Green Rent

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In today’s news:

The Department of Commerce slapped high tariffs on solar products from China and Taiwan yesterday in a decision intended to address dumping and unfair subsidization of imports to the United States. The final ruling marks another victory for petitioner SolarWorld Americas in a lengthy solar trade battle.

We also have trade barriers against Brazilian sugar, which otherwise might be used in biofuels. So, on the one hand, we subsidize our producers of green energy (which one can argue is a WTO violation). But we use trade policy to raise the cost of green energy to consumers. It’s almost as if the environmental concern is just a smoke-screen used by rent-seeking producers.

A Postal Service for Spectrum?

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Richard Bennett writes,

I propose the creation of a Federal Spectrum Service to address these issues. The FSS could be chartered as a corporate entity distinct from the government with a specific mandate, similar in concept to the Postal Service. The FSS’s charter would focus on the overriding goal of reducing the federal spectrum footprint by 50% over a five-year period, and then reducing it a further 50% over another five-year period.

Pointer from James Pethokoukis.

Nowadays, a large share of the available underutilized spectrum is controlled by government agencies, so this proposal may be on the right track. My own thinking was that we should privatize all of this spectrum, and then force the government agencies to lease it back. My rationale is that the government agencies might have to think about using spectrum more economically if they have to pay for it. But perhaps they would not show much price sensitivity.

The Two Languages of Libertarians

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Daniel Klein classifies libertarians into challengers and bargainers. (He has a third category, “royalty,” to describe Milton Friedman and Adam Smith, who managed to achieve very high status.) Klein uses as an example of a topic the minimum wage. A challenger is someone who will say that the minimum wage should be abolished, while a bargainer is someone who sill say that the minimum wage should not be raised. Pointer from Tyler Cowen, who Klein pegs as a bargainer (I would agree).

Some comments:

1. I would describe challengers and bargainers in terms of language. Challengers use the language of certainty. “This is what I think, and people who disagree are just wrong.” Bargainers use the language of doubt or compromise. “Here is where my opponents and I agree, and here is where I think they are mistaken.”

2. I am mostly a bargainer. However, when I write posts using challenger language, I get a lot more praise and mention among libertarians. In fact, I have tried to keep myself from being influenced by such reinforcement.

3. You might be able to adapt these linguistic differences to other parts of the political spectrum. For example, I imagine that Paul Krugman evolved into the writer he is because he could not resist the positive reinforcement he received for expressing anger and certainty.

4. I think that Klein’s disctinction explains why I prefer having my own blog. I think it is fair to describe Bryan Caplan as more of a challenger, and when we were both at EconLog our styles clashed.*

5. Klein is never clear on whether the he is drawing an intellectual distinction between bargaining and challenging or whether he is making sociological observations. In fact, most of the talk strikes me as observations about differences between challengers and bargainers in terms of their personalities and social circumstances. For example, he says that the challengers tend to draw cult-like followings. On the other hand, he does say that an individual can make a choice about which stance to adopt, and it may even be possible to adopt different stances in different circumstances. That makes it sound more like an intellectual distinction. Bargainer that I am, I am trying to split the difference between making an intellectual distinction and making a sociological distinction, so that I want to emphasize linguistic differences.

6. I think that one difference, which can be viewed as intellectual but is probably grounded in personality, is that of certainty vs. doubt. The libertarians who Klein classifies as challengers strike me as highly certain. The bargainers have doubts. For example, challengers are quite certain that the world would be a better place with open borders, if drug laws were abolished, and so on. As a bargainer, I think that this is likely to be the case, but I am not so all-fired certain. Since challengers do not give much thought to being wrong, the fact that they are in a minority on an issue never bothers them. When I am in the minority, I question my own position–although I try to question my own position in any event.

7. In terms of what Jeffrey Friedman calls “the libertarian straddle,” challengers rely more on the philosophical a priori case for liberty. Think of Rothbard and the non-aggression principle. Bargainers rely more on the empirical economic case for liberty, which is that societies with more economic liberty tend to be more prosperous.

*This is all hindsight, in that I left EconLog primarily to pursue an ed-tech start-up. That did not go well, although I did learn a lot about how software had changed in the 15 years since I had been out of it.

What Do We Really Know About the Cost of Living?

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In an article on consumers’ expectations for home prices, Robert Shiller writes,

with the median home price under $200,000, according to RealtyTrac…

Pointer from Mark Thoma.

My question is: Where are these homes that are priced at less than $200,000? My niece in LA, my daughter in DC, another daughter in NY, and my third daughter in Boston would sure like to know.

This gets back to the issue of widening differences in income and housing costs within and across metro areas. I mentioned that issue last month, when I cited Joel Kotkin’s finding that much of the population growth in recent years has been in the far suburbs.

Suppose that housing cost is 25 percent of income, and suppose that close to the center of a city housing cost is 5 times what it is in the outer suburbs. That means that the cost of living is 1.25 times as high close in as it is far out. Yes, you should adjust for commuting time and cost, the value of different amenities, and so on. But that is a huge difference.

