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More on energy pessimism
Paul Krugman writes:
You might say that this is my answer to those who cheerfully assert that human ingenuity and technological progress will solve all our problems. For the last 35 years, progress on energy technologies has consistently fallen below expectations.
It's worth noting that if we had to build today's energy infrastructure working under the current regulatory and NIMBY burden, it probably could not be done. So it shouldn't be surprising that building a new energy infrastructure is proving so hard. There's a reason why many of us think deregulation is a big issue and it's not because we want to see people poisoned by Chinese botchagaloop.
Posted by Tyler Cowen on April 22, 2008 at 01:33 PM in Economics | Permalink
Comments
I'm starting to think that the more we answer Krugman's idiotic rants, the more incentive he gets to keep writing increasingly dumber ones. The wishful thought is that if everyone stops responding to him, he'll quietly go away.
Posted by: Richard Koffler at Apr 22, 2008 1:38:50 PM
Richard,
While you may be right in principle, you are wrong in practice. Krugman is right here and Tyler hits it on the head. We had "great expectations" in the 50s and 60s and then the environmental movement (no bad thing, overall), stopped that one cold. Now that we ALSO have expensive energy, we cannot waste it in teh old plants nor build new ones. We may all be "frutarians" soon -- living on what falls from the trees.
Posted by: David Zetland at Apr 22, 2008 1:44:10 PM
Krugman has a good point:
I’d actually suggest that this is true not just for energy but for our ability to manipulate the physical world in general: 2001 didn’t look much like 2001, and in general material life has been relatively static. (How do the changes in the way we live between 1958 and 2008 compare with the changes between 1908 and 1958? I think the answer is obvious.)
Posted by: Lemmy Caution at Apr 22, 2008 1:59:07 PM
IMO, the Internet alone eclipses all other achievements between 1908 and 1958.
Posted by: Andy at Apr 22, 2008 2:32:21 PM
A solution to high petroleum use and spending is for some non-old people to commute in something like the BMW c1 200. We have plenty of technology that could used to reduce consumption as cost people's utility. The BMW c1 200 or the Tango narrow car's congestion reducing could balance its less utility as far as comfort goes. Seems less than horrible to me.
As far as home energy use the Hallowell's cold-climate heat pump has some real potential to reduce fuel consumption. Also in warm weather we through away heat from our air-conditioners that could be used to heat water.
Lots of other stuff too that could bring big savings at fairly low cost.
Posted by: Floccina at Apr 22, 2008 2:40:10 PM
This reminds me of the assertion, whether true or not, that today aspirin could never win FDA approval.
Posted by: KipEsquire at Apr 22, 2008 2:48:39 PM
Things have improved mightily since the 1950's as far as air pollution goes. No more coal furnaces. Our car got 8 miles a gallon in 1959. Now it gets 30 mpg. More and more power comes from electricity which is more efficiently produced. Waterways are being cleaned up. Fish are returning to lakes and rivers. Industrial polution is being reduced.
The biggest obstacle to furthter improvement besides the US Congress is Al Gore's 13 wood-burning fireplaces. Pollution doesn't bother liberals everywhere. You can't breathe the air around O'Hare Airport now in Chicago but they want to add another 800,000 flights per year. Also, they added 2 lanes to the Dan Ryan Expressway. For more cars of course. The politicians want to let BP to continue to pollute Lake Michigan. They say on thing. Do another. Krugman is totally divorced from reality. He is either a fool or a liar.
Posted by: jorod at Apr 22, 2008 2:49:18 PM
Also for the last 35 years, the price of oil has mostly fallen below expectations (until the last couple of years). I suspect the "lack of progress" on technology might be partly related to that.
Posted by: ed at Apr 22, 2008 2:54:16 PM
Krugman says "progress on energy technologies". This sounds more like R&D to me. If the argument is that regulation, NIMBY, etc., is preventing let's say building new refineries, or bringing a new nuke plant on line I could buy Cowen's argument more, but I don't understand the relationship between regulation and emergence of new technologies. I suppose one could argue that it's too hard to meet existing regulatory requirements but that seems like a bit of a stretch to me. Just sayin'.
Posted by: Scot at Apr 22, 2008 3:00:59 PM
Re: regulatory burden.
What a bunch of hooey. Before it went bust, Calpine was building natural gas powerplants in California at a tremendous pace. Deregulation has made owning the transmission lines a low-margin business leading to bottlenecks and underinvestment in infrastructure.
One reason that regulatory burdens exist is that clean air and clean water are remarkably popular among the voting public.
Another reason regulatory burdens exist is that the voting public pretty much insists that electricity be just about 100% reliable. That kind of reliability cannot be achieved in a deregulated marketplace, especially given the monopolistic nature of retail connections.
Those of us who work in heavily regulated industries, and leave our entrenched ideologies at the door of the workplace, understand that regulations largely arise out of popular support. Deregulation is far too often waved around as a club to bash "liberals", when support for the programs is bipartisan.
If a client is committed to a project and willing to build the political support for it, just about any project can be built, even highways.
And when projects fail, there's usually a pretty good reason. Yucca Mountain, for example, has much more water flowing through it than originally expected.
Tyler, do you have any factual basis for your claim?
Posted by: Francis at Apr 22, 2008 3:01:45 PM
For the last 35 years, progress on energy technologies has consistently fallen below expectations.
Whose expectations? It's also critical to note that the cost of energy during roughly 30 of the last 35 years has consistently been below expectations (especially the expectations of 1970s resource alarmists) -- oil was $30/barrel as recently as 2004 and $16/barrel as recently as 2002. I wouldn't expect full-blown efforts to develop alternatives when oil was cheap (or seemed likely to become cheap again soon).
It's only very recently (as in the last couple of years, really) that investors in alternative energy technologies could be reasonably sure that oil will remain expensive enough for their prospective technologies to be viable.
Posted by: Slocum at Apr 22, 2008 3:03:19 PM
He says "2001 didn’t look much like '2001'"; I don't get it. Human ingenuity is at fault because the life we lead today doesn't resemble the 50 year old wet dreams of some science fiction writers?
And, "how do the changes in the way we live between 1958 and 2008 compare with the changes between 1908 and 1958?" The answer is obivous? Certainly, but to deny that today is significantly different in a very real way from 1958 is to ignore the evidence that surrounds us. The basics may be similar, but very little of what we do today could have been back in 1958. Computers, the internet, ipods, cars that get more than 10 mpg, food from around the world, space tourists, the list goes on, and on, and on.
Yes, we haven't made as much progress as we would like, but we shouldn't deny the progress that has been made and that includes progress in energy technology.
Posted by: JaeTex at Apr 22, 2008 3:16:17 PM
Environmentalists are the new priestly aristocratic caste. They are an elite using religious superstition to oppress and impoverish the masses.
What the world needs is a good French Revolution. What was that old phrase: "Men will never be free until the last king is strangled with the entrails of the last priest."
The religion of environmentalism needs to have a stake driven through it's progress-destroying heart.
Posted by: jim at Apr 22, 2008 3:38:32 PM
2008 may not superficially look terribly different from 1958, but certainly the changes are tremendous. Just think of the advances in medicine. In the 1950s the mortality rate for children with leukemia was about 100%. Now the survival rate is around 80%. This is something that is not as readily obvious as the advent of cars that took place between 1908 and 1958 but is every bit, if not more, impactful. Add to that widespread computing, cell phones, televisions, the internet -- it's mind-boggling.
Posted by: Colin at Apr 22, 2008 3:44:50 PM
Let me get this straight Tyler, you'd really prefer a parallel history with more Superfund sites?
(There are cranks on one extreme who think all Superfund sites contain nothing but imaginary risks, but I'd have not pegged you as one of those. Ye Gods! How many Chinese are now being poisoned by their own "botchagaloop" for the very reason that they don't have a strong EPA?)
Posted by: odograph at Apr 22, 2008 4:01:32 PM
Note: anyone who disagrees with me has obviously been poisoned by the botchagaloop and is not thinking straight.
