Tag Archives: economic growth

variable carbon tax

This post explains how a variable carbon tax could work. In summary, it automatically adjusts when oil prices rise or fall, damping out the effects of price fluctuations and raising more revenue when prices are low. It can be designed so that the overall, average tax increases over time, with those increases happening when the economy can best handle them.

The tax would decrease gradually as oil prices rise, and then increase again when prices eventually come back down.

If the adjustments are asymmetric – larger increases when prices fall, and smaller decreases when prices rise – this system would gradually raise the overall carbon tax, even as it follows a counter-cyclical pattern. Such an incremental increase is what most models for controlling climate change call for…

The key to this strategy’s political feasibility is to launch it while prices are very low. Once it is in place, it will become a little-noticed, politically uncontroversial part of pricing for gasoline (and other products) – one that produces far-reaching benefits. Some of the revenue could be returned to the public in the form of tax cuts or research support.

Other forms of environmental harm could be taxed in this way too – for example, building materials (pavement) that cause pollution and habitat destruction, emissions of air pollutants other than carbon, consumer packaging not designed to be reused or recycled. You could make the whole thing revenue-neutral by reducing taxes on hard work and productive investment.

January 2016 in Review

I’m going to try picking the three most frightening posts, three most hopeful posts, and three most interesting posts (that are not particularly frightening or hopeful) from January.

3 most frightening posts

  • Paul Ehrlich is still worried about population. 82% of scientists agree.
  • Thomas Picketty (paraphrased by J. Bradford Delong) says inequality and slow growth are the norm for a capitalist society. Joseph Stiglitz has some politically difficult solutions: “Far-reaching redistribution of income would help, as would deep reform of our financial system – not just to prevent it from imposing harm on the rest of us, but also to get banks and other financial institutions to do what they are supposed to do: match long-term savings to long-term investment needs.”
  • Meanwhile, government for and by big business means the “Deep State” is really in control of the U.S. In our big cities, the enormous and enormously dysfunctional police-court-prison system holds sway over the poor.

3 most hopeful posts

3 most interesting posts

  • There are some arguments in favor of genetically modified food – they have increased yields of some grains, and there is promise they could increase fish yields. 88% of scientists responding to a Pew survey said they think genetically modified food is safe, but only 37% of the U.S. public thinks so. In other biotech news, Obama’s State of the Union announced a new initiative to try to cure cancer. In other food news, red meat is out.
  • Not only is cash becoming obsolete, any physical form of payment at all may become obsolete.
  • The World Economic Forum focused on technology: “The possibilities of billions of people connected by mobile devices, with unprecedented processing power, storage capacity, and access to knowledge, are unlimited. And these possibilities will be multiplied by emerging technology breakthroughs in fields such as artificial intelligence, robotics, the Internet of Things, autonomous vehicles, 3-D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing.”

 

the fourth industrial revolution

Reporting fro Davos…er…Philadelphia – the theme of this World Economic Forum is “the fourth industrial revolution”.

The First Industrial Revolution used water and steam power to mechanize production. The Second used electric power to create mass production. The Third used electronics and information technology to automate production. Now a Fourth Industrial Revolution is building on the Third, the digital revolution that has been occurring since the middle of the last century. It is characterized by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres.

There are three reasons why today’s transformations represent not merely a prolongation of the Third Industrial Revolution but rather the arrival of a Fourth and distinct one: velocity, scope, and systems impact. The speed of current breakthroughs has no historical precedent. When compared with previous industrial revolutions, the Fourth is evolving at an exponential rather than a linear pace. Moreover, it is disrupting almost every industry in every country. And the breadth and depth of these changes herald the transformation of entire systems of production, management, and governance.

The possibilities of billions of people connected by mobile devices, with unprecedented processing power, storage capacity, and access to knowledge, are unlimited. And these possibilities will be multiplied by emerging technology breakthroughs in fields such as artificial intelligence, robotics, the Internet of Things, autonomous vehicles, 3-D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing.

