are based on a series of absurd assumptions and are about as valuable predictively as chicken bones, and b) the overwhelming effect of good green policy with be to strengthen our economy both short- and long-term.
I'm trying to go have a weekend, and you're probably long gone, so just one example.
We depend on oil, a largely foreign-owned commodity that suffers large and unpredictable price fluctuations. That makes us vulnerable to stagflation. We can, through a variety of policies, shift investment to efficiency. A big chunk of money spent on oil goes to the owner of that oil; that same chunk spent on efficiency creates domestic jobs. We are, effectively, shifting money from fuel to jobs. Furthermore, the people now paying less for gas will spend the money instead on things like houses and educations. Only in an abstract economic model would that show up as just "shifting money around." In the real world, it makes our economy more robust and sheltered from unpredictable price fluctuations.
I actually do think that a big round of public investment is a good way to get us out of a downturn, which we are certainly now in. But beyond that, taxing fossil fuels and spending the money on infrastructure, efficiency, and growing industries is smart economic policy -- as you say, independently of environmental considerations.
grist.org
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Matt Rognlie Posted 8:30 am
05 Jul 2008
The "Econ 101" picture is complicated a little by the fact that although I'm an undergraduate, I have also recently taken Ph.D classes in my school's top 20 economics program, and scored at or near the top of the class in all of them. This doesn't give me any particular credibility, but I think it should -- at the very least -- save me from being pigeonholed as a naive undergraduate who knows little beyond the crude lessons of introductory textbook economics.
More broadly, I don't think that it's appropriate to attack economic analysis because of the supposedly indefensible assumptions buried under the surface. If you dig deep enough, any analysis of economic issues -- even the relatively mushy, rhetorical analysis held up by people as the alternative to textbook economics -- is going to have either indefensible assumptions or indefensible ambiguity. I'd much rather look on a case-by-case basis at the specific charges against a model, to examine whether they're going to significantly affect the analysis. If economics suggests that most of your ideas about "multipliers," "keeping money in the economy," etc. are fundamentally fallacious, it's not sufficient to respond by citing some generic limitations of economic modeling. You have to discuss the specific ways in which the situation departs from the model, and try to come up with some basic quantitative estimates for how much these departures matter. Otherwise we're trapped in a netherworld where we can abandon rigorous analysis at the slightest whiff of unjustifiable economic assumptions, substituting our own (probably less justified) ideological priors.
Now let's consider the main example you cite: oil. I think that this easily the best piece of evidence in support of your position. The key is that oil shocks can be so large relative to the economy that they may have "spillover" macroeconomic effects, distorting the business cycle and even causing recessions. This is a legitimate and potentially sizable market failure: the private costs (to each oil consumer) of volatile oil prices and oil dependency may not match the overall macroeconomic costs.
But even though I think that this is a reasonable argument, it's unlikely to counteract any more than a small part of the economic costs of fighting global warming. Even a large carbon tax of $75 a ton, for instance, would only raise gasoline prices by 75 cents. By itself, this isn't going to revolutionize our economy and make it far less oil-dependent -- it's significantly smaller than the recent run-up in prices. On the other hand, a $75 a ton carbon would increase the price of coal electricity by 7.5 cents per kilowatt hour, revolutionizing the electricity industry. In general, the main economic costs of a stiff carbon tax won't be associated with oil consumption; they'll be in electricity, heavy industry, etc.
You also say:
"I actually do think that a big round of public investment is a good way to get us out of a downturn, which we are certainly now in."
Short term cyclical downturns are the only place where "multiplier" effects may be relevant, and thus it's plausible that quick spending may stimulate the economy. The problem is that most infrastructure spending takes place on timescales far longer than that of the business cycle. A huge new round of public investment is a long-term expenditure, not a short-term one, and as such it's not a Keynesian stimulus to the economy at all.
In the end, high carbon prices, public spending, and other efforts to fight global warming must be justified by comparison to the damages from climate change. I think that this is favorable territory for environmental advocates: the potential for climate change to cause global social and economic havoc is enormous, and amply justifies some pretty strong policy measures in response. I'd rather have this case made on the merits, not mixed with questionable economic logic that can just as easily be marshaled in favor of pretty much any kind of government spending, productive or not.