Posted by: odograph at Apr 22, 2008 4:04:19 PM
This graph has been pointed put here before, but some people seemed to have missed it. The history of the introduction of new technologies to US consumers make clear that the last 50 years has not been very impressive compared to the previous 50. Also most of the improvement in life expectancy over the last 100 years took place before 1950.
http://www.visualizingeconomics.com/2008/02/18/
adoption-of-new-technology-since-1900/
Posted by: joan at Apr 22, 2008 4:09:31 PM
Whose expectations?
Maybe you could just read Krugman's article:
Posted by: lemmy caution at Apr 22, 2008 4:10:30 PM
2008 may not superficially look terribly different from 1958, but certainly the changes are tremendous. Just think of the advances in medicine.
1908 to 1958 was no slouch in the medical innovation department either.
Posted by: Lemmy Caution at Apr 22, 2008 4:30:48 PM
Joan: "This graph has been pointed put here before, but some people seemed to have missed it. The history of the introduction of new technologies to US consumers make clear that the last 50 years has not been very impressive compared to the previous 50."
I certainly disagree. The simplistic graph you reference says nothing about the quality of goods being offerred to consumers. Anyone who was alive during the 1950's knows about the amazing quality increases of goods such as television, automobiles, household appliances, and sporting goods. Of course, the truly significant technological increases were not in consumer goods but in medical technology, communications infrastructure, commercial computer applications, transportation, construction equipment, agriculture technology, food processing, and much more that supported consumers behind the scenes.
Regardless of one's opinion about the morality of warfare advances, there is no question that today's U.S. soldier faces a fraction of the risk as did those in the 1940's, 1950's, and 1960's. Advances in military technology have been mind-boggling.
Can anyone who has actually experienced technological progress of the past 50 years - as opposed to those who view it through graphs and charts - truly claim that the past 50 years have not been impressive?
Joan, would you consider watching a few episodes of the History Channel's Modern Marvels series in order to gain an understanding of recent technological progress? Those programs would reveal much more than anyone could ever gain from a dozen lines on a graph.
Posted by: John Dewey at Apr 22, 2008 4:54:29 PM
I will take a cell phone with internet and three of my friends who are good at Guitar Hero 3, and I will build Mr. Krugman a wind farm.
So we're not walking circles in a space station... who cares? Hal wouldn't open the pod bay doors, anyways. What an economist should mention with respect to this topic, even if just in passing, is that a slowing growth in energy technologies made way for more important advancements in information technology-- advancements which enabled Krugman's rubbish to appear on my Kubrickesque iMac in front of me.
Posted by: mpkomara at Apr 22, 2008 5:23:36 PM
100 years ago most people lived on farms, plowed the fields with horses, used outhouses, had no refrigeration other than ice, no ballpoint pens, no indoor plumbing, no electricity, no radio, no computers, women had babies at home, people rarely saw a doctor, children died from pneumonia and flu quite regularly, had mostly gravel roads if any, had one room schoolhouses, drank unpasteurized milk and juices, and many still lived in log cabins. How did the human race survive the last 7 million years?
Monopolies cannot exist without government collusion... Milton Friedman
Bucky Fuller wrote a book in 1971 called "Utopia or Oblivion." In it he said nuclear power was the panacea for all our energy problems. Yeah, it looks good on paper but it is an engineering nightmare.
On the other hand, commodity prices were realitively low between 1980 and 2005. Since then however, commmodities, especially oil have skyrocketed. Of course, India and China have become major consumers of energy since then. To adjust to this, new supplies will have to come on-line. A new pipeline is being built between Colorado and Ohio for natural gas. There is plenty of coal available to run electric power plants and conserve oil. Of course, the global warming freaks won't like it. And Congress won't let anyone drill for oil.
To see how the public is jerked around by the likes of Krugman, read "Hoodwinking the Nation" by Julian Simon.
NIMBY at work: Canadian National railroad wants to buy a rail line around Chicago to avoid the congestion in the Chicago railyards. People are up in arms about increased rail traffic in their little towns. God only knows when if ever the acquisition will be approved. Everybody complains about shipping costs. But try to make the system more efficient and everyone fights you for one reason or another. Human nature is naturally obstructionist and resistant to change. NIMBY rules.
Posted by: jorod at Apr 22, 2008 5:48:00 PM
Railroads, jorod?
"RAILROAD TO PAY $13M TO SETTLE LIABILITY AT SUPERFUND SITE"
WASHINGTON, D.C. -- The Department of Justice, the U.S. Environmental Protection Agency, and the State of Louisiana today announced that they have reached a $13 million settlement with the Alabama Great Southern Railroad Company to resolve the railroad's share of liability for the cleanup of massive environmental pollution at the Bayou Bonfouca Superfund Site in Slidell, Louisiana.
http://findarticles.com/p/articles/mi_pjus/is_/ai_1120523497
Man, why won't the NIMBYs leave them alone!
Posted by: odograph at Apr 22, 2008 5:51:58 PM
Ed and Slocum have got it exactly right. Many, many alternative energy ideas have been stalled by ultra-cheap oil.
The other big deal IMO, since Krugman mentioned breeder reactors, is the executive order forbidding exactly that. That alone has hugely compounded the nuclear waste problem.
Posted by: Mitch at Apr 22, 2008 6:09:49 PM
Mitch, have you thought about how much money it might take to make a research area fully funded? Billions have been spent on alternative energies in the last three decades ... is it anything other than faith that more money would bring more results?
Bush, not exactly a big-government fiend, pledged $1.2B to hydrogen cars alone, in his years alone. And we (as well as the Germans and Japanese) have been spending steadily on wind and solar.
No "mythical man months" in energy? Simply spend more, suddenly, and get more?
I'd worry, that with say $1B dropped in an area, you might have a pretty good idea of how well it will work. If you drop a few billion and people are still throwing out blue-sky ideas ... you might worry.
Posted by: odograph at Apr 22, 2008 6:30:45 PM
"Many, many alternative energy ideas have been stalled by ultra-cheap oil."
If the full costs of oil, including externalities, were reflected in its price, then those alternatives (including conservation) would win in the marketplace. This could be done either via restructuring the tax code or tradeable permits.
Posted by: a student of economics at Apr 22, 2008 7:02:21 PM
The other big deal IMO, since Krugman mentioned breeder reactors, is the executive order forbidding exactly that. That alone has hugely compounded the nuclear waste problem.
This is nonsense. Breeder reactor programs have floundered around the world. They save relatively cheap uranium, but exacerbate the big problem with nuclear power, which is high capital cost. Penny wise, pound foolish.
Even at today's elevated uranium prices, reprocessing of nuclear fuel is not economic. It's cheaper to just store the stuff indefinitely. Even the french admit this now. Far from 'hugely compounding' the problem of nuclear waste, Carter's order against reprocessing mostly served to stop the government from wasting more money on a pointless industrial policy.
Posted by: Paul F. Dietz at Apr 22, 2008 7:04:39 PM
Progress has been pitiful. Efficiency has been the only successful approach energy wise. Substitutes and using most successful material wise. Even medical advances have been meager for the money spent, diagnostics excepted. Jets, plastics, composites, television, electronics, microwaves, computers, and the internet have been successes. Biotech is mostly ahead.
Posted by: Lord at Apr 22, 2008 7:16:31 PM
a student of economics: "If the full costs of oil, including externalities, were reflected in its price"
How would you propose the cost of such externalities be determined? It is quite likely that my opinion of those costs are much, much lower than your opinion. Those in the energy, transportation, and automobile industries probably have a lower estimate still. Who resolves such differences of opinions? Congress? Do you honestly believe that voters or their elected representatives are going to support any large increase in the price of gasoline? Congress just increased CAFE standards rather than gasoline taxes because they know government-forced gasoline price increases are politically impossible.
I'm not arguing your proposal is theoretically incorrect, just that it cannot be implemented.
Posted by: John Dewey at Apr 22, 2008 7:17:46 PM
The problem with this is we aren't building a new energy infrastructure or remotely close to doing so. We don't even have anything that will remotely fit the bill currently unless you believe in ethanol. Now if the solution was in front of us, this might be useful, but it is as far from reality as it was 50 years ago.
Posted by: Lord at Apr 22, 2008 7:23:42 PM
"Maybe you could just read Krugman's article"
Yes, I did, thanks.
