Tag Archives: economics

May 2018 in Review

Most frightening stories:

Most hopeful stories:

  • There are some new ideas for detecting the potential for rapid ecological change or collapse of ecosystems.
  • Psychedelics might produce similar benefits to meditation.
  • Microgrids, renewables combined with the latest generation of batteries, are being tested in Puerto Rico.

Most interesting stories, that were not particularly frightening or hopeful, or perhaps were a mixture of both:

value of learning curves in climate change planning

This article gives an example of how to put an economic value on climate change adaptation incorporated in a larger planning framework.

The Economic Value of Climate Information in Adaptation Decisions: Learning in the Sea-level Rise and Coastal Infrastructure Context

Traditional methods of investment appraisal have been criticized in the context of climate change adaptation. Economic assessment of adaptation options needs to explicitly incorporate the uncertainty of future climate conditions and should recognise that uncertainties may diminish over time as a result of improved understanding and learning. Real options analysis (ROA) is an appraisal tool developed to incorporate concepts of flexibility and learning that relies on probabilistic data to characterise uncertainties. It is also a relatively resource-intensive decision support tool. We test whether, and to what extent, learning can result from the use of successive generations of real life climate scenarios, and how non-probabilistic uncertainties can be handled through adapting the principles of ROA in coastal economic adaptation decisions. Using a relatively simple form of ROA on a vulnerable piece of coastal rail infrastructure in the United Kingdom, and two successive UK climate assessments, we estimate the values associated with utilising up-dated information on sea-level rise. The value of learning can be compared to the capital cost of adaptation investment, and may be used to illustrate the potential scale of the value of learning in coastal protection, and other adaptation contexts.

March 2018 in Review

Most frightening stories:

Most hopeful stories:

  • One large sprawling city could be roughly the economic equivalent of several small high-density cities. This could potentially be good news for the planet if you choose in favor of the latter, and preserve the spaces in between as some combination of natural land and farm land.
  • The problems with free parking, and solutions to the problems, are well known. This could potentially be good news if anything were to be actually done about it. Self-parking cars could be really fantastic for cities.
  • The coal industry continues to collapse, and even the other fossil fuels are saying they are a bunch of whining losers. And yes, I consider this positive. I hope there aren’t too many old ladies whose pensions depend on coal at this point.

Most interesting stories, that were not particularly frightening or hopeful, or perhaps were a mixture of both:

the sinking dollar

Barry Eichengreen points out that while the differential between growth and interest rates between the U.S. and most other countries should have predicted a stronger dollar in 2017, it actually fell by 8% and is still falling so far in 2018. Explaining exchange rate changes after the fact is a lot like explaining stock market changes after the fact – they are easy to rationalize after the fact, but if anyone really knew how to predict them accurately, that person would be a trillionaire. Somewhat humorously, Mr. Eichengreen links to an article that gives 17 possible reasons (with links to sources for many of them), which is essentially the same as giving none.

Finally he says the most likely explanation is just uncertainty. Foreign investors just don’t know where the U.S. and its economy are headed, or that it will continue to be the rock solid safe haven it has been for the past 50 years. This sounds about right to me. Foreigners have been willing to stuff U.S. dollars under their mattresses for 50 years, in the last couple decades with low or even no returns, and some may have decided it is time to diversify.

January 2018 in Review

Most frightening stories:

  • Larry Summers says we have a better than even chance of recession in the next three years. Sounds bad, but I wonder what that stat would look like for any randomly chosen three year period in modern history.
  • The United States is involved in at least seven wars: Afghanistan, Iraq, Syria, Yemen, Libya, Somalia, and Pakistan. Nuclear deterrence may not actually the work.
  • Cape Town, South Africa is in imminent danger of running out of water. Longer term, there are serious concerns about snowpack-dependent water supplies serving large urban populations in Asia and western North America.

