A Coasean Rationale for a Carbon Tax

Executive summary:

This policy analysis develops a rationale for a carbon tax based on two key insights from the work of Ronald Coase.

The first insight is that problems of pollution should not be viewed simply as situations in which A harms B, so that A should be restrained with a tax, a suit for damages, an injunction, or a regulatory prohibition. Instead, they should be seen as coordination problems in which the plans of two parties conflict. Reaching optimal coordination typically requires action by both parties. Those will usually include both action by polluters to cut emissions (abatement) and action by pollution victims to reduce harm (adaptation). Putting too much of the burden of coordination on either party is inefficient.

The second insight is that a complete analysis must take into account the direct costs of abatement and adaptation, but also the transactions costs of achieving coordination. Transactions costs include the costs of identifying victims and sources of pollution, assessing damages, reaching agreements on actions to be taken, and enforcing those agreements once they are in place. In some cases, superficially attractive policy solutions turn out to be unsuitable because of their high transaction costs.

The analysis uses the example of coastal flooding caused by climate change as a case study in coordination. The polluters are fossil fuel burning power plants and the victims are coastal property owners. The former have a number of abatement options, including fuel switching and carbon capture, while the latter have abatement strategies that include building sea walls, improving construction, and retreating to higher ground. Following Coase, a full range of policy options are examined for their impact on the behavior of both polluters and pollution victims. When all aspects of the coordination problem are considered, including transaction costs, carbon taxes emerge as an attractive mechanism for dealing with climate change.

Read the full brief here.

Take a Closer Look at Labor Force Participation. Is It Really As Good As It Looks?

The headline take-away from the October employment report was the robust gain of 250,000 payroll jobs. The unemployment rate edged up fractionally from 3.68 in September to 3.74 in October, but commentators dismissed that as insignificant. Instead, they pointed out that the unemployment rate failed to fall because of a flood of new workers into the labor market. That influx produced a welcome rise in the labor force participation rate, from 62.7 percent to 62.9 percent.

Still, that monthly uptick was not enough to break labor force participation out of the stagnation that has prevailed since late 2015. As the following chart shows, the participation rate has wobbled up and down over that period without showing any trend at all.

What is going on here? Isn’t the stagnation of labor force participation just a sign of the aging of the U.S. population? Yes, at least in part. The next chart shows labor force participation for prime-age workers only, aged 25 to 54. that rate has turned up sharply since hitting a low of 80.6 percent in September 2015. The flat trend of the overall participation rate simply means that an increase in the average age of the civilian labor force, which includes retirees, has offset higher participation by people in the working age population.

Discordant Data on Investment and Net Exports Spoil an Otherwise Bright Q3 GDP Report

US GDP continued its long expansion in the third quarter of 2018 at a pace that was only slightly slower than earlier in the year. According to the advance estimate from the Bureau of Economic Analysis, GDP grew at a 3.5 percent annual rate in Q3, compared to 4.2 percent in Q2. The advance estimate, which is based on incomplete data, is subject to revision. Based on past experience, the second estimate, which will be released one month from now, may be about half a percentage point higher or lower than the advance figure.

But the real news from Friday’s data release concerns the structure of growth, which has changed dramatically for the worse, rather than its still-respectable overall pace. The following chart shows the contrast between the structure of growth in Q2 and Q3. The bars show how much of the total growth in each quarter can be traced to changes in each sector of the economy.

In both quarters, consumption and government spending contributed positively to GDP growth, although not quite so strongly in Q3 as in Q2. Changes in other sectors of the economy were more dramatic.

In Q2, fixed investment in factories, business equipment, and housing was a bright spot, contributing 1.1 percentage points, or more than a quarter of GDP growth. In Q3, contributions from fixed investment disappeared, even turning slightly negative. This change can be traced to weakness in investments in business structures, housing, and transportation equipment.

Inventory investment changed in exactly the opposite direction. In Q2, inventories made a negative contribution to growth, but in Q3, swelling stocks of unsold products accounted for 2.09 percentage points of the quarter’s GDP growth — two thirds of all net growth. Rising inventories can be a sign of economic health if they represent the actions of companies that are building inventories to meet expected growth of sales in the future. However, in this case, they more likely represent unplanned accumulation of goods that turned out to be harder to sell than companies thought they would be. If so, producers are likely to cut back output in the fourth quarter to bring inventories back into line.

