Monthly Archive for December, 2012

Over the Cliff

Re the fiscal cliff, I’ve tried hard to keep my head in the sand, figuring I can always go back to watching the news in 2016. So I’m not completely up to date on all this stuff, and I might be missing something important. But here are a few last-minute observations:

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Merry Christmas

I think I’ll make the reposting of this an annual tradition:

What I Like About Scrooge

scroogeHere’s what I like about Ebenezer Scrooge: His meager lodgings were dark because darkness is cheap, and barely heated because coal is not free. His dinner was gruel, which he prepared himself. Scrooge paid no man to wait on him.

Scrooge has been called ungenerous. I say that’s a bum rap. What could be more generous than keeping your lamps unlit and your plate unfilled, leaving more fuel for others to burn and more food for others to eat? Who is a more benevolent neighbor than the man who employs no servants, freeing them to wait on someone else?

Oh, it might be slightly more complicated than that. Maybe when Scrooge demands less coal for his fire, less coal ends up being mined. But that’s fine, too. Instead of digging coal for Scrooge, some would-be miner is now free to perform some other service for himself or someone else.

Dickens tells us that the Lord Mayor, in the stronghold of the mighty Mansion House, gave orders to his 50 cooks and butlers to keep Christmas as a Lord Mayor’s household should—presumably for a houseful of guests who lavishly praised his generosity. The bricks, mortar, and labor that built the Mansion House might otherwise have built housing for hundreds; Scrooge, by living in three sparse rooms, deprived no man of a home. By employing no cooks or butlers, he ensured that cooks and butlers were available to some other household where guests reveled in ignorance of their debt to Ebenezer Scrooge.

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Robert Bork, RIP

Robert Bork will be remembered for many things, but the most important, and the reason we are so fortunate to have had him with us, is his eloquent and influential insistence that antitrust law is there to protect consumers, not to protect inefficient firms. The Supreme Court eventually agreed. He was, in my opinion, wrong about a lot of things, but he left the world better than he found it.

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Carbon Tax Policy: No Simple Answers

Assuming carbon emissions damage the environment, should they be discouraged through taxation? And if so, should the tax revenue be earmarked for damage abatement, or should it be paid into general funds?

Elizabeth Kolbert, writing in the New Yorker, suggests that economic theory decides this question in favor of a carbon tax. As I pointed out last week, she’s plain wrong. As a followup to some of the discussion on that post, here’s a simple example to illustrate that no policy can be infallible:

A steel mill pollutes the air, causing $24 worth of damage to the business of a laundromat next door. (Or if you prefer, read $24 worth of expected damage to the owners of oceanfront property or farmers in currently temperate zones.)

If the steel mill is forced to bear the consequences of this damage, it reduces its output. This cuts the pollution damage by $12, and cuts the profits of the steel mill by $17.

Question: Which is the best policy?

  1. The steel mill incurs no penalty for polluting.
  2. The steel mill pays a tax (or fine) equal to the damage it causes; the revenue is used to reduce the national debt.
  3. The steel mill is required to reimburse the laundromat for all damage.

Answer: It depends. Consider the following scenarios:

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A Little Knowledge Is A Dangerous Thing

Writing in The New Yorker, Elizabeth Kolbert illustrates the power of analogy:

A man walks into a bar. He orders several rounds, downs them, and staggers out. The man has got plastered, the bar owner has got the man’s money, and the public will get stuck with the tab for the cops who have to fish the man out of the gutter.

…..

The man pulls into a gas pump. He sticks his BP or Sunoco card into the slot, fills up and drives off. He’s got a full tank; the gas station and the oil company share in the profits. Meanwhile, the carbon that spills out of his tailpipe lingers in the atmosphere, trapping heat and contributing to higher sea levels. As the oceans rise, coastal roads erode, beachfront homes wash away, and, finally, major cities flood. Once again, it’s the public at large that gets left with the bill.

In both cases, Kolbert endorses the “fair and logical” solution: The man should be taxed to incorporate the costs that his choices impose on the rest of society.

I like this game. Can I play too?

A man chooses to build his house on the oceanfront instead of 100 miles inland. This makes him especially vulnerable to rising sea levels and therefore leads him to lobby for a carbon tax. The man gets his house; the builders and contractors share in the profits, and the public at large bears the consequence of higher gas prices.

Or even:

Some people want to burn a lot of carbon, which raises global temperatures, imposing costs on owners of oceanfront property. Other people want to protect their oceanfront property, imposing costs on the people who want to burn a lot of carbon. A journalist at the New Yorker convinces her readers that the only “fair and logical” solution to this conflict of interests is to come down entirely on the side of the property owners, leading to the implementation of suboptimal policies. The journalist gets paid, the magazine editors congratulate themselves on the influence of their writers, and the general public suffers the consequences.

Should the property owner and the journalist be taxed for exerting their malign influences?

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DeLong Shot

First Brad Delong claimed that we can’t know things by pure reason. In response, I offered a counterexample:

The ratio of the circumference of a (euclidean) circle to its radius is greater than 6.28 but less than 6.29

Now Delong attempts to “refute” this counterexample by observing that it doesnt tell us anything about neutron stars (!!!). Leave aside the fact that it actually does tell us quite a bit about neutron stars (the circumference-to-radius ratio for a neutron star is not equal to 2π, but you’d still be hard pressed to compute its value if you didn’t know what π was). The larger point is that knowledge doesn’t have to be about neutron stars to be knowledge. It can be knowledge about, oh, say, euclidean circles.

Of course, as DeLong rightly observes, “we reason like jumped-up monkeys using error-prone Humean heuristics on brains evolved to improve our reproductive fitness”. And of course it is equally true that we perceive like jumped-up monkeys using error-prone sensory apparatus evolved to improve our reproductive fitness. Yet DeLong appears to acknowledge that our perceptions are sometimes informative. (I use the word “appears” because, true to form, DeLong prefers hissing and stamping his feet to actually spelling out an argument.) Why, then, should reason be more suspect than perception? DeLong isn’t in the mood to tell us.

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