Consider that, at a national level, economic experts soberly analyze changes in trend productivity growth of 0.5 percent per year. To measure productivity changes, you need to have accurate measures of real GDP. To measure real GDP, you need to have accurate measures of “the” rate of inflation.

But what if inflation is 5 percent higher in downtown LA than it is 30 miles away? Which is the accurate measure of inflation? Even a slight mistake in aggregating across different areas could completely change the picture for national productivity growth.

I find myself thinking that the multiplicity of economies within the U.S. really matters. For example, I could imagine that the minimum wage would have a much bigger effect on employment in the locations with those sub-$200,000 houses than in higher-cost areas, where employers probably have to pay above the minimum, anyway. I can imagine that downward stickiness of wages matters a lot if you have inflation differentials across areas of 5 percent or so.

In trying to view the U.S. economy, I am tempted to drop the macroeconomic lens and replace it with the international trade lens.

The 2017 Project

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The mission statement:

Neither a think tank nor an electioneering organization, we operate in the middle ground between policy and politics, seeking to make things happen by taking ideas and helping to put them into action. We believe that a principled yet prudent conservatism that gears its efforts toward the well-being of Main St. Americans can unite a wide range of citizens, from the Tea Party to the centrist independent, who are looking for an antidote to big-government liberalism. In that spirit, we are working to advance a conservative reform agenda that will secure the blessings of liberty and promote the happiness of the citizenry.

Pointer from Greg Mankiw.

This looks like it is in the spirit of my idea of Setting National Economic Priorities, which is still vaporware. Their initial work seems to be on replacing Obamacare.

If I were doing Project 2017, I would prefer to replace Obamacare en passant, as part of a larger effort to get rid of the uncoordinated set of means-tested programs. That is, I would use multi-purpose savings accounts to replace most forms of government assistance, including food stamps, Medicaid, housing subsidies, and so on.

The Federal government would contribute to these savings accounts a cash amount of, say, $3000 per adult and $1000 per child. However, this amount would be reduced by 20 percent of household income. So, if a family of four had an income of $30,000, it would receive $3000+$3000+1000+$1000 minus $6000 (20 percent of $30,000), or $2000.

Some further thoughts.

1. State and local governments could provide additional assistance.

2. Households could only spend these savings accounts on “merit” goods, meaning food, medical care, child care, housing, and education.

3. To induce households to buy health insurance, they would not be allowed to spend any of the money in these savings accounts on anything other than health care until they can show that they have a catastrophic health insurance policy.

The Supreme Court and the Text of the Law

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According to a legal theory I am about to sketch, the Supreme Court would let stand the subsidies that are being paid to people through the Federal health care exchange, in spite of the language in the law that says only state exchanges are entitled to pass on subsidies. Instead, the Supreme Court would say that from a common-law perspective, the subsidies on the Federal exchange are what people have come to expect.

By a “common-law” perspective, I mean that the Supreme Court should pay little attention to written law or to the Constitution. Gasp!

In my amateurish libertarian legal theory, law should not come from legislation, or from Constitutions. It should represent the common understanding of what is legal. When a dispute arises, the role of the court is to resolve the dispute. The court exists not to interpret legislation or Constitutions. The court exists to resolve disputes peacefully.

If the court is unpredictable and arbitrary, then people will err on the side of bringing too many disputes to the court (or else they will ignore the court altogether, and it will not serve its purpose). Instead, a good court will resolve disputes fairly and predictably. Using precedent and clear principles makes for predictable decisions. With predictable decisions, people will not bring disputes unnecessarily to the court. When you can predict the outcome, there is no need to go to court.

In this world, law is embedded in precedent. There is no need for legislation. Hence, no need to interpret legislation. There can be legislators and legislation, but legislation is only binding if the court chooses to enforce it. If the court decides that legislation is contrary to common law, then the court can choose not to enforce the legislation.

What restrains the court in this world? If people stop agreeing to use the court to resolve disputes, then that limits its power.

By the way, this is a half-baked or quarter-baked theory of law. Comments welcome.

A Conflict of Rhetoric

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Lawrence Mitchell writes,

A very significant component of success – one that may even be more determinative than hard work – is luck. This is true, even if the advantaged have worked hard to maximize the benefits of that luck. By luck, I mostly mean circumstances of birth and natural talents and abilities (which might well include the propensity to work hard).

Why do the disadvantaged tolerate this situation? The American myth of self-reliance. No matter the vagaries of fortune, we consistently find that Americans at all levels believe in some variant of the Horatio Alger myth – the classic American rags to riches success story – despite strong empirical evidence that belies it.

Pointer from Mark Thoma.

On the other hand, James Otteson writes,

Human beings are capable of being worthy to be free. Human beings become noble, and, I would even suggest, beautiful, by the vigorous use of their faculties and they become dignified when their lives are their own…

This conception of moral agency allows one to be one’s own person, and to stand, or fall, on one’s own individual initiative, without having to beg for personal favors, without having to grovel at the knees of a king or flatter a lord or satisfy the pleasure of the Regulatory Czar. It grants people the freedom to go where their own abilities and initiative–not someone else’s mercy or condescension–can take them. Yet with that freedom comes responsibility for one’s actions. If you succeed, then you reap the benefits–and no one begrudges you your success because it means you have done well both for yourself and for others. If you fail, however, then you may pay the cost and (one hopes) learn from the experience.

