Austrian Environmental Economics (Part 1): Air Pollution as a Coordination Problem

The Austrian school of economics has experienced a renaissance in recent decades. Its adherents have put their distinctive paradigm to work in nearly every field of economics. This post is the first of two that will examine the Austrian approach to environmental economics, with special emphasis on the problem of air pollution.

Pollution as a Coordination Problem

A distinctive feature of the Austrian approach is the idea that environmental issues are problems of coordination. As Roy Cordato puts it, they are “not about harming the environment, but about human conflict over the use of physical resources.” The Austrian paradigm differs in that regard from that of the neoclassical school, which looks at environmental problems in terms of efficiency and maximization of social welfare, and from that of ecological economics, which frames the issues as conflicts between humans and nature.

New Data Show Labor Share of Domestic Income Reached Record Low in Q4 2013 while Corporate Profits Reached Record High

New data released today by the Bureau of Economic Analysis showed that GDP grew slightly faster than previously estimated in the fourth quarter of 2013, an annual rate of 2.6 percent rather than the previously reported 2.4 percent. Consumption grew more strongly than previously estimated and investment slightly less strongly. Other components were little changed.

Today’s report also includes the first look at the composition of Gross Domestic Income for Q4 2013. The data show a continuation of recent shifts in income shares. As the following chart shows, the share of corporate profits in GDI rose to 12.65 percent, and the share of employee compensation, including wages, salaries, bonuses, and benefits, fell to 52.2 percent. These figures mark record highs and lows for these GDI components since 1947, the earliest year for which data are reported.

The following chart shows trends in the shares of major GDI components over the course of the Great Recession. In addition to compensation of employees and corporate profits, the chart shows the share of proprietors’ income, which includes the net income of proprietorships, partnerships, cooperatives, and other noncorporate enterprises. Proprietors’ income now accounts for 7.9 percent of GDI, up from its low for the recession, but it remains well below the levels of 10 to 15 percent that it reached in the 1950s. Several other small items make up the remainder of gross domestic income, including rental income of persons, net interest, and the net income of government enterprises, which is typically negative.

We can redraw the data in the previous chart to bring out the relative movements in the shares of GDI components more sharply. The next chart assigns a value of 100 to each component’s share in 2007, the year before the recession began. This chart shows that corporate profits were hit hard in the first months of the recession, but began to recover already by the end of 2008, when GDP was still falling. By the time the economy had officially entered the recovery phase in mid-2009, corporate profits were surging to new highs.>>>Read more

Getting Energy Policy Wrong Around the World

This interview by James Stafford was first published by Oilprice.com March 18, 2014

Smart energy policies seem to be elusive. The US policy disappoints environmentalists and industry alike; Europe’s policy is economically disastrous but is getting people to change their habits; and developing-country subsidies aren’t helping the people they’re supposed to.

At a point in time when even the Chinese are having second thoughts about the balance they have struck between pollution and growth, the United States should be concerned about how much it’s willing to give up environmentally to remain competitive with energy. But there are ways to balance out this equation without further harming the environment or the economy, according to economist Ed Dolan.

James Stafford:When it comes to talk of fossil fuel prices and carbon taxes, are we stuck in a place that makes us choose between protecting the environment and protecting the poor?

Ed Dolan: No, definitely not. As you know, I have long advocated using the language of the market—prices—to communicate the message that we need to strike a better balance between environmental policy and energy policy. So yes, I would like to see higher energy prices than we have now, and yes, other things being equal, that would pinch everyone in the budget, including the poor. But, as I explained in a blog post a couple of years ago, there are persuasive reasons not to use energy policy to help the poor.

The biggest reason is that holding down energy prices is an inefficient way to help the poor. Most of the benefit of low energy prices goes to families with higher incomes. People in the lower half of the income distribution use only about 30% of total energy, and those truly in poverty only about 15%. If we try to use low energy prices as anti-poverty policy, 85 cents out of every dollar it costs us misses the target.

