Paul Ryan's Opinions on Poverty are Irrelevant

From Wikipedia:

At an Atlas Society meeting celebrating Ayn Rand's life in 2005, Ryan said that "The reason I got involved in public service, by and large, if I had to credit one thinker, one person, it would be Ayn Rand", and "I grew up reading Ayn Rand and it taught me quite a bit about who I am and what my value systems are, and what my beliefs are. It’s inspired me so much that it’s required reading in my office for all my interns and my staff."

Taxing consumption is still wrong

Ugh.

Very stupid column courtesy of John Tamny at Forbes a few weeks ago lauding Eduardo Saverin (of Facebook fame) for renouncing his US citizenship so he won't have to pay capital gains taxes, or "feed the beast" according to this prick author.

Tamny says Saverin is an American hero.  He thinks US spending is wasteful, and that it would be so much better if Savern could just keep all his money and invest it in a bigger job-creation machine. This is the same libertarian, "free market" nonsense that's failed time and time again. Maybe the abolition of capital gains taxes would increase entrepreneurial investment, but it wouldn't be invested in sectors that are necessary to social welfare, e.g. education, healthcare, and defense.  Instead, we'd perfect the iPod and have holographic TVs, maybe even develop some new medical equipment (most investment has been in the technology sector lately), but everyone would be too poor to use it except the investors.

Then he says we should switch to a consumption tax.

Well, I've talked about this before. Here's the graph I made:

Consumption taxes aren't fair. They don't even make economic sense. Get it? 

Austerity Foolishness

There's an important point that Paul Krugman's been making lately, that a lot of people don't seem to get.

If everyone slashes spending at the same time, it's a problem.  Similarly, if the private sector implements its own "austerity" measures because it feels like it's racked up too much debt, and the government concomitantly does the same thing, there's going to be a surplus of available human capital (too many workers who can't find jobs) and a lot of money that's invested sub-optimally.  What that means is that a big spender (i.e. the government) needs to give the economy the push it needs. That's the only way markets are going to be able to recover.

Having a car to get from place A to place B may be necessary, but it's obviously not sufficient.  You also have to have gas, you need a driver, and you need someone willing to turn the key. Same logic.

Of course, there's an important relationship between economic downturns and the environment (there's an excellent paper by Stern and Bowen on this). Basically, environmental initiatives need a big player (again, the government) to get them rolling, and since economic depressions demand government spending, there's a huge opportunity during a depression (cough *now* cough) to make some substantial green investments.

Also, if anyone says Solandrya to me, I'll slap a...

A Few Thoughts on the Impulse to Cheat

Cheating is a serious offense in any walk of life, but nowhere is it more disgusting than in Academia.

Surely, there are two competing emotions that a cheater's decision must entail, one that necessitates it and one that allows it.  The first, and most obvious, is a rightful sense of inferiority, especially compared with his peers. I use the word "necessitates" because, if the cheater really feels like he's less intellectually able than his classmates or his colleagues, then nothing he can do on the same playing field would be good enough to surpass them.  So he decides to play on a different field to gain an unfair advantage.

Paradoxically, the second is a false sense of superiority.  The cheater feels entitled to special conditions, especially relative to his peers, who may have come from more affluent, supportive families or who may have gone to better high schools and colleges.  The cheater feels as though he's had to overcome some obstacle that his colleagues didn't have to face, and thus deserves the advantage he has unfairly bestowed upon himself.  This feeling of entitlement is what allows cheating to happen because it gives the cheater the perverse justification he needs to feel less guilty, if he feels guilty at all.

Both of these are dangerous, but the second has much more disconcerting implications for society.  The cheater will likely move up social and academic ladders, unobstructed, unless he is caught (or reported, of course). If he's cheated his way to the top, he will have lost any pride in his work.  An academic, for example, might be willing to sell his name - his "scientific results" - to the highest bidder.  A policymaker who is comfortable with cheating will be a weapon of lobbyists, most likely against his constituents.

But here's an important consideration for those who are tempted to cheat:  if you do, those who have maintained their integrity will feel slighted - dare I say cheated? - and will indubitably bear a grudge against you, especially in tight professional circles or narrow academic fields.

I think far too highly of myself to cheat, and while this may sometimes make me look like a prick (only to those who don't know me, I hope), it keeps me in line because I am proud of my work.  When I get a bad grade, I know I deserve it, but more importantly, when I get a good grade, I am able to feel genuinely happy. I'm sure it was someone very inspirational who said that integrity is what you do when no one's watching.  I would just add that it's also what you do when people are staring straight at you.

Good luck on exams!

HM Green Investment Bank?

