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July 6, 2009

Economist's View - 5 new articles

"Half of the World's Emissions Came from Just 700 Million People"

I'm on the run at the moment and have only given this a quick scan, hopefully the comments can take it up in more detail, but here is, according to the hype, the solution to all our global warming problems [Scientific American comments on the proposal here.]:

New Princeton method may help allocate carbon emissions responsibility among nations, EurekAlert: Just months before world leaders are scheduled to meet to devise a new international treaty on climate change, a research team led by Princeton University scientists has developed a new way of dividing responsibility for carbon emissions among countries.

The approach is so fair, according to its creators, that they are hoping it will win the support of both developed and developing nations, whose leaders have been at odds for years over perceived inequalities in previous proposals.

The method is outlined in a paper, titled "Sharing Global CO2 Emissions Among 1 Billion High Emitters," published online in this week's Proceedings of the National Academy of Sciences. According to the authors, the approach uses a new fairness principle based on the "common but differentiated responsibilities" of individuals, rather than nations.

"Our proposal moves beyond per capita considerations to identify the world's high-emitting individuals, who are present in all countries," the team says in the introduction. The authors include Stephen Pacala ... and Robert Socolow... Pacala and Socolow's concept of "stabilization wedges," a strategy that proposed concrete ways to prevent global emissions of greenhouse gases from rising for the next five decades, was featured in "An Inconvenient Truth," former Vice President Al Gore's 2006 film about climate change. The concept has given the climate change policy community a common unit for discussing how to reduce emissions and for allowing a comparison of different carbon-cutting strategies.

The lead authors on the paper are physicist Shoibal Chakravarty and economist Massimo Tavoni, both research scholars at the Princeton Environmental Institute...

The Princeton proposal establishes a uniform "cap " on emissions that individuals should not exceed (represented by the green line). If, for example, an international treaty caps global emissions at a... Click here for more information.

The proposal would use individual emissions as the best, fairest way of calculating a nation's responsibility to curb its output of carbon dioxide, the authors said. The methodology does not mean that individuals would be singled out, only that these calculations would form the basis of a more equitable formula. Some present strategies that employ averages of energy use in a country are widely regarded as unfair, the authors say, because such efforts mask the emissions of wealthy, high polluters.

"Most of the world's emissions come disproportionately from the wealthy citizens of the world, irrespective of their nationality," Chakravarty said, noting that many emissions come from lifestyles that involve airplane flights, car use and the heating and cooling of large homes. "We estimate that in 2008, half of the world's emissions came from just 700 million people."

In the new scheme, emission reduction targets for each country are calculated in a multi-step fashion. The researchers used a strong correlation between income and emissions to estimate the emissions of individuals in every country. Next, they combined these factors to see how individual emissions are distributed globally. ...

The researchers believe their new framework is useful in that it establishes a uniform "cap" on emissions that individuals should not exceed. If, for example, world governments agreed to curtail emissions so that carbon levels in 2030 are approximately at present levels, then, according to the researchers' calculations, the necessary reductions in global emissions could be achieved if no individual's emissions could exceed about 11 tons of carbon dioxide a year. By counting the emissions of all the individuals who are projected to exceed that level, the world leaders could provide target emissions reductions for every country. For this specific example, there will be about 1 billion such "high emitters" in 2030 out of 8.1 billion people.

At present, the world average for tons of carbon dioxide emitted a year per individual is about five. Each European produces about 10 tons a year, with each American producing twice that amount.

"These numbers strengthen our conviction that industrialized countries will have to take the lead in reducing their emissions, but that the fight to prevent dangerous climate change can only be won if all countries act together," said Ottmar Edenhofer, the chair of Economics of Climate Change at the Technical University Berlin...

The new research paper shows that it is possible to reduce poverty and cut carbon emission at the same time. The authors calculate that addressing extreme poverty by allowing almost 3 billion people to satisfy their basic energy needs with fossil fuels does not interfere with the goal of fossil fuel emissions reduction. The cap would need to be somewhat lower, and high emitters would need to reduce their energy consumption by a slightly larger percentage to make up the difference. ...

The paper is designed to address the current stalemate between developed and developing nations, with the developed world calling upon developing nations to share some of the burden of emission reductions, and the developing world pointing to the vast economic benefits already enjoyed by the developed world, with much of that wealth tied to fossil fuel use.

