Justifying trucking fuel economy standards

Megan McArdle wants to know how trucking fuel economy standards could be justified. Answer: fuel efficiency benefits oil consumers as a group at the expense of oil producers.

Megan McArdle wants to know how fuel-efficiency standards for big trucks could possibly be efficiency-improving: after all, if making trucks more energy-efficient paid for itself, the trucking companies would do so voluntarily.

Reasonable question, but the answer isn’t far to seek. Increased consumption of oil increases the rents that oil producers can collect at the expense of oil consumers. So consumers as a group benefit from reduced consumption; it’s in the interest of each consumer to have other consumers reduce their consumption to an extent greater than justified by the individual benefit.

True, such “pecuniary externalities” don’t generally count in a benefit-cost analysis, but for a country that is a net importer to a big enough extent to move the world market – as we are – a trucking CAFE is an opportunity to confiscate foreign producers’ rents for the benefit of domestic consumers.

(The military and security implications of having to keep the oil flowing, the role of oil in sustaining kleptocracy and generating insurgency, and the link to pollution – including greenhouse-gas emissions – are just icing on the cake.)

Now, if Megan wants to respond that we could do just as well tax oil imports, or motor fuels at the pump, or do a carbon tax or a cap-and-trade, and that any of those things would outperform CAFE standards, I’m not going to disagree. As soon as the Tea Party has been ground into the dust and the GOP transformed into a party capable of seeing reason, we can talk about it. In the meantime, kudos to the President for using his executive powers to do the right thing. And recall that none of his Republican opponents would have done the same.

Blinding-flash-of-the-obvious Dep’t: Crime and social capital

An individual’s criminal history, criminal habits, or criminal associates constitute negative personal social capital.
The overall level of criminal activity by, against, or (especially) within a group constitutes negative collective social capital

“Social capital” can refer either to an individual’s relational and reputational assets or to the collective efficacy of a neighborhood, group, or organization: roughly speaking, its capacity to get its members to contribute resources or effort for collective purposes (that is, to make public contributions to the public goods of that collectivity).

Financial assets and transactions are far easier to measure than social assets and the processes that produce and destroy them. But that doesn’t mean financial matters are more important. Policy analysts in particular need to pay more attention to social assets and processes, and to the distribution of social as well as financial resources.

Application to crime control policy:

At the individual level, having a habit or law-breaking and/or an official criminal record, or a group of friends and acquiantances with such characteristics, constitutes a negative relational/reputational asset.

At the collective level, a high crime rate by, against, or (especially) within a group saps collective efficacy and therefore constitutes negative group social capital.

Moreover, good or bad behavior by anyone with a given social identity tends to rub off on the reputations of others who share that identity: that’s the phenomenon called “reputational externality.” Crime is an important source of negative reputational externalities.

A good deal vs. a good life

One of the pleasures of living in the East Bay is the off-leash dog park at Point Isabel, where we will go with ours later today.  On the way home, the devil has placed a temptation. If there’s a parking place in the shade, we can stop at Costco and load up on staples at very good prices.  And not just staples: I discovered a new rather obscure and super-yummy Boschetto cheese there on a recent trip, and Costco’s wine selection goes from $6 plonk almost to triple digits. Not to mention my cool new Xoom.

Doing this of course hurts the merchants in our walkable Elmwood neighborhood. One of them, a new wine and cheese store, has a similar cheese that came with an informative lecture about it and its relatives, not to mention offers to taste things I wouldn’t know to ask about, and personal interaction with the manager. Continue reading “A good deal vs. a good life”

Two-thirds of Ryan budget cuts come from the needy

Bob Greeinstein brings the big* numbers. Jon Cohn says what I would say about it. Jonathan Z was way ahead of me, again.

Come to think of it, I say what I would say about Ryan’s Medicaid plan:

Person-for-person, Medicaid is probably the leanest program in the American healthcare system. Unfortunately, Medicaid recipients are probably the weakest constituency in the American political system. Hence they are vulnerable to things like Ryan’s proposed budget. I trust the American people will have the decency to reject these foolish efforts.

There’s more there about an infected toe, too.

*The original post inadvertently referred to “the bi numbers”. Different subject.

Policy lesson from a pro

Why did the chickens cross the road? To get their iodine pills—and get run over on the way.