George Soros

George Soros is worried that the China stock market crash could trigger a new financial crisis, or the next phase of the ongoing financial crisis:

China is struggling to find a new growth model and its currency devaluation is transferring problems to the rest of the world, Soros said in Colombo. A return to positive interest rates is a challenge for the developing world, he said, adding that the current environment has similarities to 2008.

Global currency, stock and commodity markets are under fire in the first week of the new year, with a sinking yuan adding to concern about the strength of China’s economy as it shifts away from investment and manufacturing toward consumption and services. Almost $2.5 trillion was wiped from the value of global equities this year through Wednesday, and losses deepened in Asia on Thursday as a plunge in Chinese equities halted trade for the rest of the day.

“China has a major adjustment problem,” Soros said. “I would say it amounts to a crisis. When I look at the financial markets there is a serious challenge which reminds me of the crisis we had in 2008.”

Joseph Stiglitz on “The Great Malaise”

Joseph Stiglitz is calling the current world economic slump “The Great Malaise”.

The economics of this inertia is easy to understand, and there are readily available remedies. The world faces a deficiency of aggregate demand, brought on by a combination of growing inequality and a mindless wave of fiscal austerity. Those at the top spend far less than those at the bottom, so that as money moves up, demand goes down. And countries like Germany that consistently maintain external surpluses are contributing significantly to the key problem of insufficient global demand.

At the same time, the US suffers from a milder form of the fiscal austerity prevailing in Europe. Indeed, some 500,000 fewer people are employed by the public sector in the US than before the crisis. With normal expansion in government employment since 2008, there would have been two million more.

Moreover, much of the world is confronting – with difficulty – the need for structural transformation: from manufacturing to services in Europe and America, and from export-led growth to a domestic-demand-driven economy in China. Likewise, most natural-resource-based economies in Africa and Latin America failed to take advantage of the commodity price boom underpinned by China’s rise to create a diversified economy; now they face the consequences of depressed prices for their main exports. Markets never have been able to make such structural transformations easily on their own.

His solutions sound familiar – “Far-reaching redistribution of income would help, as would deep reform of our financial system – not just to prevent it from imposing harm on the rest of us, but also to get banks and other financial institutions to do what they are supposed to do: match long-term savings to long-term investment needs.”

Thomas Picketty

This column by J. Bradford Delong is meant to criticize Thomas Picketty, but in the process he has a good summary of Picketty’s work:

Our reversion to the economic and political patterns of the Gilded Age is to be expected as the economies of North America and Europe return to what is normal for a capitalist society.

In a capitalist economy, Piketty argues, it is normal for a large proportion of the wealth to be inherited. It is normal for its distribution to be highly unequal. It is normal for a plutocratic elite, once it has formed, to use its political power to shape the economy in a way that enables its members to capture a large chunk of a society’s income. And it is normal for economic growth to be slow; rapid growth, after all, requires creative destruction; and, because what would be destroyed would be the plutocrats’ wealth, they are unlikely to encourage it.

Later Delong talks about how Keynes might rebut this argument:

Unequal wealth distribution, in this view, produces what Keynes called “the euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital.” The result is an economy with relatively equal income distribution and a polity in which the wealthy have a relatively small voice.

So as the rich corral more and more of the wealth, they become more and more of a minority. Initially the 1% preys on the 99%, then the 0.1% on the 99.9%, and so on. At some point, there is not enough wealth or economic energy remaining for everyone else that the 0.001% need in order to keep accumulating wealth. At that point, they can try to employ some combination of propaganda and force to stay in power. When that breaks down, the balance of the force is restored (sorry, I just saw Star Wars today.) But what happens when the means of production and economic activity is almost entirely automated, and lies in the hands of a tiny minority? What if there is no limit to the force they are able to employ?