Net exports were the third area where there was a huge change from Q2 to Q3. In the second quarter, exports surged ahead of expected tariff increases, adding 1.12 percentage points to the quarter’s growth. In contrast, in Q3, exports collapsed, subtracting 0.45 percentage points to growth. What is more, imports surged in Q3, after having had little impact on growth in Q2. Because imports enter the GDP accounts with a negative sign, they subtracted another 1.34 percentage points from growth. In all, the contribution to growth of net exports experienced a massive 3.0 percentage point swing from a positive contribution of 1.22 percentage points in Q2 to a negative contribution of 1.72 percentage points Q3.

The bottom line: Growth does not look too bad at the moment, but in the long run, you can’t build a strong economy on consumer and government spending alone. You need investment and you need exports. If those sectors don’t contribute more in the rest of the year, expect overall GDP growth to turn sharply lower.

Previously posted at Medium.com

Update on Saving SlideShare from Itself (Reupload)

About a year ago, SlideShare, the presentation sharing website, deleted one of its most useful features: The ability to reupload a presentation to make a correction or update without changing the URL. The change greatly degraded the usefulness of the SlideShare platform for so-called "Power Users" like myself and many others. Power Users are understood to be users with thousands of followers, many of us teachers, professional speakers, and consultants, who post serious material that needs to be accurate and up to date, not just cute pictures of their dogs and cats.

I posted about it at the time, and received many responses. Here is how I explained the importance of reupload:

Reupload is (or was) a feature that allowed users to repost a revised version of a slideshow without changing its URL. Now that it is gone, the only way to revise a slideshow is to delete the original version and repost a new version with an new URL. Why does that matter?

1. Short-term error correction: We are all human. (Well, at least I am). We make mistakes. After you have posted your slideshow, you, or one of your readers, notices a typo, a wrong number in a calculation, or a broken link. You want to fix it, but meanwhile, you or your readers have bookmarked the original version, or Tweeted the link, or posted it on Facebook. When anyone follows those links or bookmarks, they will be taken to the original version with the error, not your corrected version. If you deleted the original when you made the correction, they won't find anything.
2. Long-term revisions: Sometimes I publish a slideshow on a topic of lasting interest, say, the economics of a soda tax. I posted this version of my soda tax slideshow in 2010. Last year, soda taxes were back in the news, so I posted this revised version. At the same time, I added the little yellow box on the front page of the original so that anyone who had the old link could find the new version. This week, I wanted to update it again to include the news of the failure of Chicago's soda tax, but with reupload gone, I can no longer steer anyone who finds one of the old versions to the newest version.
3. Classroom use: College professors and high school teachers use slideshows in their classrooms all the time. They include links to the slideshows in the printed or on-line curriculum materials they give to their students. What if the creator of the slideshow fixes an error or makes an update? Doesn't the teacher want them to find the latest version, not the old one? Without reupload, this won't happen.

At that time, I, and several other Power Users, had exchanges with SlideShare customer support. Those exchanges are cited extensively on last year's post. This past week I have had a new round of exchanges with a "Customer Advocacy Representative" [interesting term] named "Jeff." Here is that exchange in full:

My question to SlideShare 10/20/18:

I used to be an enthusiastic user of SlideShare, a "keynote author" with nearly 12k followers. Then it all came crashing down when you took away the "reupload" feature.

As I explained in a presentation posted on Slideshare a year ago, this feature is essential for my work and that of many other serious users. Nearly 3000 people have viewed that slideshow. 33 of them have commented, and many others have contacted me on Twitter. Please read the presentation and especially the comments to see our concerns. None of us can understand why you made this self-destructive change or why you are reluctant to restore it.

Recently some users have contacted me to indicate there may be some hope of bringing back the reupload feature. Can you give me any updates on this? Can you give me any explanation of why you are reluctant to restore it? Thank you for your attention to this issue.