Watching the Queen's Speech this morning on the news was uneventful. It's written by "her government" (i.e. the conservative coalition), and she's not allowed to say anything that they don't approve beforehand.

HM Queen Elizabeth II of the Very Serious People (source)

The beginning of the speech was annoyingly predictable.  She affirmed that her government is committed to austerity-driven deficit reduction, which has worked swimmingly already. One member of the House of Commons who refused to go to the speech rightly pointed out that the UK has just entered into a double dip recession.

But I'll leave that discussion to the blogosphere's dark wizards macroeconomists. What really piqued my interest was the Queen's announcement that her government will be forming a Green Investment Bank.

It's likely that an emissions trading scheme, maybe even an international market, would be at the core of a Green Investment Bank (I'll refer to this as GIB for the rest of this post). An ETS would generate capital gains that, in an ideal world, the GIB would funnel toward "low-carbon growth" in developing countries, which might include infrastructure modernization and R&D spending. An explanation of how this might work is presented here. I've sort of been expecting this. A few economists have been going on about it for a while, and Nicholas Stern mentioned in last semester in one (or more) of his speeches at LSE.

In theory, I guess, that's all well and good, but it's important to take a step back and ask ourselves if we really want to put an investment bank in charge of something as important as greenhouse gas (GHG) emissions reductions. Investment banks are pros at figuring out how to bend the rules, or when it's more profitable to break the rules and pay a fine. In a well-established market (blah blah with some other assumptions blah blah), that would be fine. The penalty imposed on a polluter who doesn't sufficiently abate will offset the social costs of the pollution. BAM. Everyone's happy (and no worse off than they were before). Efficiency achieved!

According to Bloomberg, polar bear futures are at an all time low.
(picture cred)

But, carbon markets are a lot trickier than most markets; a classic and appropriate discussion of this is Hardin's "Tragedy of the Commons," although if you read it, you should only pay attention to parts of it as he's kind of wacky about population control and stuff.

The underlying premise of carbon markets, and the rationale for a GIB, is that climate change will be real, real bad if we don't do something about it soon, and fast. Indeed, that's one of the main points of the Stern Review (written by Prof. Lord Stern, who I suspect will lead this bank, but maybe that's a premature assumption). However, it's generally accepted that market based instruments (which, intuitively, would form the bulk of a GIB's operations) are more suited to meet economic efficiency criteria, and not necessarily any environmental standards. If there is some emissions threshold that society can't afford to cross, a top-down (alternatively, a command-and-control) approach is superior to market based instruments. Think about a carbon tax. If, somehow, you have all the necessary information and set a tax to achieve a socially optimal level of abatement, then the abatement target will be achieved at least cost, but only in a perfectly functioning market.  Even minor distortions like other taxes or subsidies (which are exacerbated by institutional problems like corruption and monitoring and compliance issues) can make it cheaper for polluters to pay a tax than abate. Efficiency achieved?

We can look at this from a different angle.  The commoditization of nature is shameful, but when it comes to analyzing the costs and benefits of carbon markets or emissions standards or whatever, that commoditization extends to humans.  A friend of mine suggested a headline we might see in the FT in a few years:

Goldman Sachs posts record profits as Bangladesh sinks into the ocean

Obviously, that's a stretch (I hope), but it's a useful hyperbole for the way banks work. Since they operate in monetary units, they have to "think" in monetary units.  People become dots on a graph, aggregated into a gross (in both senses of that word) VSL term in some wonky cost-benefit equation. You can't blame a bank, though, for doing its job, so if people expect a specific environmental outcome, as opposed to a financial one, it's probably best not to rely on a gaggle of money-hungry financiers, even if some of the people working there are "nice".

To summarize, it's unwise to rely on financial institutions to achieve environmental goals, and since the rationale for swift action within international markets rests on the assumption of impending catastrophic climate change, it seems a bit hypocritical, especially for so many esteemed economists, to ignore the inefficiencies and other weaknesses of carbon markets, despite their theoretical simplicity. And if that's not reason enough to be skeptical of a GIB, the recent (and ongoing) financial crisis should have made us exceedingly wary of the role of investment banks in society, especially when we're trying to make it better.

Our President Is So Cool

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Busy Busy

I've been busy with school (exams and dissertation) lately, hence the lack of blogging.  I'm too busy to breathe until late August, but rest assured, if i make it through math camp at Yale once I make it through math camp at Yale, I'll start blogging like a fiend.  I'll be a doing a PhD in environmental economics there, so I should have plenty of stuff to gripe about.

Expect some random blog posts over the summer.  I'll post links to them on Facebook; if we're not friends, either add me or subscribe to my blog updates.

Until then, smile.

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