2015 Year in Review

I’m going to try picking the most frightening, most hopeful, and most interesting post from each month. If the most interesting is also the most frightening or most hopeful, I’ll pick the next most interesting. Then I’ll have 12 nominees in each category and I’ll try to pick the most frightening, hopeful, and interesting posts of the year.

JANUARY

Most frightening: Johan Rockstrom and company have updated their 2009 planetary boundaries work. The news is not getting any better. 4 of the 9 boundaries are not in the “safe operating space”: climate change, loss of biosphere integrity, land-system change, altered biogeochemical cycles (phosphorus and nitrogen).

Most hopeful: It is starting to seem politically possible for the U.S. to strengthen regulation of risk-taking by huge financial firms.

Most interesting: Taxi medallions have been called the “best investment in America”, but now ride-sharing services may destroy them.

FEBRUARY

Most frightening: There are some depressing new books out there about all the bad things that could happen to the world, from nuclear terrorism to pandemics. Also a “financial black hole”, a “major breakdown of the Internet”, “the underpopulation bomb”, the “death of death”, and more!

Most hopeful: A new study suggests a sudden, catastrophic climate tipping point may not be too likely.

Most interesting: Government fragmentation explains at least part of suburban sprawl and urban decline in U.S. states, with Pennsylvania among the worst.

MARCH

Most frightening: The drought in California and the U.S. Southwest is the worst ever, including one that wiped out an earlier civilization in the same spot. At least it is being taken seriously and some policies are being put in place. Meanwhile Sao Paulo, Brazil is emerging as a cautionary tale of what happens when the political and professional leadership in a major urban area fail to take drought seriously. Some people are predicting that water shortages could spark serious social unrest in developing countries.

Most hopeful: If we want to design ecosystems or just do some wildlife-friendly gardening, there is plenty of information on plants, butterflies, and pollinators out there. There is also an emerging literature on spatial habitat fragmentation and how it can be purposely designed and controlled for maximum benefit.

Most interesting (I just couldn’t choose between these):

  • Innovation in synthetic drugs is quickly outpacing the ability of regulatory agencies to adapt. (I struggled whether to put this in the negative or positive column. Drugs certainly cause suffering and social problems. But that is true of legal tobacco and alcohol, and prescription drugs, as well as illegal drugs. The policy frameworks countries have used to deal with illegal drugs in the past half century or so, most conspicuously the U.S. “war” on drugs, have led to more harm than good, and it is a good thing that governments are starting to acknowledge this and consider new policies for the changing times.)
  • Germ-line engineering is much further along than anyone imagined.” This means basically editing the DNA of egg and sperm cells at will. I put this in the positive column because it can mean huge health advances. Obviously there are risks and ethical concerns too.

APRIL

Most frightening: A group of well-known economists is concerned that the entire world has entered a period of persistently low economic growth, or “secular stagnation“.

Most hopeful: Donald Shoup, author of The High Cost of Free Parking, is retiring. That might sound bad, but his ground-breaking ideas are continuing on and actually seem to be going mainstream.

Most interesting:

  • Biotechnology may soon bring us the tools to seriously monkey with photosynthesis. (This is one of those stories where I struggle between the positive and negative columns, but clearly there is a potential upside when we will have so many mouths to feed.)
  • Peter Thiel thinks we can live forever. (positive, but do see my earlier comment about mouths to feed…)

MAY

Most frightening: We’ve hit 400 ppm carbon dioxide in the atmosphere, not just some places sometimes but pretty much everywhere, all the time.

Most hopeful: The rhetoric on renewable energy is really changing as it starts to seriously challenge fossil fuels on economic grounds. Following the Fukushima disaster, when all Japan’s nuclear reactors were shut down, the gap was made up largely with liquid natural gas and with almost no disruption of consumer service. But renewables also grew explosively. Some are suggesting Saudi Arabia is supporting lower oil prices in part to stay competitive with renewables. Wind and solar capacity are growing quickly in many parts of the world.Lester Brown says the tide has turned and renewables are now unstoppable.