Willie Brown on risk assessment (h/t: Dan Mitchell’s UCLA Faculty Association blog):

What a town. I was at Walgreens the other afternoon and was stunned by the number of people lined up to buy potassium iodide to ward off the possible effects of radiation wafting over from Japan.

Even more stunning was watching those same people, clutching their iodide protection, proceed to jaywalk across New Montgomery Street and dodge cars in their rush to get back to work.

Two points here.  First, there’s a reason I kind of miss Brown’s leadership of the State Assembly, corruption and all.  Second: if any doctrinaire microeconomist wants to claim that these shoppers weren’t being irrational but were simply “revealing” a “preference” for running a large risk of being flattened by cars rather than a tiny risk of thyroid poisoning, there’s a Viaduct in Oakland I’d like to sell them.

Collapsed Cypress Street Viaduct (Oakland, 1989)

Benefit-cost analysis and the right size of government

Redistribution can be efficiency-enhancing, and while preventing a statistical death doesn’t have an infinite value, the value is pretty damned high: higher than the business lobby is now comfortable with.

From now on, I’m going to assign Mike O’Hare’s essay every time I teach policy analysis. If you haven’t read it, I suggest that you stop and do so now; what follows is just a pair of footnotes to it.
Continue reading “Benefit-cost analysis and the right size of government”

National-greatness liberalism

Mark Thiessen notices that Barack Obama speaks the language of American exceptionalism to forward goals that can only be achieved by activist government.

Sometimes your opponents can see what you’re doing more clearly than your friends can. Some progressives were put off by the rather Reaganesque rhetoric of the State of the Union address, but Mark Thiessen of AEI recognized it for what it was: an attempt to harness “American exceptionalism” to pull the plough of activist government. When Wes Clark tried the same thing either Andy Sabl or I called it “the liberalism of national greatness.” I thought it was a winner then, and I think it’s a winner now.

And – contrary to the more conventional Reaganite rhetoric – Obama’s message is fully consistent with one strand of the Founding. One of the striking features of The Audacity of Hope was Obama’s identification with the thought of Hamilton, carried into the second generation as Henry Clay’s American Plan. From the Louisian Purchase, the Erie Canal, and the transcontinental railroad to land-grant colleges, homesteading, rural electrification, the GI Bill, interstate highways, and the Internet, the Federal government has again and again been the agent of crucial economic innovation. The Springfield Armory was turning out mass-produced rifles when Henry Ford was still in diapers.

Of course the feds have also sponsored boondoggles from manned spaceflight and coal gasification to the Bureau of Reclamation, the Army Corps of Engineers, and corn ethanol. If you take risks, you sometimes fail, and if you make stupid decisions under political pressure you’re that much more likely to fail. But the notion that the gummint ought to keep its nose out of the economy – or, for that matter, that a monopoly granted by a patent is somehow not a governmental intervention in the market – accords with neither logic nor history.

Deficit hawkery and alcohol taxation

The Simpson-Bowles plan leaves $15 billion of free money on the table by not raising alcohol taxes. In addition to the revenue, higher taxes would improve health and safety and reduce crime.

I haven’t run the numbers carefully, but the back of my envelope tells me that tripling the Federal alcohol tax – still leaving it below Korean War levels in inflation-adjusted terms – would bring in on the order of $15 billion a year in net revenue, after adjusting for the (entirely desirable) reduction in volume.

As Phil Cook points out, moderate taxes on drinking – tripling would put the federal tax at about 30 cents a drink – have almost all of their impact on drinking by heavy drinkers; if you’re having the proverbial “two beers,” tripling the tax adds a negligible 40 cents to your tab. But if you’re soaking heavily, the bill starts to mount.

Teenagers, who on average have less disposable income than adults, would feel the pinch disproportionately; since drinking by teenagers is especially bad for their health, and they’re especially likely to act violently or wreck their cars when drunk, I’d call that a feature, not a bug.

Tripling the alcohol tax would, in addition to the revenue it brought in, reduce violent crime and auto fatalities by something like 5% each: that’s about 800 fewer murders, 10,000 fewer rapes, and 1700 people not killed on the highways. The total impact on health is harder to compute, but heavy drinking kills about 100,000 people a year; if tripling the tax, which would raise the price by about 20%, led to a 10% reduction in volume, that would certainly show up in morbidity and mortality statistics, and in health-care costs.