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David Roberts Posted 10:38 am
05 Jul 2008
First, while a whole massive infrastructure spending program cannot be cast as a short-term stimulus, there is plenty of short-term infrastructure spending queued up -- there are ongoing capital projects in states that are on hold as we speak, and passing some money to them would mean shot-term spending. See more here:
http://www.epi.org/subjectpages/stimulus.cfm
And second, long-term infrastructure spending is constantly shunted aside by the perceived need for insta-stimulus. It's an irksome dynamic. Every economist I know agrees that infrastructure spending is falling woefully short, and that spending on urban infrastructure and inter-city transit pays itself back richly in economic development benefits. See more here, particularly cites at the bottom:
http://www.apta.com/research/info/online/world_economy.cf ...
On fossil fuels, you missed the main point on oil, though it applies to coal and nat gas as well. For every dollar spent on fossil fuels, a substantial chunk is effectively scarcity rents, acquired by the owner of the resource because the resource is limited in supply. In other words: fuel cost. A dollar spent on renewables contains zero fuel costs, so all the money goes to jobs, training, energy infrastructure construction, operation, and maintenance. This is a productivity benefit.
And finally, when an economist demands "rigor" it usually means, "squeeze what you say into the model I'm using." The kinds of CGE models now being used to forecast doom on climate legislation -- from the EPA, EIA, NAM, and others -- have a record of almost total failure as predictive tools (which is never what they were designed to be). No one ever goes back and gathers models, analyzes then, determines why certain ones work and others don't. They are black boxes, wielded to defend the status quo. They assume full employment of resources; they don't know how to properly account for efficiency; the benchmarks they measure policy effects against are themselves fantasies based on looking into the rearview mirror, taking little account of climate change itself or the steep rise in energy costs; they are highly sensitive to variables like discount rates that are essentially matters of subjective value; etc etc. More to the point, evidence that spending on renewables and efficiency enhances productivity is, as Skip Laitner likes to say, everywhere but in the models. We see it paying off in the real world again and again. If you tell me not to believe my lying eyes because your model says it can't be happening, well, you're getting around to why people hate economists.
As it happens better modeling has been done and is being done, by Laitner at ACEEE, Bob Pollin for CAP, Jim Barrett at RP -- statistical models and disequilibrium models that better hew to the real world. Those tend to show modest positive macroeconomic effects and substantial positive microeconomic effects in terms of making cities more efficient, reducing negative externalities, and yes, keeping more money circulating in local communities, making them more resilient to exogenous variables, as you econo-pinheads put it.
And now I really gotta get to work.
grist.org
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Matt Rognlie Posted 1:36 pm
05 Jul 2008
I think our problem regarding the oil discussion is that there two distinct arguments being made:
When a significant portion of national income is dedicated to oil consumption, oil price shocks may have negative macroeconomic effects that go beyond the private cost of oil to each consumer.
Fuels-based energy is much less labor-intensive than alternative energy, or efficiency-oriented infrastructure projects. Most of the money goes to resource
I already responded to argument #1, which I chose because I thought it was easily the stronger of the two. In theory, this argument can apply to coal and natural gas as well, but I don't think it's nearly as strong, mainly because we don't spend nearly the fraction of national income on coal and natural gas fuel costs that we do on oil. This makes the magnitude of any adverse macroeconomic effects from price shocks much smaller.
I think #2 is a lot weaker. Admittedly, I can see a situation where shifting expenditures from scarcity rents to wages would be optimal because of the distributional benefits, even if it involved some extra costs. The problem is that at the margin, we import basically all of our oil. Importing this oil causes the dollar to weaken relative to where it would otherwise be; this, in turn, ultimately raises the volume of exports to match the import spending on oil. From our domestic perspective, then, the money we spend on fuel imports cycles back into our exports -- and our exports (especially at the margin) may not be any less labor-intensive than the "green" spending proposed as an alternative. The distributional benefits thus disappear.