Most hopeful stories:

Most interesting stories, that were not particularly frightening or hopeful, or perhaps were a mixture of both:

cities and gamification

This article is about applying gamification to the planning and running of cities.

Cities and the politics of gamification

Gamification is widely intended as the mobilisation and implementation of game elements in extra-ludic situations, including the management of social problems and issues. By mobilising virtual rewards and playful elements, mobile apps, websites, social initiatives and even urban policies are getting more and more gamified. The aim of this viewpoint paper is to stimulate a critical discussion on the potential relationships between gamification processes and cities, particularly by reflecting on the cultures of gamification and by discussing potential lines of research for urban studies.

December 2017 in Review

Most frightening stories:

  • The U.S. has lost ground relative to its peers on road deaths, and is now well below average. I noted that something similar has happened with respect to health care costs, life expectancy, infant mortality, education, drug addiction and infrastructure. Maybe a realistic goal would be to make America average again.
  • A lot of people would probably agree that the United States government is becoming increasingly dysfunctional, but I don’t think many would question the long-term stability of our form of government itself. Maybe we should start to do that. The Consumer Financial Protection Bureau has been doing a decent job of protecting consumers and reducing the risk of another financial crisis. The person in charge of it now was put there specifically to ruin it. Something similar may be about to happen at the Census Bureau. A U.S. Constitutional Convention is actually a possibility, and might threaten the stability of the nation.
  • Daniel Ellsberg says we are very, very lucky to have avoided nuclear war so far. There are some tepid ideas for trimming the U.S. nuclear arsenal, and yet it is being upgraded and expanded as we speak. The North Korea situation is not getting better. Trump may be playing to religious fundamentalists who actually are looking forward to the Apocalypse.

Most hopeful stories:

  • Exercise may be even better for your brain than it is for your body, and exercising your body may be even better for your brain than exercising your brain itself.
  • Macroeconomic modeling is improving. So, just to pick a random example, it might be possible to predict the effects on a change in tax policy on the economy. Now all we need is politicians who are responsive to logic and evidence, and we could accomplish something. At least a few economists think the imperfect tax plan the U.S. Congress just passed might actually stimulate business capital investment enough to move the dial on productivity. The deliberate defunding of health care included in the bill is going to hurt people, but maybe not all that dramatically.
  • Moody’s introduced a new methodology for assessing climate risk in municipal bonds.

Most interesting stories, that were not particularly frightening or hopeful, or perhaps were a mixture of both:

  • There are life forms surviving in space right now, most likely of Earth origin. I wondered if maybe we should purposely contaminate other planets with them.
  • Microsoft is trying to one-up Google Scholar, which is good for researchers. More computing firepower is being focused on making sense of all the scientific papers out there.
  • Futuristic technologies keep coming along. Something vaguely like the “liquid metal” from Terminator 2 is being used for experimental aircraft parts. Vital signs might be monitored soon using a simple RFID device. A tiny electric shock of just the right size to just the right part of your brain might cure you of bad habits. And Magic Leap may finally release…something or other…in 2018.

the tax plan and the mandate

I assumed that the end of the “individual mandate” would seriously undermine funding for Obamacare, and in fact that is exactly what Trump is claiming. But Politifact says we all have that wrong. In fact, those penalties cover only about 3% of the cost of the Affordable Care Act. The main point of the penalty was always a psychological incentive for people to go to the exchanges and find out if they qualified for free or subsidized insurance. People wanted to avoid that penalty even if avoiding it meant they pay more for insurance than they would have paid for the penalty. Not only that, but people who qualify for Medicaid, which is free, have been more likely to find out they qualify for Medicaid because they go to the exchanges after wrongly thinking they are subject to the penalty. So it was somewhat of a psychological trick all along rather than a serious funding mechanism. This doesn’t mean that removing it will have only a 3% affect on premiums for the subsidized private plans – the effect may work in reverse, with more people never going to the exchanges and some not realizing they qualify for free Medicaid benefits. The CBO guesstimate is a 10% increase in premiums as a result of this effect. It’s still going to hurt the working class who need health insurance the most and it’s still immoral. The really immoral part is that as U.S. health care costs continue to spiral out of control in both the public and private sectors, our immoral dishonest politicians are going to point to Obamacare as the cause, and our uninformed citizens are going to believe them.

the CFPB

Simon Johnson says the Consumer Financial Protection Bureau has actually been doing a good job up until now of, well, protecting consumer finances.

