It is time to stop quivering in our boots in pointless fear of the future and just roll up our sleeves and build it.
- Ray Pierrehumbert

Friday, May 16, 2008

Kleiman Demolishes Teirney

I'm rethinking the price on carbon thing in the light of recent events with food prices and the poorest countries. We need to put a floor under some level of human dignity below which we will let no one cross, before we let the market determine everything.

That said, I thoroughly enjoyed Mark Kleiman's demolition of Tierney's thinly vailed attack on Mr. Gore. Here's what Tierney said, in case you missed it:
If you travel frequently by air, even on commercial flights, you can’t escape having a huge carbon footprint. Yet many of the most vocal advocates of cutting emissions — politicians, environmentalists, journalists, scientists — are continually jetting off to campaign events and conferences and workshops. Are they going to change the way they operate? If not, how are they going to persuade anyone else to cut back emissions? (My advice to the peripatetic preachers: Do not try explaining why your work is more important than everyone else’s.)
Here is Kleiman's response. Lots of hits. Here's the home run:
Rich people use more goods and services than poor people. That's what "rich" means. Of course multi-millionaires have larger gross GHG footprints than you and I do. So what? If Tierney wants to work on decreasing income gradients, I'm all for it. But of course he's not. He just hates the idea that some rich people use their wealth to promote ideas he dislikes.
Go read the whole thing.

19 comments:

Steven said...

The best way to decrease income gradients is with trade.

This is not speculation based on what may happen in 100 years. This is fact based on what has already happened.

When you say "before we let the market determine everything" you present a paradox.

The market, like soilent green, is people. When you say "we" shouldn't let people decide- you are saying SOME people should use force to keep OTHER people from making the decisions they would naturally be inclined to make in their own interests.

Therefore, someone should be forcing others to act against their own interests.

Anna said...

So, when and where does Tierney respond?

We should invite him here or to Kleiman's or Deltoid for a Q&A, with a donation to charity as an inducement.

Creating a dialogue could yield a lot of value.

David B. Benson said...

steven --- Yes. Because humans are naturally social, cooperative creatures. But only up to a limit of at most 200 other adults.

For more people than that, some form of actual government (read forse, coercion) is absolutely required. But this is not exactly new stuff: read Hobbes's Leviathan.

tidal said...

Steven says: "The best way to decrease income gradients is with trade... This is not speculation based on what may happen in 100 years. This is fact based on what has already happened."

ergo, if something has already happened over the last 100 years it is "fact" AND therefore must repeat...

thanks, that's quite helpful...

bi -- Intl. J. Inact. said...

"The best way to decrease income gradients is with trade."

No, public education never existed. The US civil rights movement never existed. Universal healthcare never existed -- except in countries in Europe, which obviously don't count.

And as I always say, global warming is a Soviet conspiracy as can be seen from hammer-and-sickle patterns formed on cereal flakes.

-- bi, International Journal of Inactivism

Syl said...

"We need to put a floor under some level of human dignity below which we will let no one cross, before we let the market determine everything."

Price controls? That will lead to even more shortages (historically true). The market is not the problem, it is merely the natural mechanism by which millions and millions and millions of transactions between individuals occur every day.

They are not bad people. They are behaving rationally in each of their individual transactions.

But, for example, when a govt body says it will pay to grow a certain crop then, again behaving rationally, more people will grow that crop, send it to market for biofuels instead of for feedstock, will chop down trees to free more land on which to grow that crop, will switch from another crop to that one.

All that has unintended consequences, but it is not in any way the market's fault.

David B. Benson said...

Syl --- Sometimes it is the market's 'fault. Adam Smith's Invisible Hand assumes that in a system of n commodities (money being one of those) that a stable equilibrium price will form. Ordinarily this postulate is largely observed to be fullfilled. But there is no physical or mathematical necessity for it.

