Tuesday, November 29, 2011

COP 17: Durban

The 17th Conference of the Parties (COP) to the United Nations Framework Convention on Climate Change opened  yesterday in Durban, South Africa. (If I hadn't already known it, I would have learned it from the literally dozens of announcements I received by e-mail yesterday and today of "side-events" hosted by the hoards of NGOs that follow the globally roving cocktail party that is the UN COP).

In contrast to past meetings, many of which opened with high hopes and much fanfare, the tone this year (as it was last year) is subdued, if not outright pessimistic. At the top of the agenda is answering the question of what happens when the Kyoto Protocol's compliance period expires on December 31, 2012? That issue was supposed to be put to rest two years ago at COP 15 in Copenhagen, but China (among other countries) scuppered those efforts (see here). Since then, progress towards a successor treaty to the Kyoto Protocol has been halting, and there is virtually no hope that a successor treaty will be adopted at this year's conference.

The European Union, which has taken its mitigation requirements more seriously than perhaps any other country (or collection of countries) in the developed world, has given up hope of a brand new treaty. Instead, it is calling for new commitments and a new compliance period under the old Kyoto treaty. But the US delegation, sounding more like Bush in 2001 than Obama in 2009, is already pouring cold water on that idea. The head of the US delegation, Jonathan Pershing, announced yesterday that the US will not support any successor treaty or Kyoto extension that does not include mandatory emissions reductions on high-emitting developing countries, including China and India (see, e.g., here). Everyone knows that the US Senate will not ratify the Kyoto Protocol or any other mitigation treaty if that condition is not met. Yet, the Obama Administration is probably naive to imagine that there are 60 votes in the Senate for any climate treaty he might sign. In any case, it is difficult to imagine that US negotiators could possibly cajole China and India into accepted binding mitigation targets to reduce nominal emissions for two reasons: (1) they are both developing countries with per capita income levels well below those of even the poorest developed countries; and (2) they have contributed much less than the US or EU to the existing stock of GHGs in the atmosphere. And by the way, China has at least credibly committed to reducing the carbon intensity of production in a way that requires deviation from business-as-usual emissions, which is more than can be said for the US. So, unless the US delegation stops its impotent posturing and adopts a more realistic negotiating position over the next two weeks, the failure of the Durban talks is assured from the start.

How likely is the US to do that? Not very. While the rest of the world may be focused on the expiration of the Kyoto Protocol compliance period at the end of December 2012, President Obama is focused on the first Tuesday in November 2012, when his own political future will be decided. In a country where politicians and the electorate are still debating well-settled questions of basic climate science, and China is widely perceived as a potent economic competitor, the US delegation's negotiating position has become a hostage to domestic political agendas. If China scuppered the Copenhagen negotiations for reasons that remain murky, the US can be expected to scupper the Durban negotiations for reasons easily explained by public choice theory. 

Monday, November 28, 2011

Holding My new Book

I received my editor's copies of Property in Land and Other Resources (Lincoln Institute 2011) today. It looks and feels great. Lin and I are very grateful to all the contributors and the editorial assistants at the Lincoln Institute of Land Policy.

A Riddle

I got this from one of my students this morning: If the opposite of pro is con, what's the opposite of progress?

Sunday, November 27, 2011

The State of Higher Education

Anthony Grafton offers an unusually balanced and sensible view, avoiding both the standard blame-game and facile solutions, here in the New York Review of Books.

Saturday, November 26, 2011

Saturday Ride

I got out late this afternoon for what I thought would be a short and easy recovery ride. I stayed off the hills, and just rode up Bethel to 45, south on 45 until I hit the tracks (blocked by a slow freight train), and then back north past New Unionville. Just as I was turning around to spin back home, it started raining, not especially hard, but hard (and cold) enough that, with 4-5 miles left to home, I didn't want to dally. So, now I need to recover from my recovery ride.

As the weather's supposed to be nasty tomorrow, I plan to head back north to Indy, where Coach Bob is holding a special 2-hour indoor training session. It's worth the two hours in the car just to work out with the group, rather than on my own in the basement.

Arsenal 1 - Fulham 1

Having expected three points from this game at home to Fulham, Arsenal were disappointed to get just one. Looking tired following their Champions' League match against Borrusia Dortmund in midweek, the Gunners played a lackluster game at the Emirates, lacking pace and ideas. For all of their possession during the first half, they lacked a cutting edge in the final third. Fulham, playing mostly on the counterattack, had as many decent scoring chances as the Gunners.