And yet alcohol taxation never even came up in drafting health-care reform; there was talk of taxing soft drinks, but not beer. And the Simpson-Bowles plan is so focused on inflicting pain (on the non-rich) that it ignores an opportunity to raise revenue in a way that prevents pain.

Most taxation has an over-burden in the form of distorting economic activity. But raising alcohol taxes actually moves us in the direction of economic efficiency. Even ignoring the costs alcohol imposes on the people who drink too much of it and on their families, the external costs of heavy drinking – costs on various public budgets plus losses to individuals as a result of drinking people outside their families – are several times as high as the taxes collected on it. So even in purely free-market terms, alcohol is currently grossly under-taxed; in effect, the rest of us get to subsidize the brewers and their best customers through our health insurance bills, our auto-insurance bills, and our police budgets.

If you’re a pessimist, the current level of alcohol taxation is an outrage. If you’re an optimist, it’s an opportunity for a free lunch. If you’re a “deficit hawk,” you can’t even see it, as you scan the horizon for people to hurt. The Very Serious People really ought to restrict their S&M proclivities to their bedrooms.

Unclear on the concept: shouldn’t we want LOWER housing prices?

I understand why mortgage-documentation fustercluck could be very bad news for the banks. But can someone explain to me why slowing down the foreclosure process would tend to depress housing prices? It ought to increase them in the short run. Last time I checked, reducing supply tends to increase the market-clearing price, and fewer foreclosures now means fewer properties on the market now.

I’m also obviously unclear on the concept about housing prices overall. Again, I understand why banks and under-water homeowners want prices to go back up. But from a social perspective isn’t it obviously better for housing to be cheaper?

Similarly, I understand why a revival of home construction seems like a good idea to the construction industry, and why people worrying about having adequate demand to return to full employment are hoping for help from that sector. But I can’t see any good reason to want housing to take a larger, rather than a smaller, share of consumption and investment.

The whole notion that it’s “normal” for housing prices to rise faster than inflation or income, and for families to plan their financial futures around capital gains in the housing market, is an artifact of what looks, in retrospect, like a long bubble. If we got back to the house-price-to-income ratios of 1980, that would be fine with me. And I’d hate to see the maintenance of inefficient disequilibrium conditions adopted as goal of public policy.

Only interconnect

Jersey Electricity and Jersey Gas fight over marginal carbon emissions from imported electricity.

A nice classroom case on green economics. An inter-corporate fight has broken out in Jersey (the original small island off Normandy) between Jersey Electricity and Jersey Gas. Gas is all imported in small tankers; since 1984, electricity has been imported from France through a submarine cable, now leaving only vestigial local generation. So Jersey Electricity trumpets its low carbon footprint, as French generation is 78% nuclear and 88% low-carbon (2004). Jersey Gas isn’t happy as there’ s nothing it can do to lower its carbon footprint short of dying.

The States of Jersey are revising building regulations to set a carbon emission standard that gas can’t meet. With its back to the wall, Jersey Gas looked for talking points against electricity. They took out a full-page advert in the local paper:

ELECTRIC HEATING – HOPE YOU LIKE IT, BECAUSE YOU’RE STUCK WITH IT. No matter what the cost to you and the environment
…the States of Jersey Environment Department think that electricity is low carbon and good for the environment. They are wrong. On island electricity generation is high carbon. about 3 times that of gas. The JEC will confirm this. European electricity – what do the French think? The French Secretary of State for Ecology … interviewed in Le Monde, 1 October 2008, “We have a serious problem with electricity heating in France. It was a mistake to develop it …” … THIS IS GOING TO COST: YOU. Electricity is more expensive than other fuels. THE ENVIRONMENT. Electricity is not a low carbon fuel …”.

Jersey Electricity complained to the UK Advertising Standards Authority and won.

What’s worth a second look is the claim Jersey Gas’ lawyers made in the proceedings that since the European electricity market is integrated, the carbon intensity of Jersey’s electricity is that of marginal European supply: which is mostly fossil, and higher carbon than locally consumed gas. If that’s so, then the claimed advantage over gas disappears.

Right or wrong? The answer is relevant to any region within a grid, like California (connected to the rest of the continental USA), the USA (connected to Canada) and China (connected to Russia).

Answers welcome – for once I can guarantee the attention of a live policymaker.

My take: Jersey Gas has one good point but is still wrong.

Continue reading “Only interconnect”