"U.N. rules and customs make it difficult for the international community to examine what is going on inside countries. That's probably why our simple proposal based on individual emissions has not emerged from the diplomats," Socolow said. "Over the next several decades, global environmental rulemaking will need new wisdom to accommodate developing countries whose per capita data belie the presence of both large populations of the very poor and upper and middle classes that are major consumers of resources. Our proposal is a start down this road." ...

Taking Complete Leave of their Senses

Some examples of economists who "write a piece for public consumption," and in doing so, seem to "take complete leave of [their] senses":

Example 1:

Missing the Point on High-Speed Rail, by Ryan Avent: Ed Glaeser is a fantastic economist. He has done magnificent work analyzing the economics of urban growth and written indispensable papers on the connection between housing regulations and migration.

But when the man picks up his pen to write a piece for public consumption, he tends to take complete leave of his senses. I realize that this is a common affliction among economists, but Glaeser suffers from a severe case of the syndrome.

In a Friday piece in the Boston Globe, Glaeser takes on the administration's push to fund construction of high-speed rail corridors around the country. In doing so, he combines the cognitive failures of every amateur train hater with a serious lapse in critical thinking. ...

Example 2:

Administrative Costs, by Paul Krugman: Whenever you encounter "research" from the Heritage Foundation, you always have to bear in mind that Heritage isn't really a think tank; it's a propaganda shop. Everything it says is automatically suspect.

Greg Mankiw forgets this rule, and approvingly (yes, it's obvious he approves -no wiggling out) links to a recent Heritage attempt to explain away Medicare's low administrative costs...

Well, whaddya know — this is an old argument, and has been thoroughly refuted. ...

You should always remember:

1. Don't believe anything Heritage says.

2. If you find what Heritage is saying plausible, remember rule 1.

[Note: Krugman follow up here.]

Continuing with Example 2, Andrew Gelman can't understand why Greg Mankiw quotes the Heritage Foundation instead of someone from "Harvard's world-class Department of Heath Care Policy" with the authority and credibility to speak on these issues (hence the "Eagle Scout" reference):

Does Medicare actually have higher administrative costs than private insurers?, by Andrew Gelman: Greg Mankiw links to an article that illustrates the challenges of interpreting raw numbers causally. This would really be a great example for your introductory statistics or economics classes, because the article, by Robert Book, starts off by identifying a statistical error and then goes on to make a nearly identical error of its own! ...

I'm no expert in health policy. These are just my impressions as a teacher of statistics. It's great to find such examples that are so relevant to policy. I was surprised to see Mankiw quote the above article without criticism; but I'm pretty sure he's studied these issues in a lot more detail than I have, and so perhaps he has additional knowledge that makes him confident in the substance of Book's reasoning.

In particular, I expect that Mankiw has spent some time talking with the faculty at Harvard's world-class Department of Heath Care Policy. I don't know if any of their professors are Eagle Scouts, but they do have this guy, who was the founding editor of the Journal of Health Economics, a member of the editorial board of the New England Journal of Medicine, vice chair of the Medicare Payment Advisory Commission, etc etc. Also on the board of directors of Aetna so it looks like he has experience on both sides. Perhaps Newhouse or one of his colleagues has done a more detailed study that support's Book's conclusions.

Paul Krugman: HELP Is on the Way

We can afford health care reform:

HELP Is on the Way, by Paul Krugman, Commentary, NY Times: The Congressional Budget Office has looked at the future of American health insurance, and it works.

A few weeks ago there was a furor when the budget office "scored" two incomplete Senate health reform proposals — that is, estimated their costs and likely impacts over the next 10 years. One proposal came in more expensive than expected; the other didn't cover enough people. Health reform, it seemed, was in trouble.

But last week the budget office scored the full proposed legislation from the Senate committee on Health, Education, Labor and Pensions (HELP). And the news — which got far less play in the media than the downbeat earlier analysis — was very, very good. Yes, we can reform health care. ...

[A] look at the U.S. numbers makes it clear that insuring the uninsured shouldn't cost all that much, for two reasons.

First, the uninsured are disproportionately young adults, whose medical costs tend to be relatively low. The big spending is mainly on the elderly, who are already covered by Medicare.