Now, it is possible that a carbon tax could provide a boost to some infant alternative energy technology, which will ultimately help the economy. (I cover the quite reasonable economic logic for this position here.) The problem is that a stiff carbon tax causes all sorts of other inefficiencies that aren't at all related to industry development. If our main goal is to encourage the development of new industries that have difficulty achieving economies of scale (or technology) on their own, we have much more efficient means at our disposal to do so. The only justification for specifically implementing a carbon price is the damages from global warming. Again, I think that the damages are large enough that this is a satisfactory justification, but it is essential: if we're interested in the economic benefits from infant industry protection, there are a million far better means (like direct subsidies) to accomplish this. In fact, I think that the optimal policy is some combination of a carbon price, to account for the damages from carbon emissions, and targeted subsidies to technologies like solar energy, to account for the market failures associated with early-stage development of energy technology.
Regarding infrastructure spending,
"First, while a whole massive infrastructure spending program cannot be cast as a short-term stimulus, there is plenty of short-term infrastructure spending queued up -- there are ongoing capital projects in states that are on hold as we speak, and passing some money to them would mean short-term spending."
Fair enough. The procyclical effects of no-deficit state budgets are pretty awful, and I'd be glad to see increased spending in the short term. I'm not sure how relevant this is to the points discussed here, though -- my sense is that we're talking about things like massive new rail projects that take years to plan and construct.
"And second, long-term infrastructure spending is constantly shunted aside by the perceived need for insta-stimulus. It's an irksome dynamic. Every economist I know agrees that infrastructure spending is falling woefully short, and that spending on urban infrastructure and inter-city transit pays itself back richly in economic development benefits."
Well, sure. My whole point was that I thought that the case for public spending should be made on its own long-term merits, not perceived "multiplier" or stimulus effects, which I don't think are very relevant anyway.
On this topic, we probably agree more than it appears. I think that there are probably many benefits from improved public transportation systems in large cities. I'm more skeptical about inter-city transportation -- because I don't think the market failures that justify government involvement are there in such abundance -- but I am perfectly open to the notion that infrastructure investment may have huge payoffs of its own.
The main problem is that the infrastructure discussion is actually pretty tangential to the global warming debate. Yes, I know this is counterintuitive, and I make the case in this post that even an unprecedented expansion of rail is unlikely to lower carbon emissions by more than 1% or so. As I mentioned earlier, a high-ish carbon price of $75 would increase gas prices by 75 cents -- not insignificant, but it won't revolutionize the case for alternative transportation much more than the recent run-up in oil prices has already done. Other sectors of the economy (coal electricity, certain kinds of heavy industry) are far, far more sensitive to carbon prices, and that is where the main effects of anti-climate change policy will be felt. In many ways, the economic benefit of city infrastructure spending is a very different policy question.
As far as the whole debate about economic modeling... frankly, I don't even care much about the details of whatever general equilibrium models are being used. I'm just relying upon the simple and valuable economic intuition that in the absence of market failure, significantly distorting the market damages the economy. Of course, there is a gaping market failure here, the externality from carbon emissions, but that's my entire point: carbon prices should be justified according to the damages from climate change. They should not be justified according to the mishmash of other arguments presented here, which are either (1) tangential to climate change, (2) flawed economically, or (3) partially correct, but actually better suited to justifying a different policy.
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David Roberts Posted 1:54 pm
05 Jul 2008
We don't disagree. I tend to think far too much is made of the carbon price alone as the driver. A price alone probably will yield a net drop in productivity, particularly in the short term. So let's not do a price alone! (Not that anyone is proposing that.) There are lots of supplementary policies that should be designed primarily to grease the skids for the transition from fossil fuels to renewables.
And your intuition is ideology masquerading as common sense. In this fallen world, there is no market without failures, and certainly the U.S. energy economy isn't anything in the same universe as the frictionless market of rational actors and perfect information that dominates economists' dreams. By far the most important element of climate policy -- what should be probably 3/4 to 4/5 of the policy portfolio -- is efficiency, and when it comes to efficiency there are market failures, information bottlenecks, and misaligned incentives all over the place. Our economy is ridden with them. A lifecycle analysis of the U.S. energy economy from Livermore determined that 56% of the total energy in the economy is wasted. That's a lot of failure!