The second half started just like the first, with Arsenal dominating possession and Fulham looking for opportunities on the counter. A few minutes after a van Persie shot was cleared off the line by a Fulham defender, Fulham turned an innocuous-seeming bit of possession at the other end into an own goal by Arsenal's Thomas Vermaelen. Fulham would have been up 2-0 a couple  moments later but for the linesman's offside flag. With 20 minutes left, Arsenal were trailing a team that had never before beaten them at home.

Looking to light a fire under his team, Wenger brought on Gervinho and Abu Diaby (just back from a long injury layoff), replacing Aaron Ramsey and central defender Per Mertesacker. Diaby made an immediate impression, forcing a great save from Fulham goalie Mark Schwarzer on a header from a corner kick. Schwarzer could not, however, prevent the inevitable game-tying goal after the 80-minute mark. Thomas Vermaelen - making up for his earlier own-goal - authoritatively headed home an excellent cross by Theo Walcott.

From that point on, it was pretty much all Arsenal. Schwarzer saved a hard shot by Gervinho at the near post, and then a tamer effort by Walcott. But Arsenal could not create the game winner. If the Gunners had played the entire match as they did the last 15 minutes, they easily would have won this match. A disappointing result for the Gunners and their fans.

Van Persie did not score today, but his work rate and the intelligence of his movement without the ball were truly impressive. It's no wonder he generates so many scoring chances for others as well as himself; and of course his ability to finish is unparalleled in the Premiership. 38 goals in 42 games during 2011 says it all.

Tyler Cowen Pushes My Button Again

In this post, he suggests that the impeding settlement of the NBA strike puts the Coase theorem "back in the saddle." I can only shake my head in dismay that someone so erudite and sensible has failed to read Coase carefully enough to avoid this elementary (and all too common) error.

UPDATE: Looking at the comments, after my own, to Tyler's post at Marginal Revolution, I am astounded at the depth and breadth of misunderstanding that persists relating to Coase's theories of transaction costs and social costs.

Friday, November 25, 2011

Day After Thanksgiving Ride

I drove up to Indy this morning for what turned out to be quite a big group ride. A small group of us rode to the ride, which officially started at Nebo Ridge, from Traders Point. Another 20 or so riders met us there, including a former pro and several other really strong (and in-shape) riders. I knew I should have turned tail then. With a strong wind blowing from the south, we quickly rode north with Kirklin as our (initial) destination (part of the group would carry on from there to Frankfort, while other riders, myself included, would turn back south toward home). On the northern leg, I was riding between 25 and 27 mph heading north, but couldn't stay within a mile of the pack, riding at well over 30 mph.

By the time was started heading back south after the SAG in Kirklin, the wind was gusting to over 25 mph. It wasn't long before I lost my tether to the back of the group, and found my self riding into the wind on my own, suffering like a dog. Fortunately for me, the dynamic duo of Mark and Graham Dewart dropped back to pick me up and shepherd me (along with a couple other wayward sheep, err, riders) back home. I wound up with 64 miles on the day, but I can't honestly say it was a good ride, except in the sense that any ride I survive is a good ride.

It was good to see several of my old cycling buddies, even if I had only scant chance to talk with any of them (aside from Mark and Graham) because they were so far ahead of me.

Thursday, November 24, 2011

Thanksgiving Day Ride

Had time for just a couple circuits today. Two times west on Bethel, north on Old 37, east up Old Meyers Rd (which runs into Boltinghouse just before Bethel), and back west on Bethel. Only 14-15 total miles, but those two climbs up Old Meyers hill certainly give a good work-out and pre-burned at least some of the calories I'll consume later this afternoon. Tomorrow, I hope to burn off the rest at a group ride up in Indy.

Happy Thanksgiving

To all my family, friends, colleagues, and loyal readers of this blog.

Wednesday, November 23, 2011

Arsenal 2 - Borussia Dortmund 1 (Champions' League)

Arsenal booked a place in the knock-out round of the Champion's League this afternoon (with one group-stage match left to play) by defeating Borrusia Dortmund at the Emirates Stadium in London. Robin van Persie scored both of Arsenal's goals (bringing his 2011 tally to an amazing 38 goals in 41 total games). The first was created after a brilliant run by Alex Song, who beat at least three or four defenders before crossing the ball for RVP to head home. The second came off a corner kick, when Vermaelen received the ball at the near post, glanced a header to the back post, finding RVP free for the simplest of tap-ins.