The CFPB was established by the 2010 Dodd-Frank financial-reform legislation to do exactly what its name implies: protect consumers in their various financial transactions. A new agency was needed because existing regulators, including the Board of Governors of the Federal Reserve System, had manifestly and repeatedly failed to protect consumers from abuses, such as deceptive and fraudulent mortgage-lending practices, some of which were at the heart of what went wrong in 2007-08.

As Elizabeth Warren (then a consumer advocate, now a US senator from Massachusetts) powerfully pointed out, there was a lot more protection for people buying toasters than for someone taking out a 25-year mortgage. Finance is complex, and a lot of devils could be, and were, hidden in the details. The CFPB was designed, above all, to bring greater transparency to consumers’ financial transactions – actually a very pro-market contribution.

And the CFPB has done exactly what Congress designed it to do. So far, the Bureau has arranged for the return of almost $12 billion to 29 million consumers. At the same time, banks are reporting record profits – on the order of $171 billion, according to the latest data. The CFPB is good for business, or at least for the straightforward, transparent business of traditional lending.

Unfortunately, all this seems likely to end as Trump has appointed someone to head the agency who is actually against the agency’s existence, not unlike his approach to the environment, housing, and education. Johnson seems to think the public will catch on to this and punish the Republicans politically when the little guy starts to get hurt by it. I don’t know, it probably depends on the timing. Nobody wants to see another financial blow-up, but if it has to happen mid-2020 seems as good a time as any.

macroeconomic models and tax cuts

The Economist has a piece on macroeconomic models used to evaluate tax policy.

Lurk near PhD economists online or at conferences, and you will hear them talk about “crisis in macro”. They mean that the models and assumptions most dominant among macroeconomists have failed repeatedly since 2007 to predict or even describe what’s happening. A defence, popular among academics, goes like this: we did get it wrong, but as responsible social scientists, we’re busy and fascinated right now, trying to figure out what was broken and how to fix it. It is a fair defence. In particular young macroeconomists have been using bigger datasets and faster computers to more accurately predict human behaviour. Economists are more likely to accept now, for example, that people with and without access to credit or wealth react differently to the same policy, an idea that is slowly working its way into models at central banks and even at the Joint Committee on Taxation.

This progress is unfortunate for Republicans. In the 1990s social science was on their side. Because data and computing power were harder to come by, macroeconomic models relied on thought experiments. The seminal model showing the ideal capital-gains tax rate as zero, for example, dates to 1986. It assumes that the economy consists of only one person. Also, she is immortal. The Wonder Woman economy, if you will. That model is now interesting only for a lecture on the history of economic thought. We’ve moved on, macroeconomists protest. But economists have. And Republicans haven’t…

But if you are going to insist on modeling the future and then planning around it, you have to do it right. The economists at the Joint Committee on Taxation are thoughtful. They read the most recent research. They examine their own models and, when they can, update them—conservatively. If, as Republicans have been insisting for 20 years, we have to assess our tax policies with dynamic scoring, there is no better way to do it than through the JCT. Unfortunately, as modeling has improved, it has not improved in the direction Republicans prefer, which leaves them where they are now. They wanted social science in policy-making, and they got it, in the form of a $1trn tax bill.

I don’t know how any ethical person can support the Republican party right now. They don’t care about facts, logic, or evidence, and certainly not economic growth or raising the living standards of their constituents. They are blantantly and shamelessly committed to lining the pockets of their big-business funders. It’s corrupt, undemocratic and shameful.