Most interesting: Human chemical use to combat diseases, bugs, and weeds is causing the diseases, bugs and weeds to evolve fast.

JUNE

Most frightening: One estimate says that climate change may reduce global economic growth by 3% in 2050 and 7-8% by 2100. Climate change may also double the frequency of El Nino. The DICE model is available to look at climate-economy linkages. Dennis Meadows and Jorgen Randers describe what a coming long, slow decline might look like. Rising temperatures in the Arctic are drying things out, leading to more fires, which burns more carbon, which raises temperatures, in an accelerating feedback loop.

Most hopeful: Stock values of U.S. coal companies have collapsed.

Most interesting: According to Paul Romer, academic economics has lost its way and is bogged down in “mathiness”.

JULY

Most frightening: James Hansen is warning of much faster and greater sea level rise than current mainstream expectations.

Most hopeful: Edible Forest Gardens is a great two book set that lays out an agenda for productive and low-input ecological garden design in eastern North America. You can turn your lawn into a food forest today.

Most interesting:

AUGUST

Most frightening: Steven Hawking is worried about an artificial intelligence arms race starting “within years, not decades”.

Most hopeful: It may be possible to capture atmospheric carbon and turn it into high-strength, valuable carbon fiber. This sounds like a potential game-changer to me, because if carbon fiber were cheap it could be substituted for a lot of heavy, toxic and energy-intensive materials we use now, and open up possibilities for entirely new types of structures and vehicles.

Most interesting:

  • gene drive” technology helps make sure that genetically engineered traits are passed along to offspring.
  • Technology marches on – quantum computing is in early emergence, the “internet of things” is arriving at the “peak of inflated expectations”, big data is crashing into the “trough of disillusionment”, virtual reality is beginning its assent to the “plateau of productivity”, and speech recognition is arriving on the plateau. And super-intelligent rodents may be on the way.
  • Robotics may be on the verge of a Cambrian explosion, which will almost certainly be bad for some types of jobs, but will also bring us things like cars that avoid pedestrians and computer chips powered by sweat. I for one am excited to be alive at this moment in history.

SEPTEMBER

Most frightening: Climate may be playing a role in the current refugee crisis, and the future may hold much more of this.

Most hopeful: The right mix of variety and repetition might be the key to learning.

Most interesting: Edward Tufte does not like Infographics.

OCTOBER

Most frightening: Corrupt Russian officials appear to be selling nuclear materials in Moldova.

Most hopeful: Elephants seem to have very low rates of cancer. Maybe we could learn their secrets.

Most interesting: Stephen Hawking is worried about inequality and technological unemployment.

NOVEMBER

Most frightening: I noticed that Robert Costanza in 2014 issued an update to his seminal 1997 paper on ecosystem services. He now estimates their value at $125 trillion per year, compared to a world economy of $77 trillion per year. Each year we are using up about $4-20 trillion in value more than the Earth is able to replenish. The correct conclusion here is that we can’t live without ecosystem services any time soon with our current level of knowledge and wealth, and yet we are depleting the natural capital that produces them. We were all lucky enough to inherit an enormous trust fund of natural capital at birth, and we are spending it down like the spoiled trust fund babies we are. We are living it up, and we measure our wealth based on that lifestyle, but we don’t have a bank statement so we don’t actually know when that nest egg is going to run out.

Most hopeful: There are plenty of ways to store intermittent solar and wind power so they can provide a constant, reliable electricity source.

Most interesting: Asimov’s yeast vats are finally here. This is good because it allows us to produce food without photosynthesis, but bad because it allows us to produce food without photosynthesis.

DECEMBER

Most frightening: Cyberattacks or superflares could destroy the U.S. electric grid.

Most hopeful: We had the Paris agreement. It is possible to be cynical about this agreement but it is the best agreement we have had so far.