With this victory, Arsenal became the first English team to qualify for the final 16 of the Champions' League. They have now qualified for knock-out stage for 12 years running, an unmatched mark of consistency. A season born in doom and gloom is now shaping up into an exciting season for Gunners fans. Unlikely to overtake the top two (Man City and Man U) in the Premiership, they are still in the run for a top-four finish (for qualification for next year's Champions' League) and chasing hardware this season in three other competitions.

A Concise Introduction to the Philosophy of Mind

Here in Philosophy Now, by Laura Weed. Very nicely done.

Hat tip: The Browser.

Monday, November 21, 2011

Another Month, Another New House

At least, that's the way it seems. The family moved from our rental house today to a beautiful new (well, new to us) home on the north side of Bloomington, up in the hills. From here, at least I won't have to start my bike rides heading uphill. Lot's of unpacking and little things to do to fix up the house for our purposes (including getting some shelves built in my office), but at least we're in.

Sunday, November 20, 2011

Dissent, Repression, and the Occupy Movement

I confess that I'm not sure what the so-called "Occupy Movement" is for (or against). I find it even less coherent than the "Tea Party Movement," which is saying something. For all of its hypocrisy and historical confusion, the latter movement seems pretty easily explained by public choice theory: leave us alone, protect our stuff, and to hell with everyone else. The "Occupy Movement" seems altogether more varied, issuing statements that range from support of progressive taxation and more regulation of the financial services industry to a far more radical restructuring of the economy. Coherence and practical goals may not be the most important values for grassroots social movements, but they are unlikely to gain much social traction without them. From individual "occupiers," as reported in the press, I hear diverse, sometimes inconsistent, propositions, many of which I find disagreeable. But that is beside the point.

What I really want to focus on here is the increasing repression of the "Occupy Movement," which is in the process of being shut down in cities and on college campuses all across the US in what seems to be a coordinated overreaction to a perceived threat to business and the public order. No doubt cities and colleges have reasons, including maintenance of public/campus order and safety, to manage protesters on public lands. But in some cases, at least, colleges and municipalities seem intent on preventing protesters from continuing their protests, raising serious First Amendment concerns. Overall, the level of political repression seems to be on the increase. The video below shows police pepper-spraying and then arresting student protesters, who were sitting peacefully on a college campus, which is designed as a place for the exchange of ideas, including strongly dissenting opinions. As an American, I find this very troubling.

Another Attack on Law Schools from the New York Times

In recent months, the New York Times has been attacking law schools and, more generally, the structure of legal education in a series of articles (see, e.g., here, here, and here). In today's edition (here), David Segal writes about the deplorable fact that law school graduates have no idea how to close a merger deal by drafting a certificate of merger and filing it with the Secretary of State's office. That's right, after spending $100,000 or more on a legal education, most law grads don't have that nugget of professional wisdom, and must learn it (presumably from a legal secretary or another practicing attorney, in a one minute conversation). The message is clear, law school curricula need to change to make sure that our grads not only know what a certificate of merger is but also where to find the Secretary of State's office. Such practical knowledge is far more important than actually thinking about and understanding complex legal rules and the various contexts in which they apply (or not).

Segal also, inevitably, takes a run at the hundreds of practically useless law review articles that are authored each year. No doubt, the various titles he quotes constitute a representative sample, so no need to worry about bias. He's certainly correct that law reviews publish a lot of drivel, a pile to which I have contributed my fair share (or more). But that too many articles are theoretical rather than practical is a common refrain for which I have yet to see any empirical evidence. Each week, when I receive the list of newly published articles,  I see a lot of abstract theoretical-looking articles and also a lot of very practical stuff, including many articles on recent court decisions and how they fit into or alter the preexisting body of law. What should be the proper percentage of practical to theoretical scholarship (assuming we can always tell the difference between the two)? I have no idea. I'm never quite as sure as jurists and journalists seem to be about which scholarly offerings, from which scholars (at which schools), contribute most to society's stock of useful knowledge.

