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December 4, 2009

Economist's View - 5 new articles

"Enough Posturing Politics. Time to Let the Experts Lead"

Jeff Sachs says that in order to make progress on curtailing greenhouse gases, we need to get politicians out of the way and involve "scientists, engineers and ordinary citizens ... in a true discussion about our common future, and especially the tradeoffs, costs and choices":

Enough posturing politics. Time to let the experts lead, by Jeffrey Sachs, Commentary, CiF: We can only marvel at the disarray. Here we are, 17 years after the signing of the UN framework convention on climate change, two years after the decision in Bali to agree a new climate policy, one year after Barack Obama's election, and days out from the Copenhagen conference. Yet a real global strategy to avoid catastrophe remains elusive.
Yes, there is some progress. ... The mayhem, however, is at least as great. Greenhouse gas concentrations in the atmosphere continue to mount, and will do so for years or decades to come. The Wall Street Journal, America's biggest circulation paper, rails each day against climate science. Backroom deals in the US Congress with industrial lobbies threaten to eviscerate already watered-down proposals for limiting carbon emissions. A vote on the US legislation has been postponed till next spring at the earliest, and a similar bill has just been defeated in Australia.
The truth is that even if we reach a political agreement, we're not yet on track to achieve practical, significant and sustained progress... – we've somehow turned a life-and-death challenge into a scrum. After Copenhagen, which probably will be concluded with a patch-up accord, it will be vital to change paths from the one we've been on essentially since before Kyoto in 1997.
We've debated for years about who should control emissions, by how much, when, and according to binding or non-binding commitments. Yet we can't settle these issues without also getting into the details about the deployment of low-carbon technologies, social behaviors and the quantitative realities of energy systems, transport technologies, food production, water scarcity, and population trends. We will continue to go around in circles until we are much more systematic in bringing scientific and engineering realities to the table. Our negotiations need much greater grounding in our true options and their costs.
These issues are tough and complex. Each nation's plausible choices depend on what technologies will be available and when. ... We will need, in short, a lot more brainstorming than negotiation, at least until the world's plausible options and trade-offs come into view. When can low-carbon power plants truly be brought online? When will electric vehicles be ready for mass sales? Will carbon capture really work and if so, where? Which countries and regions ... have the right kind of geology to store carbon underground, and who is going to monitor it? Dare we advocate a massive revival of the nuclear power industry, in a world fraught with nuclear proliferation? During two years of lead-up to Copenhagen, the official negotiations never gave a place for such questions to be posed, much less answered. ...
We have spent a lot of time debating the merits of tradable permits versus taxation but have failed to understand that operational policies must go far beyond either instrument. The future of nuclear power, for instance, depends not so much on tradable permits as on issues of safety, reliability, and risks of proliferation or terrorism. Similarly emissions trading may eventually spur the use of carbon capture and sequestration, but only after several such plants have been tried on the public expense, to investigate the real engineering and costs of possible technologies, and the real feasibility of safe, long-term storage in geological sites. The scale-up of solar and wind power will depend on land use choices, the future of the power grid, and the ability to store power.
The costs of these approaches can only be judged after more thorough testing and analysis. Thus the side payments that rich countries will have to make to poor ones to adopt such technologies can't yet be determined precisely. When the EU or any country announces their contribution to the poorer countries in Copenhagen, the number will be pulled out of the hat, and probably far too low. It's past time to do ... the real financial homework.
Perhaps it's no surprise we are stuck. Climate change is the most complicated issue the world has faced. Complex – but not hopeless. It's time to put the expertise at the front table, not to supplant public debate and discussion but finally to inform it. Copenhagen should be the end of negotiation by politicians with technical issues kept in the shadows or ignored. Let's get scientists, engineers and ordinary citizens involved in a true discussion about our common future, and especially the tradeoffs, costs and choices. Together we can prove that our world is still capable of reaching long-range agreements when our children's lives and wellbeing hang in the balance.


Employment Report Shows Small Decline in Unemployment

The unemployment rate dropped from 10.2% to 10.0%. That's an improvement and that is good news, but the improvement is small, payroll employment was essentially unchanged, long-term unemployment remains a problem, the number will be revised later and could go higher (or lower), and if this takes the steam out of efforts to further stimulate jobs, it will have the perverse effect of making the unemployment problem last longer, and hence be worse.

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See also Paul Krugman (who worries this will undermine efforts to further stimulate jobs and the economy), Brad DeLong (who notes that the payroll employment is flat), Justin Fox and David Leonhardt (who break down the underlying numbers and note the long-term unemployment problem), Spencer (who also looks at wage income), and Calculated Risk, Part 2, Part 3 (who shows the numbers graphically).