When the world's stock of foods drops under a 90 day supply, the prices go up. Fine. That sends the appropriate signal to producers (and also to consumers). But in the last dozens of weeks, thye world's food supply fell to about 5--7 weeks worth. This led to hoarding by individuals, export controls by countries (at least Argentina, India and the Ukraine), and a very messy, disorderly market at CBOT (and I suppose other commodity exchanges).

It is to avoid such unusual, 'chaotic' markets that governments ought to have reserves against. You know, seven years of fat, seven years of lean. That sort of thing...

Michael Tobis said...

Frank Bi makes an interesting point in a way that is too confrontational for my taste. Hence not posted.

bi -- Intl. J. Inact. said...

Tobis, maybe I'll take out the confrontational bits then... so here goes...

Syl:

When it comes to carbon emissions, a "shortage" is exactly what we want.

-- bi, International Journal of Inactivism

Marion Delgado said...

You will never get anywhere disputing the catechism ofmarket fundamentalists.

Michael Tobis said...

It does seem to go round in circles, doesn't it?

Anonymous said...

As someone whose graduate degrees and work experience are in finance / international trade, I am more than a little stunned that you would regard Kleiman's rejoinder as a home run. To change the sporting metaphor to boxing, Kleiman really doesn't lay a glove on Tierney and completely misses the target. The economic argument is poor and it incorrectly reports the facts. Kleiman seems to be referring to the Coase Theorem (assuming he knows what it is) but clearly has no understanding why it will not work in this situation (clue: start with googling costs of enforcement and moral hazard).

He is closer to the target, when he mentions carbon taxes (though the economist in me shudders when he calls them an "equivalent mechanism " to cap and trade. Pigovian taxes and Coase remedies are normally described as opposites). If Al Gore et al, are calling for Pigovian taxes then my humble economist belief is that they have largely insolated themselves from charges of hypocrisy. However, they clearly leave themselves vulnerable to this description if they espouse the personal responsibility of reducing your carbon footprint and the fiction of offsets and cap and trade - you don't have to be a graduate economist to realize cap and trade doesn't have any real use except to make traders rich (yes, I have traded them).

The final argument that rich people are allowed to have larger carbon footprint conflates public with private goods. It is an argument that a true die-hard free-markeeer would make but only in a situation when you have already implemented a formal cost for the activities. It is not an argument that I have heard Al Gore ever make (but then I can't say I follow his every word).

David B. Benson said...

Policy Forum
ECONOMICS:
The Promise of Prediction Markets
Kenneth J. Arrow, et al.

http://www.sciencemag.org/cgi/content/full/sci;320/5878/877?maxtoshow=&HITS=10&hits=10&RESULTFORMAT=&fulltext=arrow+prediction+markets&searchid=1&FIRSTINDEX=0&resourcetype=HWCIT

Slightly off-topic, but not by much.

Michael Tobis said...

To anonymous: I don't think either of them was making an economic argument as such. It's a moral question of when air travel is justified and when it isn't.

tidal said...

To "Anonymous" upthread - I think Michael is correct that the main point of the pieces was about the propriety of air travel.

Nevertheless, where you state: "when he mentions carbon taxes (though the economist in me shudders when he calls them an "equivalent mechanism " to cap and trade. Pigovian taxes and Coase remedies are normally described as opposites)."

Perhaps I am misreading you here, but as far as I am aware, it is broadly accepted by economists that cap&trade with auctioned permits is the functional equivalent to a carbon tax. The only real differences between the two are that (a) with cap&trade there would be some slippage w.r.t. to intermediary transactions, as I think you allude to; and (b) auction-cap-trade is probably more adminstratively expensive than a simple consumption tax application.

The frustration is that "tax" is presumed to be a four-letter word w.r.t. electability... so cap&trade tends to be emphasized instead, despite the functional equivalency and inferior efficiency.

Anonymous said...

Firstly, let me say what a pleasure it is to see a comment thread where the posts are civil and educated - a rare occurrence these days.