If we want to help the poor, we need to do something more targeted. My favorite policy would be a universal basic income of some kind. A UBI would provide a decent floor on a family’s standard of living without taking away their incentive to work, as many of our current poverty programs do. Once you have the safety net in place, then it makes sense to use higher energy prices to give the poor, as well as the rich, an incentive to turn down their thermostats, take the bus when they can instead of driving, and so on.

James Stafford: How do fuel subsidies fit into this equation?

Ed Dolan: Fortunately, in the United States, we don’t have much by way of absolute fuel subsidies. However, many emerging market countries, including Indonesia, Venezuela, Egypt and Iraq, spend huge amounts on fuel subsidies, nearly 10% of GDP in the case of Iraq. I wrote a piece last year explaining why these subsidies don’t help the poor much. The IMF calculates that for gasoline, some 60% of the benefit goes to families in the top 20% of the income distribution. Instead, they actually hurt the poor because the subsidies drain budgets of money that could otherwise be used for investments in education, public health, and infrastructure, which the poor need more of. >>>Read more

What Do Trends in Multiple Jobholders Tell Us About the State of the U.S. Labor Market?

How many times since the start of the Great Recession have you heard a story like this one, from USA Today?

Heather Rolley's primary occupation is motherhood, but it doesn't pay the bills. So most days, after she takes her daughter and two sons to school, the 36-year-old divorcee heads to work. Some days it's at the Polo Ralph Lauren store at an outlet mall, where she makes $8.50 an hour as a part-time sales associate. Other days, she focuses on her home-based Mary Kay beauty products business, making telephone calls, checking orders and meeting clients.

Many days, she does both. "It helps me make ends meet, but it's barely enough," Rolley said of her dual income, which is supplemented by child support. "It is very difficult. Holding two part-time jobs, plus being a mom, is a juggling act. It's tough, it really is."

Anecdotes like this grab our attention, but just how common are they?After taking a look at the data on part time workers earlier this year, I thought it would be worth digging into the story of multiple jobholders.

How many people hold multiple jobs?

The first thing we learn is that although multiple jobholders are not rare, they are not as common as the impression you might get from accounts in the media. The following chart shows the basic data. Multiple jobholders account for about 4.5 percent of the labor force. These include 2.4 percent who hold a part time job in addition to a full time job—a  pattern we can call FT/PT. Those who piece together two or more part time jobs—Heather Rolley’s category, or PT/PT—make up about 1.2 percent of the labor force. (People like Rolley, whose primary or secondary job is self-employment, count as multiple jobholders, but people whose only work consists of two or more forms of self-employment do not.) Smaller numbers of workers, not shown in the chart, hold two full time jobs or hold multiple jobs that are unclassified because they vary in hours from week to week.

>>>Read more

Latest White House Budget, Like All Before It, Rests on Overly Optimistic Assumptions

The budget for fiscal year 2015 (October 2014 through September 2015), just published by the White House, presents an optimistic prognosis for US fiscal health. Like all budgets, it looks ahead not just one, but several years. It projects that the budget deficit, expected to be 4.1 percent of GDP in 2013, will fall to 3.1 percent in 2015 and to 1.6 percent in 2024. According to its forecasts, the ratio of debt to GDP will peak in 2016 at 74.6 percent and then decline to 69 percent by 2014.

Some of these results are supposed to result from changes in tax and spending policies, but most of them come from assumed improvements in the economy. Real GDP, which grew 2 percent year-on-year in FY 2013, is projected to rise to 3.1 percent in FY 2015. After that, the Office of Management and Budget (OMB) expects growth to slow a bit, but still to average more than 2.5 percent over the next ten years. This budget, like all budgets before it, assumes that there will be no recessions over its 10-year time horizon.

However, if the projected steady growth of the economy does not materialize, neither will the deficit reductions. Unfortunately, budget history suggests that the OMB has a chronic tendency to look at the world through rose-colored glasses. When I first wrote on this topic three years ago, I illustrated the over-optimism of the OMB under George W. Bush with comparisons of assumptions on which past budgets were based with the actual performance of the economy. At that time, it was too soon to know whether projections by Obama’s OMB would be equally unrealistic. It is now evident that they have been. >>>Read more