The sum and substance of Segal's screed against legal education is that it is way too theoretical and insufficiently practical, leaving poor law firms to engage in remedial practical training. He ignores, conveniently, the fact that during the past 30 years law schools already have become far more practical in response to pressures from law firms. A relative of mine graduated from the Columbia Law School in the 1970s without having written a single paper. That would not be possible at any accredited law school in the country today thanks to  mandatory legal research and writing courses (whose teachers are, as Segal correctly notes, deplorably reduced to second-class status on most law faculties).

Unfortunately, Segal and the several wonderful lawyers and jurists he quotes in his article (all of whom somehow survived all of the theoretical nonsense, and lack of practical instruction, in law school), neglect two basic functions of academic legal training that, to my mind, are (a) far more socially valuable than knowing such discrete factoids as how to file a certificate of merger with the Secretary of State (something a beginning associate's secretary could probably do) and (b) could never be taught by law firms. First, law students learn about the legal system as a whole, beyond the specific areas in which they end of practicing (assuming they do end up practicing, rather than running businesses or doing the myriad other things in life for which legal education is relevant and valuable). This broad education empowers them to be active citizens and even leaders in their communities. Second, law schools teach the deep analytical skills needed not just to practice law but to judge, make, and even change the law. Third, law students learn how to decipher court decisions, legislation, regulatory rules and communicate about them in clear, sensible and critical writing. Without these skills learned in law school, it simply wouldn't matter that graduates knew what a certificate of merger was or where to file it.

Law schools certainly are far from perfect; they should and will change (however begrudgingly) as the market and broader society require. But the problem is not that they are hiring too many PhDs and too few practicing lawyers (many of whom apply to law schools seeking a cozy retirement from practice). Whatever changes are needed, the notion that law schools should change merely to serve the interests of the existing cadre of lawyers and jurists is far from clear. Law schools are and will remain professional and academic institutions that combine theoretical and practical training (in some combination that will never please everyone). The proper mix of the theoretical and practical (assuming we can always disentangle which is which - I've always thought of Legal History as a practical course) inevitably remains contestable. Law schools are not and never will be non-professional graduate schools. Neither should they become white-collar, vocational training schools for practicing lawyers.

Saturday, November 19, 2011

Finding Diderot

Reading Jonathan Israel's intellectual histories of the Enlightenment (see here) has motivated me to start reading the French essayist Denis Diderot. But his writings, including his Pensees philosophiques and his Pensees sur l'interpretation de la nature do not seem to be available online in English translation in either Kindle, pdf, or html format. I find it very disappointing that important works by a major Enlightenment thinker, which are in the public domain, are not freely available. I guess I'll have to resort to the library. How old-fashioned.

Norwich City 1 - Arsenal 2

The scoreline really should have been 1-4 or better, as Arsenal, especially Gervinho, missed several gilt-edged chances. Norwich rarely threatened. Their first-half goal was mostly due to weak marking and a slip by Mertesacker, who has not yet rounded into form in a Gunners jersey. Van Persie (who else?) scored both Arsenal goals, the first a tap-in from a fine cross by Theo Walcott, who had an excellent all-around game, and the second, a cool finish after a pass from Alex Song put him in on goal.

"Property in Land and Other Resources" Is Now Available for Pre-Order

My new book, co-edited with Elinor Ostrom, Property in Land and Other Resources (Lincoln Institute 2011), is now available for pre-order at Amazon.com (here) for just $28.63. That's $6.37 (18%) off the cover price. According to the Amazon listing, the book will be published on November 28.

You can also purchase the book directly from the Lincoln Institute of Land Policy (here).

You can see the full Table of Contents, read Doug North's forward, and read Lin and my Introduction to the book here.

Wednesday, November 16, 2011

Who (or What) Killed the Obama Ozone Rule?

In today's New York Times (here), John Broder takes us inside the White House to explore the political machinations that resulted in the demise of the EPA's proposed ozone standards under the Clean Air Act. I have my doubts about certain aspects of the story, including the insinuation that OIRA chief Cass Sunstein was somehow out to "make his mark" by stomping down the EPA rule. However, Broder's overall story does strongly support an argument I make in my new paper on the political uses and abuses of cost-benefit analysis (CBA) (here), that the Obama Administration's CBA for its ozone rule played a significant political role in its demise. The Obama standard would have generated fewer net social benefits (on median estimates) than the Bush standard it would have replaced. It was, relatively speaking, less efficient. Thus, it would have been politically difficult to justify, especially heading into an election year. No doubt other, purely political considerations also played a part in the President's decision, but the fact that the CBA played any significant role is noteworthy, especially considering the Clean Air Act's express prohibition on cost-considerations in setting  air quality standards. Simply put, as I argue in my new paper, cost considerations matter even when the law says they cannot.