"And the estimates — mainly from Bureau of Mines publications — were optimistic. Shale oil, coal gasification, and eventually the breeder reactor would satisfy our energy needs at not-too-high prices when the conventional oil ran out."
Exactly how much are "not-too-high prices"? And also note that conventional oil has NOT yet run out -- we've still got a lot of time before then (a couple decades at minimum). Get back to me when we're 10 or 20 years into the era of $100 oil rather than only a year or two.
Posted by: Slocum at Apr 22, 2008 7:24:22 PM
Guys, it's past time to blame everything on NIMBY. Under the Bush energy bill, the Federal Energy Regulatory Commission (FERC) got the right pre-empt ALL state and local regulations if it wanted to authorize an LNG terminal. That bill was written by energy industry lobbyists. The Administration and a solidly Republican Congress gave the industry everything it wanted. If the industry wanted to build more refinereies it could have gotten the authority. So why didn't it ask? Maybe because they also know about peak oil and didn't want to build additional refining capacity for oil that doesn't exist.
Posted by: Sunlight at Apr 22, 2008 7:34:30 PM
Lord: "Even medical advances have been meager for the money spent,"
I disagree with both you and Michael Mandel. I'm not saying that all the money was wisely spent. But medical practitioners know how much the profession has advanced the past 50 years. Life expectancy is certainly not the final measure of medical progress. In fact, it is probably not even a valid measure, as life expectancy is much more dependent on genetics and lifestyle choices than it is on medical advances.
The quality of health care treatment, and the quality of life for those afflicted, have increased enrormously. One example is the modern operating room, where my wife has worked for 32 years. Operations routinely performed via laparoscopic surgery in outatient centers formerly required days of hospital recovery. Organ tranplantation, in its infancy 50 years ago, is commonplace today. Hip and knee replacement were still experimental before 1960, but are regularly performed now, with excellent results. Microsurgery now enables cataract surgery, cornea transplant, reversal of vasectomies and tubal ligations, and more advances that aren't reflected in Mandel's simple and misleading life expectancy statistic.
Your very brief acknowledgement of the medical equipment industry's crowning achievement - "diagnostics excepted" - hardly does justice to MRI. MRI has been ranked by medical practitioners as the most beneficial innovation of the 20th century.
I could go on and on, but what's the point? You've likely made up your mind.
Posted by: John Dewey at Apr 22, 2008 7:54:06 PM
John Dewey:
"I'm not arguing your proposal is theoretically incorrect, just that it cannot be implemented."
Well, more widely educating people is the first step, right? Since energy taxes (or tradeable permits) increase total welfare, people will on average be better off. One way to make this clearer is to refund the taxes and/or cut other taxes (e.g. payroll taxes) by an equivalent amount.
It's true we don't know the exact optimal amount of the externality, but virtually all economists agree that the current level of energy taxes is too low. We don't know the optimal level of lots of taxes, but being approximately right is better than be exactly wrong.
Is it hopeless? Lot's of countries that aren't that different from the US tax energy much more heavily, so its seems a bit pessimistic to assume that it impossible to educate the American public regarding their own best interests. Defeatists, who apparently know that the tax structure is flawed, but don't see the point of trying to improve it, are part of the problem. They're likely to get a jumble of ineffective regulations as a reward.
Posted by: a student of economics at Apr 22, 2008 8:22:06 PM
Student: Oil has gone from $10/barrel to $110/barrel, and we still have more or less the same energy infrastructure. (Admitedly, it has not been at $110/barrel for very long, but alternative energy developers are still saying they need subsidies to compete.) No serious estimates of the externalities of oil-burning reach the level of $100/barrel. (The Stern report's estimate of $85/ton C02, for example, corresponds to arround $35/barrel.) So your assertion appears to be emperically disproven: a price increase far greater than oil's externality cost was still not enough to make alternatives competitive.
The fact is, oil is a near-ideal energy source. We are very lucky to have it, and it will be extremely hard to engineer something better.
Posted by: David Wright at Apr 22, 2008 8:31:52 PM
I have to agree with those who say "whose expectations?" Those so-called expectations weren't based on any solid foundations, but were speculative wishful thinking, and the inability to actually achieve everything that was simply imagined is hardly a criticism. Certainly low oil prices have played a role, as the continued low price has discouraged heavy investments in innovation. Pay close attention to Detroit, and you can see that changing now that oil is becoming more expensive.
As to the person who claims that regulations occur because clean air and water are very popular with the public, the correct response is both yes and no. Clean air and clean water are in fact very popular (with me, too, let me add). But because we achieve them through a political market, they are not priced clearly, and citizens don't know how much benefit they're getting for how much cost. I'm not going to take the simple ideological way out and say "too much cost," I'm just going to say that we have absolutely no way of actually knowing--as citizens--what our individual costs and benefits are. So there's no way of knowing if the citizens actually want the amount of clean air and water they've gotten at the particular price they've paid.
It could be they want less, at the price, or it could be they'd want even more, at the price. Or it could be that if they different methods of achieving it could be priced properly, they'd see opportunities to get more clean air/water at a lower price.
At any rate, to imply the regulations are somehow efficient or desirable because the public wants clean air and water is to ignore everything the public choice theorists have taught us over the last thirty years (and Hayek, as well, of course).
Posted by: James Hanley at Apr 22, 2008 8:51:28 PM
Joan: I do not think that graph shows what you say it shows. It shows that the roll-out of technologies today occurs much faster than it used to. For example, according to that graph, it was 50 years after the introduction of the telephone before 50% of the population had one, but it took only 20 years for the mobile phone to reach that milestone. Presuming that faster rollouts are "more impressive", that would indicate that the last 50 years are more impressive than the previous 50. (Or were you just making a subjective comment on the list of technologies, e.g. "refrigerators are more impressive than microwaves"?)
You are right that U.S. life expectancies increased by less in the last half-century (10 years) than in the previous half-century (20 years). But given that employ more researchers and health professionals, invest more public and private money in health, and reward success far more lavishly, I think you would have a hard time arguing that the increase is smaller because we aren't trying as hard. It's rather obvious that smaller increase is simply a result of decreasing returns to scale, a phenomenon that, I might add, will almost certainly plague anyone who wants to pour more money into alternative energy technologies.
Posted by: David Wright at Apr 22, 2008 9:07:41 PM
@odograph:
I think you should consider that you are referring to government money, which goes usually to outdated alternative technologies in convenient congressional districts. These subsidies greatly reduce incentives for the real technological advancements that are approaching competitiveness with fossil fuels.
For example in my home district there are two solar power companies. One is big and gets huge amounts of gov. money because they employ thousands of people to make big, old inefficient, impractical silicon based solar cells. The other is potentially revolutionary, and produces cheap, efficient, flexible cells. The government doesn't care because they don't require big factories.
The government should tax carbon, then get out of the way.
Posted by: kevin at Apr 22, 2008 9:08:04 PM
So there's no way of knowing if the citizens actually want the amount of clean air and water they've gotten at the particular price they've paid.
Ooooooorrrrrrrrr we do. We actually do. Because the citizens continually vote for them. Or you can disagree, and admit that you think democracy was a failed experiment and we should just dig on back to monarchy.
Voted preferences are every bit as valid as marketed ones. Hence the repeated frustrations of economists (and libertarians) when the voters ignore the "clear rationality" of their prescriptions.
Posted by: l2p at Apr 22, 2008 9:15:18 PM
@ l2p
The difference between market mechanisms and democracy is that democracies choose for everyone (make decisions for others) whereas market mechanisms do not (you can't buy the right to force someone else do obey the tyrant majority, but you can vote it).
I have never understood the mentality that a bunch of people pulling levers and punching holes has authority over others.
Posted by: kevin at Apr 22, 2008 9:20:27 PM
OK. Let's go low tech. Take you grass clippings, put them into a landfill next to a power plant. Sink wells. Draw off the methane gas to produce steam to run turbines in the power plant instead of just flaming it off. Can I patent this?
Posted by: jorod at Apr 22, 2008 9:24:07 PM
If a client is committed to a project and willing to build the political support for it, just about any project can be built, even highways.
Clearly you do not live in Connecticut.