Most interesting: I mused about whether it is really possible the U.S. could go down a fascist path. I reviewed Robert Paxton’s five stages of fascism. I am a little worried, but some knowledgeable people say not to worry. After reading Alice Goffman’s book On the Runthough, one could conclude that a certain segment of our population is living in a fascist police state right now. There is some fairly strong evidence that financial crises have tended to favor the rise of the right wing in Europe.

DISCUSSION

Well, one thing that certainly jumps out on the technology front is biotechnology. We have a couple articles about the possibility of drastic increases in the human lifespan, and what that would mean. “Germ-line engineering”, “gene drive”, and “CRISPR” are all ways of monkeying with DNA directly, even in ways that get passed along to offspring. To produce more food, we may be able to monkey with the fundamentals of photosynthesis, and if that doesn’t work we can use genetically engineered yeast to bypass photosythesis entirely.

At the risk of copyright infringement, I am reproducing the “Gartner hype cycle” below, which was mentioned in one of the posts from August.

Gartner Hype Cycle

Gartner Hype Cycle

Government and corporate labs have been making huge advances in biotechnology in the last decade or so, so it is well beyond the “innovation trigger”. It has not yet reached the “peak of inflated expectations” where it would explode onto the commercial and media scene with a lot of fanfare. I expect that will happen. We will probably see a biotech boom, a biotech bubble, and a biotech bust similar to what we saw with the computers and the internet. And then it will quietly pervade every aspect of our daily lives similar to computers and the internet, and our children will shrug and assume it has always been that way.

Obviously there are dangers. A generation of people that refuse to die on time would be one. Bioterrorism is obviously one. Then there is the more subtle matter that as we raise the limit on the size our population and consumption level can attain, the footprint of our civilization will just grow to meet the new limit. When and how we come up against these limits, and what to do about it, is the subject of the updates to two seminal papers on these issues, by Rockstrom and Costanza. We have entered an “unsafe operating space” (Rockstrom), where we are depleting much more natural capital each year than the planet can replenish (Costanza), and there will be consequences. The Paris agreement is one hopeful sign that our civilization might be able to deal with these problems, but even if we deal with the carbon emission problem, it might be too late to prevent the worst consequences, and there are going to be “layers of limits” as the authors of Limits to Growth put it all those decades ago. If we take care of the global warming problem and figure out a way to grow food for 50 billion people, eventually we will grow to 50 billion people and have to think of something else.

So without further ado:

Most frightening: I can’t pick just one. In the relatively near term, it’s the stalling out of the world economy; the convergence of climate change, drought, and the challenge of feeding so many people; and the ongoing risks from nuclear and biological weapons.

Most hopeful: I see some hope on energy and land use issues. The Paris agreement, combined with renewable energy and energy storage breakthroughs, the potential for much more efficient use of space in cities rather than letting cars take up most of the space, are all hopeful. The possibility of making carbon fiber out of carbon emissions is a particularly intriguing one. At my personal scale, I am excited to do some sustainable gardening of native species that can feed both people and wildlife. I don’t expect my tiny garden to make a major difference in the world, but if we all had sustainable gardens, they were all connected, and we weren’t wasting so much space on roads and parking, it could start adding up to a much more sustainable land use pattern.

Most interesting: I’ve already mentioned a lot of stuff, so I will just pick something I haven’t already mentioned in the discussion above: the rise of synthetic drugs. It’s just an interesting article and makes you think about what it will mean to have advanced chemical, information, and biological technologies in the hands of the little guy, actually many, many little guys. It is a brave, new, dangerous, exciting world indeed. Happy new year!

December 2015 in Review

Now it’s time to review December 2015, before we get on to reviewing 2015 as a whole.