Monday, November 14, 2011

When is Command-and-Control Efficient? Evidence from the Field

"Command-and-control" is a derisive label usually applied (mainly by economists) to traditional forms of environmental regulation including technology-based "design standards" and "performance standards" (which are non-tradable quota limits). In most of the environmental instrument-choice literature, "command-and-control" is considered generally inefficient both nominally and relative to so-called "economic instruments,"* which include effluent taxes and cap-and-trade (a performance standard with trading of pollution rights or allowances).

More than a decade ago, Peter Grossman and I published a long article (a pre-publication version is here), with an unusually long title, in the Wisconsin Law Review about the limitations of cap-and-trade and effluent taxes as substitutes for traditional forms of quantity-based regulations.** In “When is Command-and-Control Efficient? Institutions, Technology, and the Comparative Efficiency of Alternative Regulatory Regimes for Environmental Protection,” we explained why, as a matter of both theory and historical experience, traditional forms of environmental regulation have sometimes been, and sometimes remain, more efficient and effective than so-called “economic instruments” mainly because of monitoring and enforcement cost differentials. In at least some cases, command-and-control regulations, particularly technology-based standards, can have administrative cost advantages that offset, or more than offset, the admitted compliance-cost advantages of cap-and-trade or effluent taxes.

One important implication of our analysis in that article is that compliance costs are not the sole concern in environmental protection (although they are often treated as such by economists*). Rather, society should be concerned with minimizing the total costs of environmental protection, which are the sum of compliance costs, administrative (monitoring and enforcement) costs, and residual pollution costs. Seee.g., Peter Z. Grossman and Daniel H. Cole, "Toward a Total Cost Approach to Environmental Instrument Choice," in T. Swanson & R. Zerbe (eds), An Introduction to the Law and Economics of Environmental Policy: Issues in Institutional Design, 20 Research in Law & Economics 225 (2002) (see here). Moreover, it is a mistake to presume that minimizing compliance costs necessarily minimizes total costs, as if differential administrative or residual pollution costs are either insignificant or inevitably move in the same direction as compliance costs.

In the years since we published our Wisconsin Law Review article, it has been cited hundreds of times (more often by legal scholars than by economists). To date, our analysis and findings have not been substantially challenged. Now comes a new article in the October 2011 issue of The American Economic Review providing further empirical support for sometimes preferring traditional forms of regulations over "economic instruments."

In “Clearing the Air? The Effects of Gasoline Content Regulation on Air Quality,” co-authors Maxmiliian Auffhammer and Ryan Kellogg, analyze empirical data on national and state-level (California) gasoline-content regulations, and find that the more flexible federal approach has virtually zero cost-effectiveness (costs of compliance were minimized but at the price of completely nullifying the environmental effect of the regulation), but California's more stringent set of traditional regulations have reduced substantially emissions that contribute to low-level ozone pollution, albeit at higher cost of compliance (but providing substantial net social benefits). Here is their abstract:
This paper examines whether US gasoline content regulations, which impose substantial costs on consumers, have successfully reduced ozone pollution. We take advantage of spatial and temporal variation in the regulations' implementation to show that federal gasoline standards, which allow refiners flexibility in choosing a compliance mechanism, did not improve air quality. This outcome occurred because minimizing the cost of compliance does not reduce emissions of those compounds most prone to forming ozone. In California, however, we find that precisely targeted, inflexible regulations requiring the removal of particularly harmful compounds significantly improved air quality.
The empirical information and conclusions of Aufhammer and Kellogg's article further support Cole and Grossman's conclusion that command-and-control regulations are sometimes (but certainly not always) more effective and efficient than market-based mechanisms. Where our analysis focused on differential administrative costs that sometimes favor design standards, Aufhammer and Kellogg have a somewhat different concern, that more flexible regulatory mechanisms, by focusing myopically on the minimization of compliance costs, might fail to achieve emissions reductions necessary to achieve the (exogenous) environmental goal. For reasons that should be obvious, a regulation with zero cost-effectiveness (purchasing at some positive cost zero additional increments of environmental protection) cannot be considered efficient, let alone more efficient than another regulation, albeit one with higher compliance costs, but which actually furthers the environmental protection goal (assuming the goal itself is economically sensible).