Posted by: RJ at Apr 22, 2008 9:33:05 PM
"Voted preferences are every bit as valid as marketed ones. Hence the repeated frustrations of economists (and libertarians) when the voters ignore the "clear rationality" of their prescriptions."
Except that (a) voting for something does not involve paying for it directly, so the incentives are not aligned in such a way as to reveal true preferences, (b) not as many people vote as make market decisions, (c) many people are generally and consistently disappointed by the laws passed by the representatives they elect, no matter who they vote for, and (e) voting is a winner take all game, whereby preference of the people who voted for the losing candidate or initiative is ignored entirely.
You say that we know that the citizens want the amount of clean air and water they get at the price they've paid, because they vote for it, but that ignores (1) all those who voted against it, (2) all those who did not vote at all, (4) the fact that the voters lack information about the cost of the clean air and water because there is no price tag when they vote, and (4) the fact that the voters are electing representatives who often ignore their preferences once elected.
The worst part, though, is that you make the absurd leap that people arguing in favor of democratically instituting free-market reforms are essentially advocating the abandonment of democracy and installation of a monarchy. It seems to be a popular leap to make these days, but its really insulting, and its just ridiculous.
Posted by: Doug at Apr 22, 2008 9:34:25 PM
Krugman should know better - energy prices, until recently, have been extremely low. Why would any take the risk to invest in alternative energies in that type of environment.
Posted by: Chris at Apr 22, 2008 10:23:25 PM
kevin, I agree that the government should tax carbon and get out of the way. But I also think the parallel efforts in solar/wind here, in Japan, in Europe, and increasingly in China ... might compensate for individual waste.
When many teams produce this rate of progress, maybe that's what it is.
Posted by: odograph at Apr 22, 2008 10:40:38 PM
"It's true we don't know the exact optimal amount of the externality, but virtually all economists agree that the current level of energy taxes is too low."
In America? Note that the tax on gas is several times as high in e.g. the UK, and they have come up with...lets see...zero new alternative energies.
Just taxing and subsidizing doesn't magically command new efficient alternatives. If it did... hm... the Soviet Union shoulda done pretty good, huh.
Posted by: liberty at Apr 22, 2008 11:18:12 PM
David Wright: "a price increase far greater than oil's externality cost was still not enough to make alternatives competitive."
Liberty; "Note that the tax on gas is several times as high in e.g. the UK, and they have come up with...lets see...zero new alternative energies."
I think you both miss the point of Pigovian taxes -- i.e. taxes that internalize externalities like pollution, congestion, climate change, national security risks, and accidents involving other people.
The point is NOT to make people switch to alternatives if alternatives are not competitive at the new price that reflects these externalities. Alternatives are not an end in themselves. The point is to let buyers and suppliers decide what to do while facing the correct prices. If consuming a gallon of oil creates benefits greater than the full cost including all externalities, then you should use consume that gallon. If not, you should not consume it and perhaps use an alternative or conserve. Likewise, businesses, entrepreneurs and inventors should, and will, flock toward profitable opportunities. We should give them the right price signals, perhaps that means less innovation making SUVs larger and more innovation in solar panels. These large and small innovations add up.
For instance, in the UK, cars get nearly twice the gas mileage, people choose to live closer to work, people take trains and bike more, etc. The net is they use much, much less gasoline than Americans.
No one needs to be for or against oil or solar or any technology on "moral" grounds if it is correctly priced. On the other hand, if the prices are far from reflecting their full costs, including externalities, then, yes, we do need to resort to moralizing and regulation to try to encourage the right behavior. That's not usually as efficient and I'm sure it annoys you.
I'm all for letting the market work as it should. How about you?
Posted by: a student of economics at Apr 23, 2008 12:28:56 AM
kevin, I agree that the government should tax carbon and get out of the way.
Believe me, I am fully conversant with the Pigovian literature and understand the sentiment behind the above quote. Even so, I am highlighting it because I think other libertarian readers will find it amusing, when read in isolation.
Posted by: Bob Murphy at Apr 23, 2008 1:31:12 AM
Please link to this site. Please!
http://business-information2.blogspot.com/
Thank you.
Quenta
Posted by: Quenta at Apr 23, 2008 1:54:22 AM
Here's a comment that I posted to Krugman's blog about the surge in oil prices. Bottom line: I'll know it's a really big deal when it inspires some US policy changes to increase supply.
There’s also a phenomenon that might be (inaccurately) termed “inelasticity of political demand.”This is to say that it’ll take some real and sustained price pressure for us to take logical steps regarding oil supply.
The steps that I am thinking about are (1) drilling for proven reserves off the coasts of California and Florida (2) Drilling in ANWR (3) Abolishing the Strategic Petroleum Reserve and (4) Allowing new refineries to be built in the US. (There are others, natch.)
These are simple steps that could be commenced tomorrow. But, frankly, there has not been enough pain for the relatively affluent people who make policy to consider these sorts of simple, significant, straightforward solutions.
What’s a little bit amazing to me is the group-think in the media that prevents these ideas from even being floated.
You’d think that News Producers would recognize a good segment when they saw one. Are they that biased? Or that uninformed?
Posted by: Milt at Apr 23, 2008 2:27:35 AM
Francis,
One reason that regulatory burdens exist is that clean air and clean water are remarkably popular among the voting public.
Regulation is unnecessary and, according to most economists, inferior to pigovian taxes for reducing unwanted externalities.
Another reason regulatory burdens exist is that the voting public pretty much insists that electricity be just about 100% reliable. That kind of reliability cannot be achieved in a deregulated marketplace, especially given the monopolistic nature of retail connections.Supply of electricity itself isn't a natural monopoly, and thats where all the pollution comes from, as well as advances in energy. Of course, the last-mile of power lines is a natural monopoly. I don't think that means the government should operate it (I'm sure there are plenty of ways of structuring voluntary organizations to deal with that sort of thing, such as consumer ownership), but how one decides to finance the construction of power lines doesn't seem like a big deal to me.
Those of us who work in heavily regulated industries, and leave our entrenched ideologies at the door of the workplace, understand that regulations largely arise out of popular support. Deregulation is far too often waved around as a club to bash "liberals", when support for the programs is bipartisan.Popular support of a certain policy doesn't mean its any good. If you believe Caplan or much of public choice economics, it often means the opposite.
If a client is committed to a project and willing to build the political support for it, just about any project can be built, even highways.Unfortunately, this says nothing about whether the project should be completed; i.e. whether or not it an efficient use of the needed resources compared to the other possible uses of those resources.
Posted by: Grant at Apr 23, 2008 2:57:50 AM
Student: I don't disagree with a single word of your last post. Really. There is no disagreement there.
Moral questions aside, there is the entirely positive question of whether, with the appropriate Pigou tax on oil, there would be a massive shift from a petro-dominated energy system to an alternative-dominated energy system. In your first post, you made a positive claim to answer this question. I quote: "If the full costs of oil, including externalities, were reflected in its price, then those alternatives (including conservation) would win in the marketplace."
I am making a positive claim that this answer is wrong. My argument is that market forces have already imposed a price increase of this size three times over, and your predicted shift has not occured. (Yes, none of these increases have been due to a Pigou tax, but of course from the market's perspective the reason for a price increase is irrelevant.) Of course, this isn't proof positive -- the fourth time might be the charm. But it would seem that one should be much more skeptical than to assert with certainty that, if oil just cost $35/barrel more, alternatives would definitely win in the marketplace. (The fact that Europe, win gasoline taxes already significantly higher than $35/barrel, still hasn't seen a decisive shift to alternatives, is yet another argument against your claim.)
Again, I am not making a moral argument. This isn't about whether alternatives should or shouldn't win, costs aside. It's about whether they would win, if a reasonable Pigou tax were imposed.
Posted by: David Wright at Apr 23, 2008 4:40:00 AM
a student of economics: "I think you both miss the point of Pigovian taxes -- i.e. taxes that internalize externalities like pollution, congestion, climate change, national security risks, and accidents involving other people."
