The Mae West of energy sources

The New Yorker has a good article on nuclear power, which discusses the imminent shutdown of a nuclear power plant in California that produces 9% of their electricity, with zero carbon emissions:

Today, the looming disruptions of climate change have altered the risk calculus around nuclear energy. James Hansen, the nasa scientist credited with first bringing global warming to public attention, in 1988, has long advocated a vast expansion of nuclear power to replace fossil fuels. Even some environmental groups that have reservations about nuclear energy, such as the Natural Resources Defense Council and the Environmental Defense Fund, have recognized that abruptly closing existing reactors would lead to a spike in emissions. But U.S. plants are aging and grappling with a variety of challenges. In recent years, their economic viability has been threatened by cheap, fracked natural gas. Safety regulations introduced after the meltdowns at Japan’s Fukushima Daiichi nuclear plant, in 2011, have increased costs, and, in states such as California, legislation prioritizes renewables (the costs of which have also fallen steeply). Since 2013, eleven American reactors have been retired; the lost electricity has largely been replaced through the burning of fossil fuels. At least eight more closures, including Diablo Canyon’s, are planned. In a 2018 report, the Union of Concerned Scientists concluded that “closing the at-risk plants early could result in a cumulative 4 to 6 percent increase in US power sector carbon emissions by 2035.”

I’ve always found it to be ironic that environmentalists are often the ones that protest against nuclear power, given how good it is for the environment.  It would almost be like community housing advocates opposing new housing construction.  (Oh wait . . . )  Or public health experts opposing first-dose-first.

Some point to the risks of a catastrophic accident, such as occurred at Chernobyl.  In fact, while nuclear power is very good for the environment when working safely, it’s even better for the environment when there is a major disaster.  Chernobyl created a vast nature reserve in northern Ukraine, full of wild animals that have disappeared from much of Europe.

This doesn’t necessarily mean that we should be building more nuclear power plants—there may be sound economic or safety reasons for not doing so.  But we should not move away from nuclear for “environmental” reasons, as this energy source is extremely good for the environment.  And it seems rather foolish to shut down clean energy power plants that have operated safely for decades, and where the high construction costs have already been incurred.

PS.  The post title is a reference to one of the greatest actresses of Hollywood’s Golden Age:

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How the Feds Gave a Competitive Advantage to Conservative Radio

This point is obvious once you think about it. It’s basic economics. It’s just that I had never thought about it.

It is also worth noting that talk radio in the 1980s was a much more ideologically diverse industry than it is today, with many hosts from both the political left and right. Contrary to conservative talk radio hosts who explain their dominance by the existence of a silent majority of average Joe listeners, ironically it was the federal government that boosted right-wing dominance of talk radio.

As historian Brian Rosenwald argues, left-wing talk radio hosts had to compete for listeners with government-subsidized, center-left NPR affiliates, while right-wing hosts had a clearer competitive field. Station owners could guarantee a larger audience to advertisers simply by picking right-wing instead of left-wing talk radio programs. Talk radio’s conservative bent is the unintended product of the government’s halfhearted attempt to create a nationalized broadcasting system in the 1970s. (Though I wouldn’t expect a “Rush was Made Possible By Listeners like You” slogan to appear on a complimentary NPR tote bag any time soon.)

From Paul Matzko, “The Fairness Doctrine Was the Most Deserving Target of Rush Limbaugh’s Rage,” Reason.com, February 19, 2021.

 

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The Opportunity-Killing Minimum Wage

Among non-economists and politicians, the minimum wage is one of the most misunderstood issues in economic policy. President Biden and almost all Democrats and some Republicans in the US Congress advocate increasing the federal minimum wage from its current level of $7.25 an hour to $15 an hour over four years. They argue that many of the workers earning between $7.25 and $15 will get a raise in hourly wage. That’s true. But what they don’t tell you, and what many of them probably don’t know, is that many workers in that wage range will suffer a huge drop in wages—from whatever they’re earning down to zero. Other low-wage workers will stay employed but will work fewer hours a week. Many low-wage workers will find that their non-wage benefits will fall and that employers will work them harder. Why all those effects? Because an increase in the minimum wage doesn’t magically make workers more productive. A minimum wage of $15 an hour will exceed the productivity of many low-wage workers.

This is from David R. Henderson, “The Opportunity-Killing Minimum Wage,” Defining Ideas, February 18, 2021.