Paul Krugman: Reform or Else

Anyone who is concerned about the national debt should support health care reform:

Reform or Else, by Paul Krugman, Commentary, NY Times: Health care reform hangs in the balance. Its fate rests with a handful of "centrist" senators — senators who claim to be mainly worried about whether the proposed legislation is fiscally responsible.
But if they're really concerned with fiscal responsibility, they shouldn't be worried about what would happen if health reform passes. They should, instead, be worried about what would happen if it doesn't pass. For America can't get control of its budget without controlling health care costs...
Some background: Long-term fiscal projections for the United States paint a grim picture. Unless there are major policy changes, expenditure will consistently grow faster than revenue, eventually leading to a debt crisis.
What's behind these projections? An aging population, which will raise the cost of Social Security, is part of the story. But the main driver ... is the ever-rising cost of Medicare and Medicaid. ...
You might think ... that extending coverage to those who would otherwise be uninsured would exacerbate the problem. But you'd be wrong, for two reasons.
First, the uninsured in America are, on average, relatively young and healthy; covering them wouldn't raise overall health care costs very much.
Second, the proposed health care reform links the expansion of coverage to serious cost-control measures for Medicare. Think of it as a grand bargain: coverage for (almost) everyone, tied to an effort to ensure that health care dollars are well spent.
Are we talking about real savings, or just window dressing? Well, the health care economists I respect are seriously impressed by the cost-control measures in the Senate bill, which include efforts to improve incentives for cost-effective care, the use of medical research to guide doctors toward treatments that actually work, and more. ...
Over the next decade, the Congressional Budget Office has concluded, the proposed legislation would reduce, not increase, the budget deficit. And ... it would greatly improve our long-run fiscal prospects.
But there's another reason failure to pass reform would be devastating — namely, the nature of the opposition.
The Republican campaign against health care reform has rested in part on ... arguments that go back to the days when Ronald Reagan was trying to scare Americans into opposing Medicare — denunciations of "socialized medicine," claims that universal health coverage is the road to tyranny, etc.
But in the closing rounds of the health care fight, the G.O.P. has focused more and more on an effort to demonize cost-control efforts. The Senate bill would impose "draconian cuts" on Medicare, says Senator John McCain, who proposed much deeper cuts ... as part of his presidential campaign. "If you're a senior and you're on Medicare, you better be afraid of this bill," says Senator Tom Coburn.
If these tactics work, and health reform fails, think of the message this would convey: It would signal that any effort to deal with the biggest budget problem we face will be successfully played by political opponents as an attack on older Americans. It would be a long time before anyone was willing to take on the challenge again; remember that after the failure of the Clinton effort, it was 16 years before the next try at health reform.
That's why anyone who is truly concerned about fiscal policy should be anxious to see health reform succeed. If it fails, the demagogues will have won, and we probably won't deal with our biggest fiscal problem until we're forced into action by a nasty debt crisis.
So to the centrists still sitting on the fence over health reform: If you care about fiscal responsibility, you better be afraid of what will happen if reform fails.


"The Case for $6 Trillion More Monetary Stimulus"

Tim Duy passes this along:

No Exit: The Case for $6 Trillion More Monetary Stimulus, by Joseph Gagnon, Peterson Institute for International Economics: A lively debate is under way between those who want more fiscal stimulus to create jobs and those who worry that our national debt is already too high. Both sides are ignoring the obvious alternative--one that would create jobs and lower the deficit. In a newly-posted Policy Brief, I present the argument for easier monetary policy in all the main developed economies.
As the latest job figures demonstrate, the economies of the United States, the euro area, Japan, and the United Kingdom are suffering from historically high rates of unemployment. In all four economies, the overwhelming majority of forecasters see weak economic growth and lackluster job creation over the next two to three years. In Washington, the Obama administration has just held a Jobs Summit, underscoring the concern about how to put more Americans back to work. Clearly, we need more macroeconomic stimulus to reduce the suffering and allay the long-term damage caused by persistent unemployment as well as to ward off the risk of harmful deflation. But record peacetime fiscal deficits and rapidly rising public debt point to monetary policy, rather than fiscal policy, as the way to go.
Short-term interest rates already have been reduced to near zero. But the Federal Reserve and its counterparts have other tools to use for monetary stimulus. Over the past year, the Federal Reserve and the Bank of England have pushed down long-term borrowing costs for both the public and private sectors through their large-scale purchases of long-term bonds. There is considerable scope for additional purchases to drive borrowing costs even lower. The European Central Bank and the Bank of Japan should join the Federal Reserve and the Bank of England in combined purchases of an additional $6 trillion in long-term bonds designed to push 10-year bond yields down another 75 basis points. At a time of concern about fiscal deficits, it is important to note that reducing yields on government debt actually reduces the federal deficit. Reducing yields on private debt will also speed the repair of private sector balance sheets and encourage businesses to invest and expand employment. A more rapid recovery further reduces fiscal deficits by raising revenues.
It is time to stop arguing about tradeoffs. Monetary policy can create jobs and reduce the deficit at the same time.


links for 2009-12-03

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