I find it both humorous and, well, scary, that some people (a great many, even) believe there is a way to even ballpark the external costs of pollution, congestion, and climate change, but as for accidents and national security risks (if the latter means to you what it means to me) internalizing the costs isn't a matter of creating new taxes. On the contrary, to internalize those costs is a matter of cutting government spending (and, ideally, eliminating the taxes that pay for that spending--this is an important distinction for the better measure of the cost of government is government spending, not taxation).
For example, it seems to me that, if oil companies had to employ their own private armies to provide for their operational security they would require a higher price for their products in order to be profitable (i.e. to survive in the marketplace.) And, this is cost that their would-be alternative energy competitors would not share.
Instead, we have an artificially low price "at the pump" combined with the cost of government spending on "national security", which is shared not only by all consumers, but by their would-be competitors as well.
Cheers,
Posted by: Michael Giesbrecht at Apr 23, 2008 4:56:31 AM
P.S. I meant to add that I'm not a student of economics, except maybe in broadest possible sense. I might easily have this all wrong.
Posted by: Michael Giesbrecht at Apr 23, 2008 4:58:49 AM
We can get a good bit of solar energy from our tiny little sliver of sunlight. Space is enormous. Of course technology will answer the problems of energy and pollution...in the long run. Until then, stuff is scarce. This is news?
Posted by: Andrew at Apr 23, 2008 7:08:22 AM
By the way, I'm having trouble dealing with all of the crap I already have, and most of the stuff I want and spend a helluva lot of money on is made of about 200 grams of plastic and silicon. I could also use a lot less oil if my employer would get his head out of his rear and realize facetime is BS (i.e., telecommuting). So far I'm not adding to population increase overall either.
I'd jump on "Voted preferences are every bit as valid as marketed ones." but it looks like Doug did a fine job. I'd add that a lot of people vote for a politician for things like they are charismatic. They get the environmental and other stuff as part of the bargain. In the market, I can go buy a box of cereal and not have to take home the rest of the store with me.
Posted by: Andrew at Apr 23, 2008 7:19:20 AM
Oh, and I don't have to eat the same cereal I bought for 2 to 6 years.
Posted by: Andrew at Apr 23, 2008 7:20:58 AM
"...externalities like pollution, congestion, climate change, national security risks, and accidents involving other people."
If I choose not to live close to work, I pay. If I get in an accident, I pay. If our stupid government gets us into a stupid war because they don't think the oil will come out of the ground without military boots on the ground, I pay. If Al Gore can convince people we are all going to die from global warming, I'll have to pay. Not all of these are real externalities of me buying gasoline. But, I'm sure a lot of politicians would love to tax them like they are.
Krugman: "The general rule to remember is that if some discipline seems less developed than your own, it’s probably not because the researchers aren’t as smart as you are, it’s because the subject is harder."
Here we go again with this "economics is so much harder than engineering" tripe. Some guy tries to solve economics with a computer. Why is that an indictment of engineering? Maybe it's just some dolt, or it could be an indictment of the concept of central planning.
And why can't increasing commodity prices signal a victory for capitalism, division of labor, and globalization. Yes, prices are high...and we're still growing!
Krugman: "in general material life has been relatively static. (How do the changes in the way we live between 1958 and 2008 compare with the changes between 1908 and 1958? I think the answer is obvious.)"
So do I. Now I'll leave my computer, grab my I-pod full of audiobooks and scoot down the road to my air conditioned job where I manipulate stuff on the micron scale.
Posted by: Andrew at Apr 23, 2008 7:48:43 AM
Do some of you folks still cling to the idea that the "W" Afghanistan and Iraq wars are about securing a supply of il for the U.S.? Please explain that.
We import no oil from Afghanistan. Iraq's oil supply was not at risk. Saddam Hussein would have been more than happy to sell his oil. It was the U.S. working through the U.N. that prevented him from doing so throughout the 90's.
Only about 14% of crude oil consumed by the U.S. flows from the Persian Gulf. We get much more from Canada, Venezuela, Mexico, and Nigeria. A military presence in the Middle East cannot be justified by our need for petroleum. If Arabs refused to sell us the 14% we do import from them, they'd just sell it to someone else, and we'd find the oil we need elsewhere.
So why do you guys try to include U.S. military presence in the middle East as an externality for gasoline consumption? Because Bush has used the threat to oil production to justify continued presence in Iraq? You guys believe that garbage?
Posted by: John Dewey at Apr 23, 2008 9:13:25 AM
David Wright, No need to be so pessimistic. Maybe the glass is half full
According to McClatchy Newspapers, U.S. drivers are doing something they haven’t done for nearly two decades — consume less gasoline. If you define alternatives broadly to include conservation, then alternatives are winning market share.
More narrow definitions of alternatives are growing even faster. Windfarm are now significant source of electricity in much of Europe and Boone Pickens, the oil man, says he plans to invest $10 billion on them in the U.S. Google is installing millions of Solar Panels and profit-minded VCs and investors are putting tens of billions into the technology. The number of Solar Watts produced is roughly doubling every 2 years. At that rate, 7 more doublings and we'd get all our electricity from solar (okay, I don't expect the rate of growth to stay at such a high rate). Diesels dominate in Europe, where gas prices are higher while Hybrids are a growing market share and
Although these changes are encouraging, I agree that this rate of change is suboptimal. But its not zero.
Put in Pigovian taxes, and we'd get on the optimal path.
Posted by: a student of economics at Apr 23, 2008 9:14:16 AM
Andrew says: "If I choose not to live close to work, I pay. If I get in an accident, I pay. If our stupid government gets us into a stupid war because they don't think the oil will come out of the ground without military boots on the ground, I pay."
By definition, an externalities occurs when you don't pay the full costs of your action. Someone else pays some. For instance, when you clog the road with your car, you slow down my commute and that of thousands of others, but you don't pay that cost. Yes, I slow down your commute, too. We BOTH create externalities on each other. Likewise for the probability of accidents.
John Dewey: "U.S. military presence in the middle East as an externality for gasoline consumption? ...You guys believe that garbage?"
Alan Greenspan, former Fed Chair: "Alan Greenspan, the former Federal Reserve chairman, said in an interview that the removal of Saddam Hussein had been "essential" to secure world oil supplies, a point he emphasized to the White House in private conversations before the 2003 invasion of Iraq."
Donald Rumsfeld, former US Defense Secretary: " The fact of the matter is - if Saddam Hussein were still in power in Iraq, he would be rolling in petrol dollars. Think of the price of oil today. He would have so much money.
There are many reasons we're in Iraq, but senior policymakers say that preventing oil disruptions was a major reason as was controlling the flow of petrol dollars. There are many despots and even genocides (eg. in Africa) that we haven't taken action against. Oil disruptions do affect the price of oil and ultimately our standard of living. Think of what happened in 1974, or ironically, since the Iraq war and millions of barrels of oil were taken of the market because Iraq's oil production is less than it was before the war. The fact that a foolish policy was carried out with extreme incompetence doesn't change the motivation or the cost.
Posted by: a student of economics at Apr 23, 2008 9:29:49 AM
"By definition, an externalities occurs when you don't pay the full costs of your action."
Agreed
"Someone else pays some."
Agreed
For instance, when you clog the road with your car, you slow down my commute and that of thousands of others, but you don't pay that cost. Yes, I slow down your commute, too. We BOTH create externalities on each other. Likewise for the probability of accidents.
Well, that's the crux, if we both pay equally, then it's offset. AND, it's an externality of the car, not the gas. Gas costs are an externality of poor road engineering causing us to both sit and burn gas in a linear parking lot.
Posted by: Andrew at Apr 23, 2008 9:34:49 AM
"if Saddam Hussein were still in power in Iraq, he would be rolling in petrol dollars. Think of the price of oil today. He would have so much money."
Sorry, but that says nothing about the U.S. needing to secure its access to petroleum. It does imply that Hussein was a serious threat to the U.S., and it was his access to petro dollars that made him so. Isn't it rather clear that hussein was only a threat when he sold oil? Our Middle East military presence throughout the 90's was required in part to prevent him from doing so.
Alan Greenspan, the former Federal Reserve chairman, said in an interview that the removal of Saddam Hussein had been "essential" to secure world oil supplies
Just because he said it doesn't make it true. Again, how exactly was Hussein threatening world oil supplies? He was trying to sell more oil throughout the 90's.