Aufhammer and Kellogg's empirical analysis provides a welcome reminder that social scientists, legal scholars, and policy analysts should not neglect or underestimate the potential of traditional command-and-control instruments in the environmental policy mix.


*In effect, all forms of regulation are economic instruments. Even technology-based standards function by raising the costs of polluting activity, which shifts the supply curve outward and (assuming some price elasticity of demand) reduces the rate of demand for pollution-intensive goods. What economists really mean when they use the phrase "economic instruments" is "economically more efficient instruments." This presumes that the compliance cost advantage of cap-and-trade and effluent taxes means that they necessarily have lower total costs than command-and-control instruments. As noted above, this presumption is unwarranted.

** Unfortunately the full, final published versions of the three articles cited in this post are not freely downloadable on the Web. Each, however, is available behind a pay-wall.

Sunday, November 13, 2011

Time for Caldwell to Go

Peyton Manning is a great, great quarterback, but his absence cannot explain just how bad the Colts have become. At 0-10, they are laughingly, embarrassingly awful. They can't even compete with truly poor teams like Jacksonville. From week to week, the coaching staff seems to have no clue as to how to fix the situation.

At some point, Jim Caldwell has to take responsibility for not preparing the players to even compete against opponents that are, on paper, no better. But changes in the coaching staff is only a necessary beginning to the renewal required in Indianapolis. Every one of the Colts' best players, including Manning, Freeney, Mathis, Vinotieri, Clark, Wayne, Brackett, and Saturday, have played at least 9 seasons, and cannot be expected to play for more than a few more. The younger  players surrounding them, with the possible exception of punter Pat McAfee, are mediocre at best, and scrubs at worst. If GM Bill Polian has any magic left in him, it is time to clean house and start the rebuilding from the top. Obviously, drafting Andrew Luck would be a great start. But he'll quickly be killed if the Colts don't surround him with some higher caliber players.

Saturday, November 12, 2011

Saturday Ride

Thanks to Dr. Coughlin for showing me a new route around B-town today. After riding across campus and up Hinkle Rd., we headed over to Old 37, which we took north toward the Orchard. After crossing 37, we fought a pretty strong headwind all the way back along Bottom Rd, before heading back home across town. It was the longest ride I've done in some time, and between the 2800+ feet of climbing and the 30 mph wind gusts, I bonked at about mile 30. It remains to be seen whether Bloomington will make me a better rider or a non-rider.

Whatever Happened To...

...the federal investigation into doping by Lance Armstrong's US Postal Service Team? Back in May, there were news reports about the ongoing investigation and coverage on "60 Minutes." Since then, nothing. Not a single news report. Is the investigation still ongoing?

UPDATE: My question has been answered. See here. Apparently, everyone's still waiting to see whether the grand jury will hand down any indictments. Since May, its deliberations have been very, very quiet.

Thursday, November 10, 2011

What are the Social Costs and Benefits of EPA's Various Greenhouse Gas Regulations?

Just last week, the EPA sent for OMB regulatory review one of several proposed regulations on greenhouse gas (GHG) emissions (see here). This is another important step in a regulatory process that began on Dec. 7, 2009, when the EPA issued an "Endangerment Finding" for GHGs, which requires their regulation under the Clean Air Act. Among the regulatory proposals already completed or in the pipeline are: (1) a mandatory GHG reporting rule (see here); (2) a "tailpipe" rule to control motor vehicle emissions of GHGs (see here); (3) sequestration rules to govern carbon capture and storage projects (see here); (4) the GHG "Tailoring Rule," to limit the number of stationary sources of GHG emissions subject to regulation under the Clean Air Act (see here); and (5) a  "Scheduling Rule," adopted pursuant to a court settlement according to which EPA must issue final regulations imposing New Source Performance Standards on electric power plants and refineries by the middle of 2012.

Each of these regulations is controversial and entails significant economic costs. And the question OMB will be asking in regulatory review is whether the costs are justified by the benefits. As required by statute and by executive order of the president, EPA must prepare a "regulatory impact analysis" (RIA) for each major rule, and the central feature of the RIA is a cost-benefit analysis (CBA). EPA has not completed RIAs for its "Scheduling Rule" (which, after all, does not substantively regulate emissions) or its proposed "Sequestration Rule." It has, however, published RIAs for its "Tailpipe" and "Tailoring" rules (see here and here).