Another excerpt:

Employers don’t hire workers as a favor. Instead, employers hire workers to make money. They hire people only if the wage and other components of compensation they pay are less than or equal to the value of the worker’s productivity. If an employer pays $10 an hour to someone whose productivity is $15 an hour, that situation won’t last long. A competing employer will offer, say $12 an hour to lure the worker away from his current job. And then another employer will compete by offering $13 an hour. Competition among employers, not government wage-setting, is what protects workers from exploitation.

We all understand that fact when we see discussions on ESPN about why one football player makes $20 million a year and another makes “only” $10 million a year. Everyone recognizes the twin facts of player productivity and competition among NFL teams. The same principles, but with much lower wages, apply to competition among employers for relatively low-skilled employees.

Also, see how I discuss the last 28 years of literature on the minimum wage.

And finally:

The University of Chicago’s Booth School has an Initiative on Global Markets (IGM) that occasionally surveys US economists on policy issues. Possibly because of the surveyors’ understanding that the $15 minimum wage would hurt some states more than others, the IGM recently made the following statement and asked forty-three economists to agree or disagree: “A federal minimum wage of $15 per hour would lower employment for low-wage workers in many states.” Unfortunately, the question did not specify what is meant by “many.” Is it ten, twenty, thirty? Some economists surveyed pointed out that ambiguity. That ambiguity could explain why a number of the economists answered that they were uncertain. But of those who agreed or disagreed, nineteen agreed that it would cause job loss in many states and only six disagreed.

One economist who disagreed, Richard Thaler of the University of Chicago, gave as his explanation this sentence: “The literature suggests minimal effects on employment.” No, it doesn’t. As noted earlier, the federal government has never tried to raise the minimum wage by such a large amount and so there is no scholarly literature on such an increase. Would Thaler say that if putting a cat in the oven at a temperature of 72.5 degrees Fahrenheit doesn’t hurt the cat, then putting a cat in the oven at 150 degrees wouldn’t hurt the cat either?

Read the whole thing.

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890 Thousand Excess Deaths Due to Covid and Lockdowns

We find that shocks to unemployment are followed by statistically significant increases in mortality rates and declines in life expectancy. We use our results to assess the long-run effects of the COVID-19 economic recession on mortality and life expectancy. We estimate the size of the COVID-19-related unemployment to be between 2 and 5 times larger than the typical unemployment shock, depending on race/gender, resulting in a 3.0% increase in mortality rate and a 0.5% drop in life expectancy over the next 15 years for the overall American population. We also predict that the shock will disproportionately affect African-Americans and women, over a short horizon, while white men might suffer large consequences over longer horizons. These figures translate in [to] a staggering 0.89 million additional deaths over the next 15 years.

This is from Francesco Bianchi, Giada Bianchi, and Dongho Song, “The Long-Term Impact of the COVID-19 Unemployment Shock on Life Expectancy and Mortality Rates,” NBER Working Paper No. 28304, December 2020.

An excerpt:

For the overall population, the increase in the death rate following the COVID-19 pandemic implies a staggering 0.89 and 1.37 million excess deaths over the next 15 and 20 years, respectively. These numbers correspond to 0.24% and 0.37% of the projected US population at the 15- and 20-year horizons, respectively. For African- Americans, we estimate 180 thousand and 270 thousand excess deaths over the next 15 and 20 years, respectively. These numbers correspond to 0.34% and 0.49% of the projected African- American population at the 15- and 20-year horizons, respectively. For Whites, we estimate 0.82 and 1.21 million excess deaths over the next 15 and 20 years, respectively. These numbers correspond to 0.30% and 0.44% of the projected White population at the 15- and 20-year horizons, respectively. These numbers are roughly equally split between men and women.

Francesco Bianchi is an economist at Duke University, Giada Bianchi is an MD in the Division of Hematology, Department of Medicine, Brigham and Women’s Hospital Harvard Medical School, and Dongho Song is an economist at the Johns Hopkins University’s Carey Business School.

The authors write:

We interpret these results as a strong indication that policymakers should take into consideration the severe, long-run implications of such a large economic recession on people’s lives when deliberating on COVID-19 recovery and containment measures. Without any doubt, lockdowns save lives, but they also contribute to the decline in real activity that can have severe consequences on health.

I’m not sure why they are confident that there is zero doubt that lockdowns save lives. They admit in the last quoted sentence above that lockdowns “contribute to the decline in real activity that can have severe consequences on health.” What if lockdowns are responsible for half of the bad unemployment consequences, and voluntary actions in response to the fear of getting the virus are responsible for the other half? Then, assuming a linear relationship between unemployment and fatalities, the lockdowns would be responsible for half of 0.89 million to 1.37 million deaths, which translates to between 450,000 deaths and 685,000 deaths. Can they really be confident that lockdowns saved at least 450,000 lives?