…Contrary to widespread opinion, failure is not something that public policy should attempt to eliminate…failure, and experiencing the consequences attendant on having made decisions that led to failure, is an indispensible [sic] part of moral agency.

Those quotes are from Otteson’s recent book, The End of Socialism.

My sense is that these two authors talk past one another. Otteson’s rhetoric emphasizes personal decisions as the determinant of individual success. For Mitchell, it is the opposite–even a “propensity to work hard” is a matter of luck.

I find myself unwilling to accept either extreme. I am inclined to think that Otteson makes the scope of individual moral agency seem too large, and Mitchell makes that scope seem too small. However, I have yet to finish Otteson’s book or to start Mitchell’s.

Coincidentally, Charles Murray writes,

deeper personal qualities account for what we call political polarization, but that one specific dimension—our respective attitudes toward personal responsibility—accounts for a huge proportion of the polarization all by itself.

Read the whole piece.

A “Tough” Capital Rule for Big Banks?

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So the headline says. But from the actual article,

The extra core-capital requirement could be as high as 4.5 percent of risk-weighted assets on top of the baseline 7 percent defined under rules known as Basel III, according to analysts including Citigroup’s Keith Horowitz.

The term “risk-weighted” gives the banks a loophole you can drive a truck through. My guess is that if you had this rule in place in 2005, its main impact would have been to steer banks into holding more AAA-rated mortgage securities.

Innovation Predictions

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Nouriel Roubini writes,

A patient in New York or London may have his MRI sent digitally to, say, Bangalore, where a highly skilled radiologist reads the scan. However, that highly skilled radiologist in Bangalore may only be paid a quarter of what a New York radiologist would earn for reading tests.

It raises the question: how long before a computer can read those images faster, better, and cheaper than that Bangalore radiologist can?

Pointer from Tyler Cowen.

That sounds like a fair point. In general, however, I think that the forecasts for game-changing innovation made by Roubini and others are too aggressive. I do not share his enthusiasm for MOOCs, as you know.

For another bullish-on-robots, bearish-on-humans take, consider William H. Davidow and Michael S. Malone:

If you doubt the march of worker-replacing technology, look at Foxconn, the world’s largest contract manufacturer. It employs more than one million workers in China. In 2011, the company installed 10,000 robots, called Foxbots. Today, the company is installing them at a rate of 30,000 per year. Each robot costs about $20,000 and is used to perform routine jobs such as spraying, welding, and assembly. On June 26, 2013, Terry Gou, Foxconn’s CEO, told his annual meeting that “We have over one million workers. In the future we will add one million robotic workers.” This means, of course, that the company will avoid hiring those next million human workers.

Read the whole thing.

Frankly, I think that the biggest game-changer over the next fifteen years will be virtual/augmented reality that makes meetings among people from remote locations effective. If it comes off, it will reduce the significance of innovations in transportation, such as self-driving cars. It will also provide a platform for higher productivity in the New Commanding Heights of health care and education.

Here, let me make some predictions of when innovations will be well established (meaning that they have changed everyday life for many people), and I hope I do not err by being too aggressive.

Year Innovation
2020 Computer diagnosis based on lab results and other data
2025 Virtual/augmented reality enables people in remote locations to have meetings that feel “live”
2030 Food manufactured using bio-engineering rather than slaughtered or harvested
2040 Cures for all major diseases except cancer
2040 Personalized, computer-based education instead of classrooms
2045 Cure for cancer
? Fossil fuels overtaken as energy source by solar and/or nuclear power
? Medicines or implants that ensure high intelligence and conscientiousness
?? Drexler’s vision for nanotechnology, driving the cost of physical goods to near zero

As for the issue of human obsolescence, I do think that we will see a trend toward more and more leisure. This will raise all sorts of questions of who deserves to have what provided for them. Right now, we say that people aged 67 or so deserve Social Security and Medicare. And people who can command only low wages (already obsolete in some sense?) deserve Medicaid and food stamps. And kids who can get in deserve the leisure aspects of college. My guess is that we will struggle quite a bit over the next forty years to adapt the social bargain concerning leisure.

Smart Grid Problems

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From the NYT,

Although the goal is to shift consumption to off-peak hours when cheaper, cleaner electricity is available, experts say it is still many years away, despite billions in federal subsidies that have helped finance the switch to the so-called smart grid.

Pointer from Tyler Cowen.

The article ends with a quote from an official in Maryland’s Office of People’s Counsel.

“I’ve never seen an analysis that shows that shifting my dishwashing, clothes-washing and clothes-drying load is going to make a significant impact on my monthly bill,” he said. “It’s just not that much electricity.”

I do not find this statement persuasive. Perhaps he needs to be charged more for use of electricity at peak times in order to get himm to understand the concept of dynamic pricing.