On the EPA's analysis, the "Tailpipe Rule" will provide around $188 billion in net social benefits over the course of its lifetime, and the "Tailoring Rule" is expected to provide around $193 billion (and perhaps double that, depending on what EPA ultimately decides for the third stage of the phase-in process) in net social benefits. However, the net social benefits of the "Tailoring Rule" have to be taken with several grains of salt because it is entirely about exempting (relatively) smaller emitters of GHGs from regulation. In this respect, the social benefits provided by the "Tailoring Rule" are not benefits stemming from regulation but gross benefits stemming from the lack of regulation that otherwise would be subject to regulation under the Clean Air Act. They are gross, rather than net, benefits because they are not offset against the social costs of the GHG emissions from the sources that the rule exempts. Moreover, one wonders how EPA determined just what the regulatory savings are, as it has yet to prepare an RIA estimating the costs of not-yet-determined regulations on plants that are not exempted by the "Tailoring Rule." As a CBA, the EPA's RIA for the "Tailoring Rule" is neither very informative nor persuasive.

Pending more information about the costs and benefits of the various GHG regulations, it is too early to say that they will, overall, be good or bad for social welfare in the US. So far, about all we can conclude is that, on EPA's own estimates, the "Tailpipe Rule" appears economically sensible; absent any major flaws in EPA's CBA for the rule, the positive outcome should make it difficult for political opponents to overturn it (pursuant to the political-economic analysis of CBA presented in my new working paper, here). The biggest hurdle for the "Tailoring Rule" will not be economic objections but legal ones (lawsuits already have been filed) because of the way EPA has had to de facto amend the Clean Air Act to regulate without over-regulating GHG emissions from power plants.

One development that should assist EPA in preparing future CBAs for its GHG regulations is the federal Inter-agency Working Group's schedule of valuations for the "social cost of carbon," published in 2010. The  central estimate for 2010 (using a 3% discount rate) is $21.40 per ton of CO2eq, rising to $23.80 by 2015, $26,30 by 2020, and $44.90 by 2050. Even though these valuations are on the low side (according to some more recent literature estimating the social cost of carbon), they should help EPA to justify economically its various proposed GHG regulations.

Graphic Representation of Global Warming

Former climate skeptic Richard Muller's Berkeley Earth Surface Temperature group, which last week issued its report (about which I blogged here) confirming what climate scientists have been saying for the past two decades, has now released a video representation showing global warming since the mid-1800s. Cooler temps are depicted in blue; warmer temps in red. Note the large, 0.9 degree increase in global mean temperatures since 1950.

Tuesday, November 8, 2011

Susan Seven-Sky v. Holder

The D.C. Circuit has issued a ruling upholding the constitutionality of the individual mandate of the Affordable Care Act (the federal version of Romneycare). The opinions are here. Two interesting features of the majority opinion: (1) it was authored by Judge Lawrence H. Silberman, a very conservative jurist appointed by President Reagan; and (2) it relies heavily on the precedential value of that old New-Deal chestnut, Wickard v. Filburn, 317 US 111 (1942), in which the Court ruled that the federal government could regulate, under the Commerce Clause, wheat grown by a farmer for his own consumption.

Perhaps I'm overly cynical, but I wonder whether Judge Silberman, who expressly notes in his opinion that the Supreme Court will ultimately decide on the constitutionality of the individual mandate, was merely teeing up Wickard v. Filburn, hoping that the Supreme Court might strike it down along with the individual mandate. The Roberts Court certainly has not been hesitant to overrule well-established Supreme Court precedents extending back many decades. See Citizens United.

Confusion About Public Goods

"Public good" is a term of art in the political-economy literature referring to goods that are likely to be under-produced by the market because of jointness of supply (no matter how much is consumed by one person, there is just as much available for others to consume) and nonexcludability (it costs too much for a supplier of such a good to exclude from using or consuming it those who do not pay). The phrase is often misused or applied inaccurately by scholars outside of economics. Sometimes, anything that might be good for the public (on someone's valuation) is therefore described as a "public good" (even if it is more cheaply and reliably provided by the market than by the government).

