Tuesday, January 28, 2020

The Scissors of Supply and Demand are Cutting Carbon Emissions, but Not Fast Enough

Since the time of Alfred Marshall, more than a century ago, economics professors have taught their students that markets are like scissors: They have a supply blade and a demand blade that work together to determine prices and quantities. 

An example of the scissors at work can be found in a new report on greenhouse gas emissions from the Rhodium Group.

The report is a classic case of good news and bad news. The good news is that overall U.S. GHG emissions fell by 2.1 percent in 2019. The evidence makes clear that both blades of the scissors are doing some cutting.

Looking first at the demand side, we see that the decrease in total emissions comes despite an estimated 2.3 percent increase in U.S. real GDP last year. Together, the 2.1 percent drop in emissions and the 2.3 percent growth of GDP mean that emissions per dollar of GDP fell by a far-from-trivial 4.4 percent. American industries and consumers are finding that they don’t need to pump out the same amount of pollution they used to in order to maintain equivalent levels of production and consumption.

Thursday, January 23, 2020

How Can We Ensure That a Carbon Tax is a Generational Win-Win?

Photo courtesy of Pixabay.com

A recent NBER working paper by a distinguished team of economists argues that a properly designed carbon tax can be a generational win-win. The team, led by Laurence Kotlikoff of Boston University, also includes Felix Kubler of the University of Zurich, Andrey Polbin of the Russian Presidential Academy of National Economy and Public Administration, Jeffrey D. Sachs of Columbia University, and Simon Scheidegger of the University of Lausanne.

By a generational win-win, Kotlikoff et al. mean a policy that would benefit not only future generations, who would reap the benefits of reduced warming, but also those of us who would begin paying the costs of mitigation now but would live to see only small, initial, climate improvements. The perception of a long lag between investments in climate mitigation and their full benefits has been a serious impediment to effective climate action. That is true both for democratic governments and for more authoritarian regimes, to the extent they are sensitive to public opinion. Although the paper discusses only carbon taxes, similar issues are raised by cap-and-trade, public investment, direct regulation, and other mitigation strategies.

The first section of this commentary outlines the Kotlikoff plan. The second section compares it to alternative strategies for dealing with the objection that climate action would pay off only in the distant future. The next section discusses whether the plan can properly be understood as an intergenerational “redistribution” in which the future “subsidizes” the present, as the authors contend. The concluding section examines the political realism of the plan.

Wednesday, January 22, 2020

Can We Put Everyone to Work? Four Ideas Compared.

Can we put everyone to work? In a way, it seems like an odd time to be asking the question. After all, the official unemployment rate is at a 50-year low and the U.S. economy has added jobs for a record 110 consecutive months.

Still, broader indexes show much greater labor market slack. Those indexes include some 4.4 million people who are working part time but would like to work full time, and an additional 4.4 million who say they want a job, but are neither working nor looking. What is more, the labor force participation rate, even for prime-age workers, is not yet back to its prerecession level and is even farther below the rates of the 1990s.

But how to do it? How to get more people to work – and better yet, at a living wage? In what follows I will discuss four proposals. The first two – guaranteed jobs, from the left, and work requirements, from the right – I view skeptically.  The other two are wage subsidies and basic income.  I see those as more promising, and more promising still if combined.