Response the same day from "Jeff"

Hi Ed,

I understand your frustration, and I sincerely apologize for any inconvenience. Please note that we did look at the usage of this feature compared to the usage of other SlideShare features. Through that investigation, we found that the re-upload feature wasn't as heavily used - this is why the feature was removed.   However, we realize that this is a useful feature for some power users. We are actively working on making foundational improvements to our platform, which will make building and supporting a feature such as re-upload much easier in the near future.   Again I apologize for any inconvenience this may have caused. If you need anything else, please let me know and I will gladly assist.

Best Regards, Jeff Customer Advocacy Representative

My rejoinder:

Dear Jeff: You say, "However, we realize that this is a useful feature for some power users. We are actively working on making foundational improvements to our platform, which will make building and supporting a feature such as re-upload much easier in the near future." That sounds very nice, except that it is exactly word for word the same response that I got from someone named "Allison" a full year ago (10/23/17). I wonder if you could spin this out a little for me.

(1) Can you send me some "proof of life" to let me know that you are a human and not a bot. For example, can you tell me the middle initial of the current president of the United States? 

(2) Assuming you can answer Question 1, can you give me some idea in human time of how far off "the near future" is?

(3) Can you explain why "foundational improvements" are needed to restore the reupload feature, since you offered that feature for years? It seems to me that if you turned it off, you could just turn it back on again.Thank you, and I promise I will share your answers with the community of SlideShare "power users" with which I have corresponded on this matter. 

Ed 

Jeff, back to me:

Hi Ed, Thanks for getting back to me. I'll let you know that I actually reviewed your previous case with Allison prior to responding to you earlier. I don't see anywhere in that specific case where the response I sent to you was by Allison in that conversation from a year ago. I was trying to make sure to not send you information you had already received in that previous case, so I apologize if you had previously received that information.

I assure you that I am, in fact, a human. In response to your specific questions:

1) The middle initial of the current president of the United States is 'J'. 

2) Unfortunately, we don't have any specific timeframe in place at this time. For this reason, I am unable to provide any kind of range or ballpark figure at this time. I'm very sorry for any frustration this may cause.   

3) We are unable to disclose any additional details regarding the decision to remove this feature, as that information is proprietary. All we're able to share is what has previously been provided - we looked at the usage of this feature compared to the usage of other SlideShare features. Through that investigation, we found that the re-upload feature wasn't as heavily used, so we have currently removed the feature due to the support cost.   I'm sorry that I can't provide additional details at this time. We sincerely appreciate your patience and understanding. If anything else happens to come up, please let me know.  

Wishing you all the best, Ed!   Jeff

Me, back again to Jeff:

Thank you, Jeff, for your reply. I am sorry if my request for proof of life sounded snarky, but I was genuinely concerned, since not only I, myself, but other "power users" (PUs) have received boilerplate in the past. I am sure you know that some companies, happily not yours, do use AI rather than humans in their customer service divisions. I appreciate your "J" response and the fact that you and Allison are talking to each other.

I am evidently in error about getting the cited message from Allison. I found it in an archive of messages exchanged with SS last October, but the header and footer were cut off, so evidently the cited passage is from a message sent to another PU. In any event, the point stands that I (we, I should say -- the community of PUs who are communicating about this) are concerned that there is no real forward motion despite the teasers. You (and Allison) would probably be interested to read the whole thread from last October, including my initial blog post explaining the reasons why reupload is so important to us and the 30 comments. I plan to add this exchange to that thread. You can find it here: 

BTW, as an economist, I appreciate your need to balance the cost and benefit of a feature like reupload. I would hope that you would rethink that balance. You should consider that material from your relatively few PUs is widely disseminated on other social media and becomes one of the ways that new users are attracted to your platform. If you treat us like humans, you may find that you are rewarded for the costs and efforts.

Yours truly,  Ed Dolan 

This exchange is in someways discouraging, because of the repeated use of boilerplate excuses and the lack of a timeline for addressing the problem, but in some ways encouraging, because they are not outright refusing to restore reupload. I think it would be worthwhile for all of us who value SlideShare and hope to see it restored to its previous functionality to contact them. We need as many voices as possible in support of reupload.