This morning I was astounded to learn that economists too have been guilty of the very same gross misdefinition of "public goods." William Birdsall authored a chapter on "A Study of the Demand for Public Goods" for Richard Musgrave's 1965 book Essays in Fiscal Federalism, in which he offered the following definition: "A public good is any good or service which is de facto provided for or subsidized through government budget finance." On this misdefinition, the results of every bit of successful rent-seeking would be "public goods." Even more surprisingly, according to Peter O. Steiner (Public Expenditure Budgeting, 1969, p. 5, n. 2) Musgrave himself adopted a "similar" definition in his (otherwise) pathbreaking 1959 book, The Theory of Public Finance.

Guess I'm going to have to become more tolerant of the errors of non-economists in using terms of art that even economists can't keep straight.

Sunday, November 6, 2011

Richard Posner Is a Keynesian

In a post (here) comparing and contrasting Greece and the US, Judge Posner makes the following assertion:
In both countries, government is cutting spending when (from an economic standpoint) it should be increasing it, to take up the slack in private investment and stimulate employment and in turn consumer spending (which drives business spending, which increases the demand for labor).

"Toward a Political-Economy of Cost-Benefit Analysis"

My new working paper of that title is available for download here. Actually, it's not a brand new paper, but a substantially revised and refocused version of a working paper I first posted a couple of years ago, and recently pulled out of mothballs. Here is the abstract:
This is a substantially revised, refocused, and updated version of an earlier draft paper, exploring the significant role Cost-Benefit Analysis (CBA) plays in  facilitating or impeding legislative and regulatory policy decisions. The paper centers around three case studies of CBAs EPA prepared for: (1) Clinton Administration changes to Clean Air Act air quality standards for ozone and particulate matter; (2) President Obama's recent decision to suspend EPA's reconsideration of the Bush Administration's air quality standard for ozone; and (3) the George W. Bush Administration's "Clear Skies" legislative initiative. The first two case studies demonstrate, between them, how well-constructed CBAs can facilitate social welfare-enhancing and impede welfare-reducing rules, even in cases where explicit consideration of costs is legally prohibited. The third case study tells a more complex story of how CBAs can be manipulated either to promote welfare-reducing regulations or impede welfare-enhancing regulations. When that happens, however, the virtuous transparency of CBAs renders those efforts liable to discovery and disclosure, as in the case of the Bush Administration's failed "Clear Skies" initiative. The paper concludes with an assessment of implications of the case studies for our understanding of the role of RCBA in political (both legislative and regulatory) processes, and with a call for more qualitative and quantitative empirical research on the use and abuse of RCBA as a political tool. 

Saturday, November 5, 2011

Arsenal 3- West Brom 0

It was a good result, but Arsenal did not play great. The scoreline is more a testament to West Brom's ineptitude than to the Gunners' offensive and defensive prowess. On offensive, they were potent but never really fluent. For long periods of time, Arsenal seemed to take their foot off the accelerator, as if they knew the game was no contest. On defense, they seemed to be hanging on at various points. Hopefully, this is not a sign of a new complacency stemming from their recent rediscovery of better form and  results. Given their position in the table (7th), they cannot afford to become complacent.

Arteta scored the best goal of the game, and played well throughout quarterbacking the offense. Other standouts for the Gunners were Ramsey (who set up the first goal with a beautiful pass that sliced open the West Brom defense), Song, Vermaelen (great to have him back in the center of defense) and his partner Koscielny (who has been something of a revelation lately); and of course Van Persie was leading from the front.

Tabarrok on Universities and the Economy

In a couple of recent blog posts (here and here) at the Marginal Revolution, friend of Cyclingprof Alex Tabarrok laments that college students are not enrolling in fields of study with the greatest economic potential. The graph below shows that enrollments in math, science, and engineering have stagnated since the 1980s, while students prefer fields with lower pay (and presumably generate lower economic returns to society). A recent Georgetown University study (here) indicates that engineering grads earn the highest (median lifetime) salaries ($75,000), while psychology and social work grads earn the least ($42,000).

It's worth remembering, however, that universities are not only vocational institutions. They, in part, places for students to follow their bliss, even if their bliss is economically shortsighted. Some reports (see, e.g., here) suggest that, while liberal arts majors start off in the job market at a comparative disadvantage to science and engineering majors, they catch up fairly quickly once they are on a career trajectory. Most importantly, the economic returns to any college degree remain much higher than for a high school diploma (let alone for high school drop-outs).

Tuesday, November 1, 2011

A Riddle

If pride comes before the fall, then what comes before the pride?