Negative stories (-10):

  • Some car dealers are deliberately talking customers out of buying electric cars that they want, because the car dealer will make less money on oil changes. (-1)
  • Breaking news: we can’t believe everything we hear on the internet. Some of it is deliberate government and corporate propaganda, and some is “online filter bubbles” or marketing algorithms telling each of us only what we want to hear. Data used by all these algorithms is becoming more and more valuable. (-1)
  • Cyberattacks or superflares could destroy the U.S. electric grid. (-1)
  • Guns cause gut-wrenching, accidental deaths of children quite frequently in the U.S. The U.S. has a rate of violent assault 5-10 times higher than our close Anglo-American cousins, which in turn have higher rates than most of Europe and developed Asia. (-1)
  • I mused about whether it is really possible the U.S. could go down a fascist path. I reviewed Robert Paxton’s five stages of fascism. I am a little worried, but some knowledgeable people say not to worry. After reading Alice Goffman’s book On the Run though, one could conclude that a certain segment of our population is living in a fascist police state right now. There is some fairly strong evidence that financial crises have tended to favor the rise of the right wing in Europe. (-2)
  • After more than a decade of drought, there may not be enough water to sustain both Lake Powell and Lake Mead in the U.S. desert southwest. Some are suggesting draining Lake Powell. (-1)
  • This year’s “super El Nino” might have happened with or without climate change, but climate change made it more likely. I have to admit though I enjoyed sitting on my front porch in shorts on Christmas here in Philadelphia. (-1)
  • Jeffrey Sachs makes a pretty good case that the rise of violent religious fanaticism in the Middle East is largely the CIA’s fault. (-2)

Positive stories (+13):

    • Las Vegas is planning to go all renewable by 2017, mostly centralized solar. (+1)
    • Children have a natural aptitude for learning to recognize patterns. Now all we have to do is figure out which patterns we should be teaching them to recognize. (+1)
    • Some U.S. Presidential candidates want to invest in infrastructure, which is good. A national infrastructure plan might also be good. (+1)
    • Ericcson released some technology predictions for 2016 and beyond: Artificial intelligence will start to assist us without the need for smartphone screens. Virtual reality will start to come into its own for tech support, sports, dating, and shopping. And we will start to see more sensors embedded in our homes and eventually our bodies. (+1)
    • Trends in Ecology and Evolution made some technology predictions too: “managed bees as transporters of biological control agents, artificial superintelligence, electric pulse trawling, testosterone in the aquatic environment, building artificial oceanic islands, and the incorporation of ecological civilization principles into government policies in China”. (+1)
    • A serious but treatable infection can destroy a tumor. (+1)
    • Self-driving cars could drastically reduce the amount of land required for parking in cities. There are some moves toward car-free central cities around the world. (+3)
    • We had the Paris agreement. It is possible to be cynical about this agreement but it is the best agreement we have had so far. (+2)
    • New York City recently finished planting a million trees. (+2)

So we end the year on a positive note!

financial crisis and the right wing

According to Vox, there is strong statistical evidence that financial crises have tended to favor the right wing in Europe. And not just in the 1930s.

What does history have to say about the political after-effects of financial crises in modern democracies? Can we, over the long run of modern history, identify systematic shifts in the political landscape after financial crises? …

In a new paper (Funke et al 2015), we conduct the most comprehensive historical analysis on the political fall-out of financial crises to date. We trace the political history of 20 advanced democracies back to the 1870s and construct a dataset of more than 800 elections from 1870 to 2014. We then complement this dataset with existing data on more than 100 financial crises and with historical data on street protests (demonstrations, riots, and strikes)…

Our first main finding is that politics takes a hard right turn following financial crises. On average, far-right votes increase by about a third in the five years following systemic banking distress, as shown in Figure 1. This pattern is visible in the data both before and after WWII and is robust when controlling for economic conditions and different voting systems. The gains of extreme right-wing parties were particularly pronounced after the global crises of the 1920s/1930s and after 2008. However, we also find similar patterns after regional financial crises, such as the Scandinavian banking crises of the early 1990s. Moreover, we identify an important asymmetry in the political response to crises – on average, the far left did not profit equally from episodes of financial instability.