Posted by: John Dewey at Apr 23, 2008 10:02:17 AM
"U.S. military presence in the middle East as an externality for gasoline consumption?"
Again, in my opinion you are partly right. We are there because of the mistaken belief of our leaders that oil will not come out of the ground unless our military makes the world safe for democracy (and we can see how well democracy loves oil production in our own country). Can we look to current oil price trends to gauge the success of the military effort to maintain oil supply stability? Have oil prices been kept low by use of the military? I attribute the externality to bad policy, not the herculean efforts of the market to bring the stuff out of the ground.
I read somewhere that the biggest growth spurts coincided with improvements in communication technology. I also read somewhere that people always overestimate the progress to be made in the short term but underestimate the progress of the long term. If true, these two theories provide an explanation for the mis-dating of sci-fi movies, the internet bubble, and current exaggerated pessimism (with hat tip to Andy's comment about the internet).
Posted by: Andrew at Apr 23, 2008 10:03:21 AM
Btw, no need to appeal to authority of the likes of Greenspan and Rumsfeld on topics they've proven they got way out of their depth on. Brilliant as they were, both of those cats will tell you way more than they know about a lot of subjects.
Posted by: Andrew at Apr 23, 2008 10:08:28 AM
I love a 3 way debate with disagreement to go around.
"Hussein was a serious threat to the U.S."
AHHAHAHAHAHAHAHAHAHAH!
Saddam Hussein couldn't have killed hundreds of thousands of his own people unless we did it for him or 4000 of our troops unless we sent them over gift-wrapped...oh yeah, we did.
Posted by: Andrew at Apr 23, 2008 10:12:40 AM
David Wright: "But given that employ more researchers and health professionals, invest more public and private money in health, and reward success far more lavishly, I think you would have a hard time arguing that the increase is smaller because we aren't trying as hard. It's rather obvious that smaller increase is simply a result of decreasing returns to scale"
Medical innovation has hardly been reduced to decreasing returns to scale.
As I tried to point out to Joan, increase in life expectancy is not the correct measurement for evaluating the success of medical research and development expenditures. Improving quality of life and reducing costs have been the chief objectives of modern medical spending. Jack Nicklaus continued to play golf far longer than his body would have allowed because his hip had been replaced. Millions of cataract victims are able to continue normal living following laser surgery. Laparscopic surgery enabled tens of millions of surgical patients to avoid costly hospital recoveries. Cochlear implants now enable 100,000 previously deaf humans to hear the voices of their loved ones. R&D aimed at lowering the cost of MRI devices will soon enable small clinics and rural hospitals to provide MRI services, and will reduce wait times and travel costs for tens of thousands of patients. Microsurgery has enabled tens of thousands of accident victims to enjoy use of reattached appendages.
Trying to reduce modern medical development to the simple and misleading life expectancy metric is just plain wrong.
Posted by: John Dewey at Apr 23, 2008 10:40:01 AM
a_student_of_economics: I agree with your premise, but like environmentalists, your zeal to "prove" that consumers use "too much" oil and the economy invests "too little" in alternative energy, leads you to interpret and analyze the data with a very biased eye. (Because environmentalists form such an echo chamber, they never see critical analysis of their externality claims.)
I accept that negative oil externalities should be paid. But let's calculate them honestly.
-National security risk is not a cost of oil. It is a cost of politicians unnecessarily politicizing global energy markets. Oil users are not responsible for this, so their use is not an externality and should not be taxed for this.
-Congestion is not a cost of oil; it is a cost of one use of the oil and would therefore justify a congestion tax where congestion actually occurs, not a broad, untargeted tax on all oil. People who aren't driving in choked traffic shouldn't be paying a tax.
-Accidents are not an externality of oil. This is already internalized by requiring liability insurance.
So what's left? Pollution and global warming. (which I functionally lump together, although CO2 is not "pollution") I'll grant you that.
But once you say "we should tax negative externalities", that logically obligates you to subtract off positive externalities in determining the debt owed. The externality would be, well, the entire consumer surplus from petroleum products, which no one pays for and is thus not internalized, and counts for a huge amount of economic growht, which gets thrown on to people in the form of new technologies and choices that they didn't have to pay a dime for. I personally would estimate that this itself wipes out the negative externality.
Whatever value you assign to the negative oil externality, must be net of this positive externality. So now, take that unpaid externality. What are the current taxes on oil? Subtract that. Then you have the remaining oil tax that should be assessed. But it's almost certainly a lot less than you and environmentalists claim it should be.
Posted by: Person at Apr 23, 2008 11:21:25 AM
Oh, and Bob_Murphy: what's "funny"? The only thing funny is when libertarians can't remember why taxes are bad.
If I beat you up, and a court orders me to pay restitution, is that compatible with libertarianism?
What if someone called it a "beatup tax"? Would libertarians rally to oppose the assignment of restitution obligations to me?
Debate the substance, not the symbols.
People who are clearly, identifyably injuring others, should pay compension. This principle does not change when you call the compensation a "tax".
The real "tax" is in letting people throw off costs onto others. A cost does not become a non-cost when a private entity imposes it.
Want to trivialize the concept of negative externalities, Bob_Murphy? First, try to sleep while I run a motorcycle outside the window. How much are going to pay to "Coaxe" me to go away?
Posted by: Person at Apr 23, 2008 11:52:01 AM
"The only thing funny is when libertarians can't remember why taxes are bad."
I remember one reason taxes are bad. The revenue goes to the government. To the hope that a carbon tax revenue would go to those "hurt" by carbon, I give as much chance that our tax dollars collected for the pretense of crime prevention goes to restitution of the victims (a proposal in which libertarians lead by the way). There are two sides to the equation, and you have to get both of them right.
As for your motorcycle, Bob can get double-paned windows and additional insulation and sleep better while saving energy. Or he can just give you mean looks while mowing the lawn.
Posted by: Andrew at Apr 23, 2008 12:47:48 PM
Do the energy alternatives have no negative externalities?
Posted by: Yancey Ward at Apr 23, 2008 2:56:58 PM
Student,
Put in Pigovian taxes, and we'd get on the optimal path.
I absolutely agree that Pigovian taxes would be a huge improvement over what we have now. But how would the government calculate the proper tax? Government officials have nearly no incentive to do something that complicated and long-term correctly, even if they knew a rational way of of performing the calculation. Special interests would also have a field-day.
I don't think Pigovian taxes are any panacea.
Posted by: Grant at Apr 23, 2008 3:13:31 PM
Grant, the problem with your argument is that it is invariably used to claim that because we can't perfectly account for the cost of externality X (although we have strong evidence of a non-trivial floor), we shouldn't tax it at ALL.
As for the negative effects of it going to the government, frankly, the Pigouvian end of it doesn't really care where the money goes. Raising the cost of the behavior generating externalities is a positive thing whether the money goes to good ends or just gets set on fire.
Posted by: M1EK at Apr 23, 2008 7:29:56 PM
Student: Yes, I do believe that higher oil prices (whether through supply and demand changes or through a reasonable Pigou tax) will lead not lead to significant changes in the ammout or sources of energy we consume. But I don't see that as "pessimism". I see it simply as evidence that the utility we get from burning a barrel of oil far outweighs the disutility that generates. Said differerently, global warming may have some bad effects, but they are minor relative to the really great stuff we can do by burning oil.
Your post really seems to imply that you won't believe our behavior is optimal until you start seeing some big changes. That would seem to discount the possibility that our behavior is already pretty close to optimal, which is my optimistic belief. Again, that's not to say that we shouldn't impose a reasonable Pigou tax, just to say that I don't think it will take us to where you appear to think it "should".
Posted by: David Wright at Apr 23, 2008 7:59:54 PM
Student: As a follow-up clarification, let me ask you a question. Suppose we were to impose Stern's $35/barrel carbon tax. (That is, by the way, the highest number I've seen from anyone who has made a serious attempt at calculating an optimal tax from first principals.) And suppose that next year, supply constraints ease, so that the pre-tax price drops back to $75/barrel. The post-tax price would then be $110/barrel, the same as the market price now, so our society's energy consumption and mix of sources would presumably be about the same as it is now.