The best thing for climate is the best thing for the economy (if you think of the economy as citizens and not as a whiteboard abstraction), and that is efficiency, i.e., shifting spending from energy to labor -- that is, using less energy and creating more jobs. Policies and public spending that drive efficiency are precisely the kind of win-win your "intuition" tells you don't exist.
The goal here is to shift from a low-wage, high-waste economy to a high-wage, low-waste economy -- that serves climate and economic goals both.
grist.org
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Jon Rynn Posted 2:33 pm
05 Jul 2008
It isn't just a problem of market failure: the entire economy has become a market failure. Two huge market failures are occurring: global warming and the end of cheap oil. There are actually others, like an unsustainable global agricultural system, but let's look at the first two:
1) Oil. Prices going through the roof when demand starts to go past supply, and saying the market is handling it, is like saying that we don't need to turn the steering wheel as we approach a cliff because the market will clean up the mess. The idea is to avoid the mess in the first place, and when the market can't handle it -- which it can't -- the government has to step in.
That means, logically, building high-speed rail between cities as fast as possible so that intercity transportation is possible when the airline industry collapses and auto and long-haul truck travel gets too expensive. The market can't handle this kind of problem (by the way, I'm assuming these systems would be electric and would be powered by solar and wind, so their carbon emissions would be minimal).
It also means ramping up public transit within cities to deal with the same problems. This isn't a problem of short-term stimuli, it's a systemic problem, one that the self-organizing principles of a competitive market economy cannot handle, it's simply too large and too long-term.
2) Global warming -- essentially an energy problem -- although also a problem of protecting forests, another governmental problem -- but in this as well, when a market failure means that the whole system collapses, there is something fundamentally awry, not something macroeconomic policies can ameliorate (and by the way, Dave probably has all kinds of different takes on what I'm saying, we should only be lumped together if he says so).
Thus, constructing a network of solar and wind farms, constructing an HVDC national electric grid, municipal renewable systems, these are all things that the government can, and I think should, directly get involved in, although that is definitely a minority position among activists.
In sum, between oil, global warming, and various other systemic problems, we are in a position were we need to consciously plan and transform, in a participatory way, a move from the current unsustainable economic system to a sustainable one.
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amazingdrx Posted 3:41 pm
05 Jul 2008
When it is booming. Then every pundit, skeptical of it now, will say they knew it would work all along. So it goes.
And that will be the time to sell your renewable hotcakes prefferred. Into the conventionally wise bubble. Then sit back and watch it burst.
In your 100% self sufficient renewable powered home and tooling around in your solar powered plugin hybrid.
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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Matt Rognlie Posted 10:13 am
06 Jul 2008
I fully acknowledge that there are informational shortfalls leading to some losses in efficiency, and government can probably design some better policies to account for these. I've long thought that energy-intensive products should be required to displays estimates of their "full cost" that account for the associated energy expenses, to allow consumers to make more informed choices. The government can also be more proactive about distributing information about efficiency to large commercial and industrial energy users. This is to remedy a well-known market failure: the fact that sometimes cost-saving choices aren't taken because the time and effort necessary to figure out the most efficient options are too costly.
But claiming that we can make such cheap, enormous strides in efficiency that we'll painlessly slash carbon emissions? That strikes me as wishful thinking. Many energy-saving improvements never come to fruition, not because of ignorant consumers or informational failures, but the fact that they're simply too expensive.
For instance, installing units to recover waste heat at factories saves a lot of energy -- but it also costs a lot of money, and often only becomes viable once energy prices pass particular thresholds. I'm sure that there are some "easy targets" lying around where efficiency could be increased at low cost. I just don't see any hard evidence that they're nearly so numerous that they can allow us to make drastic cuts in carbon emissions without any corresponding economic losses. Without additional information about exactly how expensive various efficiency improvements will be, figures like the "56% of the energy is wasted" are pretty much meaningless.
Good luck with your deadline...
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