Here is how to start a new customer support case:

1.  Go to the SlideShare home page: https://www.slideshare.net/
2. Scroll down to the very bottom and click on "Support" (you have to look hard, but it is there)
3. Type "Reupload" in the search box at the top of the main support page
4. Next, you will get a page that says, "Sorry, we couldn't find any information about 'Reupload' (unless, by the time you do this, they have added some information).
5. Go to the bottom of that page and click on the "Contact us" link
6. That will take you to a page where you can send a message to SlideShare help. Ask them to bring back reupload, and tell them why you care.

Thanks! If we all work together, we can save SlideShare from itself

Universal Catastrophic Coverage FAQs

What is Universal Catastrophic Coverage and Why Do We Need It? 

Across America, health care is a top priority for the reform of social policy. The United States spends more per capita on health care than any other country, but by many measures, its performance is disappointing. Yet, wide differences remain over how to characterize the failures of the current system and what kind of reforms are needed. Universal catastrophic coverage (UCC) offers a way to bridge these differences.

On the one hand, many would-be reformers see the problem primarily as one of a broken health care payment system. Too many Americans do not have have affordable access to quality care. Too many remain one serious illness away from medical bankruptcy. Viewed in this way, the obvious solution would seem to be a guarantee that no one has to pay more than they can afford for the care they need. Proponents of such a policy often say they want “single-payer” health care like other high-income countries have.

Meanwhile, other reformers see the problem more as the lack of a working market for health care services. On the demand side, they say, the prevalence of third-party payments erodes incentives for health care consumers to shop for effective and reasonably priced services. On the supply side, regulations stifle competition, block entry by would-be innovators, and protect the interests of providers at the expense of consumers and taxpayers. Viewed in this way, the solution would seem to be to get the government out of the way let the market do its job.

Although single-payer advocates and market reformers often seem to talk past one another, they have more in common than it might at first appear. By and large, they agree that even under the most market-oriented reforms, there would still be a need for some kind of social insurance to assure that even the very poor and very sick have access to appropriate care. At the same time, everyone agrees that whatever is done about the payment system, there is a need for more transparency, more choice, and more innovation than the current system seems able to deliver. 

Universal catastrophic coverage combines both approaches. Under UCC, everyone would be protected against financially ruinous medical expenses though insurance that would be issued free to the poorest beneficiaries while requiring income-based cost-sharing from those who can afford it. UCC posits a robust role for the government as a provider of social insurance where needed while creating room for market mechanisms where they have the best chance of working.

Think You Are Fully Insured? You Could Be in for a Big Surprise

Think you’re fully insured? You could be in for a big surprise if you have a heart attack or a car crash and the ambulance takes you to the nearest hospital — one that is not on your insurer’s list of preferred providers.

Drew Calver found that out when he was billed $109,000 for emergency treatment of a heart attack, even though the emergency room he was taken to assured him it would accept his employer-provided insurance. The problem is, the insurer only paid as much as it would have allowed for an in-network hospital. The out-of-network hospital that treated him wanted three times as much, so it billed Calver for the balance. The bill came to more than twice his annual salary as a high school teacher.

Surprise medical bills are known in medical circles as “balance billing.” Emergency room treatment is one of the most common sources of surprise bills, but not the only one. You may also be on the hook for a balance bill if you receive a complex treatment like a joint replacement or transplant, even if the operation is done at an in-network hospital. Often, it turns out later that some out-of-network practitioner, such as a radiologist or anesthesiologist, has assisted without your even knowing about it, let alone having a chance to give or withhold consent.

GDP Growth Helps Poor Countries More Than Those That Are Already Rich

Money can’t buy you love, says the song, but can GDP buy prosperity? The question is an important one given the emphasis that the White House and Congress have placed on pushing GDP growth to its limits.

What do the data say? My favorite measure of overall prosperity is the Social Progress Index (SPI), which has just been updated for 2018. The SPI is a comprehensive measure of human flourishing that draws on a broad set of indicators of public health, education, safety, human rights and personal freedoms. It purposely omits purely economic indicators such as GDP, inflation, or income distribution, which makes it especially well-suited to address the question of how GDP is related to noneconomic indicators of prosperity.

The following chart shows the relationship between the SPI and GDP for the 146 countries in the SPI database. The horizontal axis measures 2018 GDP per capita using estimates from the July 2018 update of the IMF’s WEO database, expressed I 2011 constant dollars at purchasing power parity.