Second, even now the uninsured receive a considerable (though inadequate) amount of "uncompensated" care, whose costs are passed on to the rest of the population. So the net cost of giving the uninsured explicit coverage is substantially less than it might seem.

Putting these observations together,... extending coverage to most or all of the 45 million people ... without health insurance ... should ... add only a few percent to our overall national health bill. And that's exactly what the budget office found when scoring the HELP proposal.

Now, about those specifics: The HELP plan achieves near-universal coverage through a combination of regulation and subsidies. Insurance companies would be required to offer the same coverage to everyone, regardless of medical history; on the other side, everyone except the poor and near-poor would be obliged to buy insurance, with the aid of subsidies that would limit premiums as a share of income.

Employers would also have to chip in, with all firms employing more than 25 people required to offer their workers insurance or pay a penalty. ... And those who prefer not to buy insurance from the private sector would be able to choose a public plan instead. This would, among other things, bring some real competition to the health insurance market, which is currently a collection of local monopolies and cartels.

The budget office says that all this would cost $597 billion over the next decade. But that doesn't include the cost of insuring the poor and near-poor... Add in the cost of this..., and we're probably looking at between $1 trillion and $1.3 trillion..., less than 4 percent of the $33 trillion the U.S. government predicts we'll spend on health care over the next decade. ...

So fundamental health reform — reform that would eliminate the insecurity about health coverage that looms so large for many Americans — is now within reach. The "centrist" senators, most of them Democrats, who have been holding up reform can no longer claim either that universal coverage is unaffordable or that it won't work.

The only question now is whether a combination of persuasion from President Obama, pressure from health reform activists and, one hopes, senators' own consciences will get the centrists on board — or at least get them to vote for cloture, so that diehard opponents of reform can't block it with a filibuster.

This is a historic opportunity — arguably the best opportunity since 1947, when the A.M.A. killed Harry Truman's health-care dreams. We're right on the cusp. All it takes is a few more senators, and HELP will be on the way.

"The Perpendicular"

I'm not sure how to introduce this, other than to say thank you to David Warsh of Economic Principals. This is the introduction to a much longer article on econoblogging:

The Perpendicular, by David Warsh: The morning that I visited him last week, Mark Thoma had fielded back-to-back calls first thing from Reuters and Bloomberg. The day before, The Wall Street Journal had sought to arrange for a photograph; the day after, N. Gregory Mankiw, of Harvard University, proudly pointed on his blog to a Thoma item about a speech that Mankiw had made some years before, as former adviser to George W. Bush. Paul Krugman, of The New York Times and Princeton University, had done as much the week before. No wonder, then, that during a recent meet-and-greet, the president of Thoma's university, upon discovering himself to be shaking hands with the proprietor of Economist's View, made a fuss and introduced the self-effacing professor to the assembled throng.

Not too shabby, considering that we were lunching in the leafy little city of Eugene, where the 52-year-old Thoma teaches at the University of Oregon. The WSJ last week was preparing to include Thoma in an article about the most popular economic bloggers. Earlier in the year he had been an invited guest at Kauffman Foundation and Milken Institute conferences. How did Thoma achieve a position of influence three times zones and a world away from the financial and political capitals back East?

The first part of the answer is, of course, the Internet. Thoma is an economic blogger of an unusual sort – a mostly disinterested editor and re-publisher of a selection of items from the daily torrent of informed opinion available on the Web. There are many other highly-rated economic bloggers: Tyler Cowen and Alex Tabarrok, of George Mason University, conduct a peripatetic patrol at Marginal Revolution; J. Bradford Delong, of the University of California at Berkeley, dispenses caustic wit and insight at Grasping Reality with Both Hands; Stephen Levitt, of the University of Chicago, and Steven Dubner and friends hold forth at Freakonomics; Yves Smith (a clever nom de net for a former lady banker) writes on Naked Capitalism from Wall Street; Dani Rodrik's Weblog dispenses common sense on development economics; Baseline Scenario badgers governments with an above-the-fray sensibility rather like that of the International Monetary Fund. Krugman and Mankiw on their blogs are talking heads much more timely and topical, and only a little more gray, than when they began taking turns with one another at two-week intervals at Fortune magazine fifteen years ago. The ranking of these and other bloggers is continually appraised by the powerful collaborative filtering mechanism that is the heart of the custom of exchanging links. ... [...continue reading...] ...

links for 2009-07-06

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