In response to some of the posts above:
Michael, it seems clear to me that MK is making an economic argument. His vernacular is pretty much standard from a public choice economics textbook when talking about pricing externalities. Plus look at his last sentence: "Isn't it astonishing how many devotees of "the free market" know jack sh*t about how market processes actually work?" When talking public choice economics, it is generally difficult to separate morality from the economics.

Tidal, there are very significant differences between "Cap and Trade" and a "Carbon Tax" that goes beyond disintermediation and ease of administration. I agree that both are aimed at the end-result (reducing carbon emissions) but there are both philosophical and practical differences. Cap and Trade is a variation of the Coase theorem for which Ronald Coase won the Nobel prize. The Coase theorem is based on trading property rights and is normally beloved by free-marketers so we have an interesting development here where Cap and Trade is so enthusiastically accepted by those left of center and reviled by those on the right (a gross exaggeration, I know). The problems with Cap and Trade are twofold - the issue of rewarding polluters when setting the cap (a moral hazard issue) and the enforcement issue. Greg Mankiw, formerly chairman of the President's CEA, has probably been the most public recent advocate of Pigovian taxes versus Cap and Trade. If memory serves, he has published Op Eds in both the NY Times and the Wall Street Journal. I think most economists would acknowledge that there are circumstances where Cap and Trade and Pigovian taxes become similar (e.g. if you auction off the caps - unlike Kyoto) but generally Coase and Pigou are regraded as mortal rivals in the Public Choice arena.

I, however, think you are completely correct that "tax" is perceived as a four letter, resulting in Cap and Trade being more popular among the political classes.

tidal said...

sorry, "anonymous", that's a brief mumbo-jumbo cruise through some history but doesn't address the deliniation you proposed between c&t and carbon tax...

for what it is worth, since you bring it up, Greg Mankiw himself has posted - repeatedly iirc - something to the effect that "cap & trade = carbon tax + corporate welfare"...

but that is not even really the point - i.e. given that Mankiw and others agree to that equivalency... - the point is that if you actually believe if supply, demand, price, quantity interact efficiently in the market... then the two regimes are functionally equivalent and the only real issue worth discussing is "efficiency" of setting either the q or the p... the rest? mumbo-jumbo...

by the way, do you have a rigid frame that either (a) there is no requirement to impose any sort of intervention on q?; or (b) that any other-than-market intervention will be "sub-oprimal? that's my hunch, fwiw...

btw. if you would like to continue to dialogue, you can leave out the "201" references to Coase and Hayek and Mankiw et al... I am rather well versed... if you want to advance your case based on their work, fine, but I don't need to be elucidated about their basic stuff here...

Anonymous said...

tidal,

How disappointing - just when I thought that we could have a civil discussion on this site, you produce your posting.

Notwithstanding your tone (and where did I mention Hayek?), you completely mischaraterize my position. If you believe that AGW is a problem that requires firm action to cut emissions, then the only two real responses in my view are direct regulation (which has its own set of other issues) or Pigovian taxes. Kyoto style Cap and Trade just doesn't work. You just have to look at the experience in Europe where not only are emissions not decreasing post Kyoto, but (according to the latest numbers I have seen) are increasing at a rate faster that that of the US.

Anyone who has been involved in trading Kyoto credits and seen how the price plummeted post implementation knows the basic underlying problem - the cap is set at the pre-existing level for all companies which rewards polluters and punishes those who has taken proactive steps. The rational profit-maximizing action is to be as inefficient as possible pre-cap just to generate credits which you can later use or sale. This is what economists sometimes refer to as a moral hazard issue. The WSJ, among other publications, have written a number of articles on the issue and how easy the cap system is to exploit in practice. I experienced it first hand.

Of course, you may regard my experience as just more "mumbo-jumbo", which you are certainly entitled to do.

Michael Tobis said...

Anonymous, please do us the courtesy of at least getting a nom de plume on Blogger or one of the OpenID systems. Otherwise we'll have to hold you responsible for everything "anonymous" says.

Both, please leave the snarking and sniping elsewhere. I don't host flame wars.