The long run--fingers crossed--could be very, very good.
The long run--fingers crossed--could be very, very good.
"Hayek" doesn't appear anywhere in this piece--it's in the New Republic[!] after all--but somewhere, he's smiling.
I came across the PlayPump story in Ken Stern’s With Charity For All, but I could have plucked one from any of the dozen or so “development doesn’t work” best-sellers to come out in the last ten years. In The Idealist—a kind of “where are they now?” for the ideas laid out in Jeffrey Sachs’s The End of Poverty—Nina Munk discovers African villages made squalid by the hopes and checkbooks of Western do-gooders. Esther Duflo and Abhijit Banerjee’s Poor Economics finds dozens of “common sense” development projects—food aid, crop insurance, microfinance—either don’t help poor people or may even make them poorer.
(See "Meant to Keep Mosquitos Out, Nets Are Used to Haul Fish In" for an unexpected, serious cost of distributing mosquito nets to fight malaria.)
With all due respect to Professor Borenstein--he is a very distinguished scholar and his brief tribute to "The Problem of Social Cost" here is quite nice--I think his discussion is misleading. Specifically, the following:
It is ironic and disappointing to hear some commentators laud Coase while at the same time saying that cap-and-trade would be too costly to the U.S. economy. The WSJ editorial page, and many others of similar inclination, have argued instead that “the market” will solve pollution problems without government intervention. . . .
But on climate change, the right wing now fights against assigning any property rights on greenhouse gas emissions, even as the science becomes virtually certain that GHGs are the cause of climate change. Leaving the property rights unassigned is equivalent to giving unlimited rights to emit and making those right untradeable.
Leave aside the "virtually certain that GHGs are the cause of climate change"--a conclusion that at least some scholars dispute. Focus instead on those "many others" who argue that the market "solves pollution problems without government intervention".
The criticism of market advocates here, as in many other instances, fundamentally mistakes the advocates' position. It's not that markets can solve all problems "without government intervention". It's that markets, while imperfect, tend to work better than government in a large number of instances, particularly the U.S. national government as currently constituted. This fundamental idea explains why market advocates would sharply question the supposedly wonderful cap-and-trade policy Professor Borenstein advances. In particular, I think there are four reasons to question cap-and-trade:
1. There is a real consensus--not just the questionable one about the causes of global warming, if any--that action taken by the U.S. alone will do virtually nothing to solve the problem. Supporters of cap-and-trade can talk about setting a moral example or starting the process, but if the rest of the world, particularly China and India, refuse to curb their carbon dioxide emissions, we would just incur a large cost for virtually no gain. Maybe the supporters believe in the effectiveness of international collective action. Maybe they believe the League of Nations and the UN have eliminated war, hunger, and poverty, and the other evils that plague mankind. I don't. And history gives, I think, little ground for optimism.
2. Cap-and-trade as outlined on economists' whiteboards and cap-and-trade as actually legislated by the Congress and implemented by the Executive would likely be substantially different. There are hundreds of examples of this to choose from. Is affordable housing a good thing? Sure. But are rent controls and huge mortgage subsidies and regulations requiring lending to low-income borrowers good things? No. Would greater access to health insurance be a good thing? Yes. Are the multiple taxes, exceptions, and complications of Obamacare good things? The jury is still out, but it's not looking good.
3. Even if a simple, clean law were drafted--again given the very large stakes potentially involved, that seems quite doubtful--there are likely to be unintended and unforeseen--unforeseen at least to some--effects. Anybody remember the yacht tax?
4. Finally, experience shows that we sell short technological change and the creativity inherent in markets at our peril. What if an excellent substitute for beef were developed, a substitute that greatly reduced the amount of livestock? (Note that livestock supposedly are responsible for half of the global warming gases.) Well, such a substitute may well be coming. (Link via Michael Greenspan.) What if batteries become substantially more efficient and cheaper, such that solar and wind power become viable substitutes for carbon? That may well be coming, too.
In short, I think pro-market scholars haven't forgotten Coase and they do understand what the implications of his paper are. I think market skeptics would do well to better acquaint themselves with government-in-practice and markets-in-practice before throwing stones at us.
Excellent short piece by economist Adam Ozimek on what the average obscures about charter school performance. (Link via Marginal Revolution.)
Three reasonable proposals.
It's a very good thing for the country that Ms. Pelosi is no longer
Majority Leader Speaker (Thanks, Michael!).
It would also be good if she lost her seat or retired.
If you want a pessimistic forecast of the world economy over the next five or so years, this piece makes some interesting arguments.
Metaphors about how “society” should “arrange” this or that result evade the institutional reality that someone must be empowered to constrict other people’s freedom – and thus evade the need to weigh whether the expected value of the result being sought, given the chances of achieving it, is greater or less than the expected value of the loss of freedom that this effort entails.
From The Economist:
As a control, the authors combined the popularity measure with another well-known effect, related to the volatility of individual stocks. Stocks that are more volatile than the market (rising or falling 10% when the index moves 5%) are described as having a "high beta;" stocks that are less volatile than the market are "low-beta."
. . .
The authors of the new paper combined the popularity and beta characteristics. They found that popularity was by far the dominant effect: whether a stock was popular was more important when determining its return than whether it was volatile. The same was true when controlling for other factors, such as the size of the company and the starting valuation.
Interesting. But of course if it's true--a big if--the effect has probably already gone away by now.
Kyle Smith reviews The Almost Nearly Perfect People: Behind the Myth of the Scandinavian Utopia.
Smith's conclusion is consistent with other work I've seen: even if Scandinavians really were terrifically happy, they are key features of their societies that wouldn't transfer well to other countries, particularly the U.S.