In this hypothetical situation, would you say: "The current energy picture may not be close to my own personal ideals, but it does take into account the full costs of its actions. I guess society as a whole just places different relative values on the environment and consumption than I do. But I have no cause for complaint just because a fully internalized market doesn't meet my desires." Or would you ask that the task be raised?
Posted by: David Wright at Apr 23, 2008 8:17:43 PM
David : I don't think we really disagree much philosophically.
However, I do think that the mix of energy we have now, at $100+ per barrel is not particularly close to what it would have been (or will be) if prices stay at the level for an appreciable time.
Rather it reflects a lot of quasi-fixed investments, some of which will take decades to replace (everything from power plants to R&D priorities to career choices to land use and location patterns to infrastructure).
Regrettably, we've been sending the wrong price signals for decades and a few years of high cost oil doesn't instantaneously undo that.
Grant and M1EK : I agree with M1EK
Person: there are other, and in some cases, better way to deal with military cost externalities, congestion externalities and accident externalities. E.g. replace our leaders with more enlightened and benevolent ones, institute congestion pricing, and charge for insurance per mile instead of flat rate. I'm all for those things.
However, holding everything else constant, the optimal price of oil and gas is too low. If we can't or won't do all of the items on the above list, then yes, these externalities can be ameliorated via energy taxes. As with any policy discussion, I'm suggesting the change that should be made, holding constant the other facts of the situation. Various economists have calculated the optimal Pigovian tax to address the net sum of externalities from gas at $1/gallon or more. Even the head of the Council of Economic Advisors under Reagan and Bush agree that either taxes or tradeable permits are called for.
Posted by: a student of economics at Apr 23, 2008 9:25:28 PM
a_student_of_economics: If that's the position you want to take, you're only salvaging your position by making it even sloppier.
First of all, you've moved into, "Let's debate what policy we *should* have, but assume arbitrary constraints that favor my preordained conclusions." You can debate the ideal policy, or you can debate what can pass. You're talking in the "ideal" world when proposing a carbon tax, while receding to the "what can pass" realm once people point out the flaws in your ideas. Pick one and stick with it; don't compare apples and oranges. (Worse, the more rigorous, specific externality containment methods I listed are actually MORE likely to pass. Oops.)
Second, if you going to justify policies on the grounds that they're good "if you hold everything else constant", you've opened the floodgates to all kinds of grossly inefficient policies. You'd ban products ("holding all else constant") no matter how much the people wanting to use them, would pay for cleanup of the externalities.
Third, I'm aware of those externality calculations and they are garbage. No one has produced an honest estimate of the net externality because tabulations of this number are ideologically driven. What happened is, environmentalists discovered the externality literature, and wanted to NARROWLY apply it *just so far* as it gets the policies they want. Well guess what: once you advocate a principle, you don't get to dictate what it implies -- only logic can do that.
So what's the principle? "Tax that that produces a negative externality in others." Problem: EVERYTHING does that because disutility exists in the mind. I don't like motorcycles driving around. Where's the motorcycle specific tax? I don't like tie-dye shirts. Why don't you advocate a tax of them? Why not include recompense for positive externalities, like women who wear nice perfume on the bus?
Now, why don't I trust the estimates of the gasoline externality? Because every single tabulation I've read is ridiculously ignorant and doesn't address the concerns I raised. They speak as if in an echo chamber where no one like me has been around to challenge their ideas (which is vital for getting the right answers). I've never seen discussion of the positive externality, and therefore it's never been subtracted from the negative, and they don't give any weight to the economic growth thrown on to ignorant third parties, just as much an externality as pollution. Such calculations would not pick up any technological growth (LIKE STUFF THAT CAN MITIGATE GLOBAL WARMING) resulting from oil usage.
They furthermore count activities that are neither necessarily implied by oil usage, nor exclusive to fossil fuel usage, as externalities. Like congestion. Oh, my oil makes those roads congested? Okay, where's the tax on hybrids to cover the congestion charge they're missing out on? On the solar panels that may be powering electric cars. Oh, they don't propose one? Well, I guess that would make them full of crap, wouldn't it?
Estimations of the "just" Pigouvian oil tax are nothing more and nothing less than a measure of the level of bias you hold in favor of your preordained conclusion. Yes, even and especially for you.
I suggest gathering the data, *then* making your conclusion.
Posted by: Person at Apr 24, 2008 12:05:27 AM
Here is a thought: Bio-fuels, in general, are friendlier to our present life style; meaning no great reeducation of our citizens to be able to refuel their vehicles. I favor one converting long chain carbohydrates into short chain carbohydrates as the best way to “re-produce” oil. The new technologies such as thermal depolymerization (TDP) and other similar processes can convert organic waste into oil. These are processes that can rid us of our massive organic wastes accumulating throughout our country and at the same time produce a fuel equivalent to #2 fuel oil. Utilizing the new waste to alcohol/ethanol or #2 fuel oil processes at garbage dumps, instead of incineration or burying organic waste is more environmentally sound which should gender public support; that is if the public was aware of the these processes. Imagine this truth according to NPR; the highest land point in Indiana was a garage dump in 2005 and in Rhode Island a dump was approaching that hallmark. Somehow I don’t believe that building a waste processing facility at a dump site would activate the NIMBY complex.
I think that our energy policy lacks a shortage of imagination and due diligence. For a country that produced the atomic bomb in 4 years, we haven’t been able to come to grips with and resolve our energy needs over these many decades.
Posted by: amr at Apr 24, 2008 9:21:34 AM
Person, there is no positive externality for gasoline. Your continued insistence that there is brands you as a lunatic.
Some (usually dishonestly*) assert a positive externality for mobility in general -- but that's not linked to personal consumption of gasoline.
* - they talk about how we all benefit from making the population so mobile, but then when it comes time to fund transportation for the poor, or for city-dwellers, talk of this positive externality suddenly vanishes.
Posted by: M1EK at Apr 24, 2008 10:17:43 AM
M1EK, you don't have to personally be mobile to benefit from increased mobility. As a close personal friend of mine puts it: even if you walk to the store, your milk doesn't. (Though that's probably Diesel rather than gasoline, but you get the idea.)
It is the complete inability to even realize the possibility of positive externalities from gasoline usage, that reveals an ideologically-driven calculation for the Pigouvian tax, proving my point.
And you've proven it again: environmentalists discover the concept of externalities *just* long enough to justify a policy they like -- then give up at any attempt at rigorous or consistent application of the concept.
Posted by: Person at Apr 24, 2008 10:32:15 AM
I wouldn't call person a lunatic, but (s)he does seem to be willfully commingling mobility with gasoline specifically. Would you agree that a significant portion of our military spending is applied to protecting our access to oil? if so, why not pay for that activity with a fuel tax?
Related, here's an interesting take on peak oil from an economist: http://www.energybulletin.net/43046.html
Posted by: Doug Blair at Apr 24, 2008 2:02:47 PM
Doug_Blair: I wouldn't call person a lunatic, but (s)he does seem to be willfully commingling mobility with gasoline specifically.
As long as oil, a cheap energy source, exists, third parties get wonderful opportunities (like the opportunity to buy convenient products from far away) that they didn't pay a dime for. This is a positive externality of oil. (As is all the products that use oil as an input, like the plastics that saved my brother's life.)
Before this thread, did you spend *one second* trying to conceive of a 3rd party beneficiary of oil? No? Well, there's your problem.
Would you agree that a significant portion of our military spending is applied to protecting our access to oil? if so, why not pay for that activity with a fuel tax?
You're not listening. Government intervention in foreign countries is woefully unnecessary to gain access to the oil. Therefore, oil users are not morally obligated to pay for this reckless behavior.
Because some of you are slow at seeing this, let me make an analogy. What if George W. Bush fell under the impression that an infant has to be sacrificed every day in order for oil to be able to burn. So, he killed infants "to ensure Americans have access to usable oil".
Are those dead infants a "negative externality of oil usage"? Are oil users responsible for those dead infants?
No? Okay, then draw the parallels to the military intervention. Why should oil users specifically bear the cost of government stupidity?
Posted by: Person at Apr 24, 2008 2:30:45 PM
Person, the externalities I benefit from are in your own imagination - milk was supplied to us before we started subsidizing gasoline users (and especially diesel users) so much. Milk is widely available in Europe, where they arguably go past the level of internalizing externalities.
Simply claiming that because something was delivered on a vehicle that consumed gasoline/diesel it must show that gasoline/diesel use has positive externalities is ludicrous. There are plenty of other ways to deliver milk; many might be superior, many might be inferior; many might be precisely identical; but we'll never know if you and yours had your way.
Posted by: M1EK at Apr 24, 2008 2:48:50 PM
Alright, looks like we got a slow one today.
M1EK: Oil is used because it is such a great energy source for the people who use it. Obviously, it enables a lot of activities that wouldn't happen (something else would) if it were not available. *That's why people use it!*
Of course milk was provided. But the better energy source (oil) allows much more opportunities (including lower prices) for consumers than would exist otherwise. To deny this is to say that no prices would change, and no products would become unprofitable if oil were banned. Not exactly something I thought you believed.
It's really hard to get through to someone with your mentality.
Posted by: Person at Apr 24, 2008 3:20:00 PM
M1EK, you wrote:
There are plenty of other ways to deliver milk; many might be superior, many might be inferior
Consider, for a moment, those that might be inferior. I asked a question above that no one dared to answer. Would you like to take a crack at it?
Posted by: Yancey Ward at Apr 24, 2008 3:20:30 PM
Person, so many people use oil today because it's artificially cheap - it's both subsidized AND has substantial negative externalities. If there's a slow one here today, it's you.
Yancey, there might be even more negative externalities for a horse drawn carriage delivering milk to your house. But you're clearly heading down a path arguing to do nothing because we can't be perfect; when opportunities to do better are clearly within our grasp.
Posted by: M1EK at Apr 24, 2008 4:13:07 PM
"Government intervention in foreign countries is woefully unnecessary to gain access to the oil."
Sorry, I'm not buying this. The whole Asian theater was purely driven by access to resources, and Germany lost in the European theater mostly because of this. Historically, most wars (both cold and hot) have been fought over resources. Do you really think our military exploits in the Middle East are pure of our interests in oil?
Posted by: Doug Blair at Apr 24, 2008 4:29:54 PM
Sorry; I was referring to WWII in the last post.
Posted by: Doug Blair at Apr 24, 2008 4:33:53 PM
M1EK,
No, I am asking for serious consideration of all positive and negative externalities of all energy sources. It is bias to simply conclude that fossil fuels have greater negatives than their positives (or have no positive externalities whatsoever) and that the alternatives (other than nuclear) have no negative externalities at all. You clearly did not consider Person's argument about the milk. That the milk was delivered via diesel/gasoline powered transport saved you resources, even though you walk to the store.
The debate on cost/benefit is too one-sided and/or myopic.
Posted by: Yancey Ward at Apr 24, 2008 5:08:43 PM
Yancey, that's a ridiculous load of nonsense. The fact that the guy who delivers the milk uses one kind of fuel versus another creates precisely zero POSITIVE externalities to me, unless somehow the emissions actually _clean_ the air.
Posted by: M1EK at Apr 25, 2008 4:12:54 PM
M1EK,
Your quality of life floats on a sea of petroleum.
Without petroleum you would have a much shorter life span and you would be cold, hungry, and tired for a great portion of it.
The vast majority of the food, medicine, shelter, clothes, and technology that sustains your life and provides you entertainment would not be available without petroleum. This includes the computer you use to compose your comments and the internet you send them over on.
If you want to bill petroleum for its negative externalities have at it. First you have to credit it for all of the positive benefits and positive externalities it provides.
I suspect an honest accounting of petroleums impact on the environment and human society would show it has had a vast positive impact.
Posted by: TJIT at Apr 26, 2008 9:25:54 AM
Coming in too late to read the whole thread; I apologize if this has been covered.
I suspect that investment in energy technology is driven more by politics, and less by promise, than it should be. Anyone who's spent a lot of time around scientists (I was raised by a biology professor at a public university) can see how politics drives funding trends. Additionally, as a West Virginian, I know that Byrd directs a pile of funds to the state for clean coal research. Now, I will go smacking anyone who insults our king of pork because it's not like the state has much other economy, but it was clear to me years ago that clean coal is oxymoronic. You can adduce corn ethanol subsidies to this argument, too. I don't see a way around the large role of the federal government in research spending, and I don't think it's necessarily a bad thing, but you're not going to get intelligent prioritization of energy research as long as the political stakes are so high.
Posted by: Andromeda at Apr 27, 2008 9:23:19 AM
TJIT, that's an absolutely absurd comment. Countries which clearly tax petroleum beyond the externalities most people would assess to it still manage to provide high qualities of life (some would argue even higher than that most Americans enjoy).
Meanwhile, subsidizing petroleum (as we do) and failing to handle its externalities (as we also do) is leading us down a path where we'll have a much more difficult adjustment when it becomes more expensive, as it inevitably will (is already doing).
I'm amazed people still type this stuff in this day and age. Did you just emerge from a bomb shelter from the 1950s or something?
Posted by: M1EK at Apr 27, 2008 10:33:03 AM
TJIT, that's an absolutely absurd comment. Countries which clearly tax petroleum beyond the externalities most people would assess to it still manage to provide high qualities of life (some would argue even higher than that most Americans enjoy).
Meanwhile, subsidizing petroleum (as we do) and failing to handle its externalities (as we also do) is leading us down a path where we'll have a much more difficult adjustment when it becomes more expensive, as it inevitably will (is already doing).
I'm amazed people still type this stuff in this day and age. Did you just emerge from a bomb shelter from the 1950s or something?
Posted by: M1EK at Apr 27, 2008 10:36:32 AM
M1EK,
Nice bit of bluster and arm waving.
This does not change the fact you did not respond to the point which was.
The vast majority of the food, medicine, shelter, clothes, and technology that sustains your life and provides you entertainment would not be available without petroleum. This includes the computer you use to compose your comments and the internet you send them over on.Incidentally, I did not emerge from a bomb shelter, I just have a moderate ability to recognize where stuff comes from and how it works.
You might want to work on that particular skill.
Posted by: TJIT at Apr 27, 2008 2:05:40 PM
M1EK,
Folks of your mindset love to ignore the positive benefits petroleum provides.
That is fine but it:
1. Reveals you have no interest in doing an honest assessment of petroleums positive and negative impacts on society and the environment.
2. Are incorrectly applying the concept of externalities by ignoring the positive impacts petroleum has on the environment and society.
3. Which means the values you come up with will be wildly inaccurate.
Posted by: TJIT at Apr 27, 2008 2:14:57 PM
TJIT, your claim is, quite purely and simply, a lie. We're talking about the use of petroleum for transportation - and all of those things can be (and in many cases currently are) delivered by means which can be or are be done without petroleum.
If you're simply talking about plastics, yes, you need petroleum. Which makes it all the more stupid to be subsidizing (and not internalizing externalities of) the use of petroleum for transportation.
Posted by: M1EK at Apr 28, 2008 2:25:00 PM
M1EK (in blockquotes and bold) provides an entertaining lesson on why arguing with doctrinaire (insert political philosophy here) is so entertaining. I will use liberals for convenience since they often argue this way.
Lesson 1: The person arguing with a liberal can't have different data or opinion, disagreeing with a liberal means you have to be telling a lie.
TJIT, your claim is, quite purely and simply, a lie.
Lesson 2: If a liberal is losing an argument simply change the rules or drag the goalposts around
We're talking about the use of petroleum for transportationThe word transport or transportation is not even present in this article or the Krugman post it links to. Stipulating that we are talking about a word that does not even exist in the articles is an impressive bit of changing the rules on the fly.
Lesson 3: Handwave as necessary to make your point
We're talking about the use of petroleum for transportation - and all of those things can be (and in many cases currently are) delivered by means which can be or are be done without petroleum.The last part of that statement may or may not be true. However, the current biofuel disaster means that is is wise to approach statements like that with a high degree of technical skepticism.
Especially given the fact that biofules were pushed by the environmental community as a "green" replacement for petroleum.
Posted by: TJIT at Apr 28, 2008 8:58:54 PM