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Nice vaccine; pity there’s no distribution mechanism

Many people are horrified by the prospects of introducing the profit motive into health care. Thus they oppose paying kidney donors, even though it would save tens of thousands of lives. They oppose price gouging on masks or vaccines, even though it would save many lives. They oppose challenge studies for vaccines, even though it would have brought us a vaccine much sooner, thus saving many lives.

Instead, we end up with a government controlled health care regime, where decisions are made by slow and cumbersome bureaucracies.

In a libertarian society, the pandemic might already be essentially over. That’s not to say that libertarianism is necessarily precisely “optimal”, as indeed there is a market failure aspect to pandemics, due to the external effects of infection. Yet despite the theoretical case for government intervention, in reality it does much more harm than good.

Critics of libertarianism make the following errors:

1. Ignoring the Lucas Critique: They assume that behavior in a highly regulated society is similar to what it would be in a libertarian society.  When interviewed, several Swedes indicated that they didn’t see any need for masks because the Swedish government told them they were not needed. People don’t behave like sheep in a libertarian society; they learn to be responsible for their own decisions. Before FDIC, people took an active interest in the safety of the banks where they deposited their hard earned money. Now nobody cares how recklessly their bank lends out their money—it’s all insured. And yet I see opponents of abolishing FDIC argue that people are not able to ascertain whether banks are safe.

2. People underestimate the pervasiveness of government regulation: Occasionally one encounters progressives describing America’s socialist health care system as a free market system, which is absurd.  Or they’ll say “There was nothing to prevent health care firm X from doing what you suggest.”  Yes there was; health care providers are so enmeshed in our over-regulated system that they have almost no ability to engage in creative problem solving.  Suppose a vaccine company pursues an ambitious plan to speed vaccine development.  They ask participants to sign as waver promising not to sue if things go bad.  How would that contract hold up in court?

3.  Externalities cut both ways: Progressives like to talk about externalities as a market failure. They also like to suggest that selling vaccines to the highest bidder is an abhorrent idea.  But you can’t have it both ways.  The externality aspect of pandemics means that a program that vaccinates people more rapidly also helps those who are not yet vaccinated.  In other words, when it comes to pandemics, “externality” is just another word for “trickle-down theory”.  A free market regime that uses the profit motive to vaccinate 20 million people in December is superior to a bureaucratic regime that vaccinates 5 million people in December, even if the free market allocation is in some sense “unfair”.

4.  Cultural norms also matter in a libertarian society: Just as people put up phony arguments against utilitarianism by positing abhorrent policies that supposedly increase aggregate utility but actually make society more unhappy, progressives make phony arguments against libertarianism by ignoring the fact that our ethical instincts would still exist in a libertarian society.  Bill Gates doesn’t stop donating tens of billions of dollars for the provision of health care to the world’s poor just because we deregulate.  Catholic hospitals don’t suddenly ignore ethical considerations just because we deregulate.  Society is still there, with all its instincts and norms.  We don’t all become Gordon Gekko; indeed people are “nicer” in capitalist countries than in communist countries.  What we get through deregulation is competition; if some of our institutions are creating roadblocks then other institutions (or even foreign countries) will provide services to those willing to pay. To attract progressives, maybe we should start calling competition “diversity”.

5. Bureaucrats use cost/benefit analysis, for themselves: Yes, bureaucrats weigh costs and benefits.  They consider the cost to their career in letting a bad product our prematurely and the cost to their career of a “better safe than sorry” long delay in testing a new product.  Unfortunately the outcome that is best for the individual bureaucrat is almost never the outcome that is optimal for society as a whole.

This twitter thread discusses how the US government botched the vaccine rollout.  And this Alex Tabarrok post discusses how the Canadians do it better.  (Tyler Cowen makes a similar point.)  Our government also botched testing, masks, challenge studies, etc.  And now tens of thousands are dying as a result.  Socialism kills.

HT:  Matt Yglesias

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When regulators engage in “white lies”

Regulators are supposed to protect us from making foolish decisions. When doing so, they often believe the public interest is served by promoting “white lies’, that is, false statements that are intended to be for our own good. If fact, the short run benefits of white lies are almost always outweighed by their much bigger long run costs.

1. Early in the pandemic, experts said there was no reason for a travel ban. Presumably they were trying to prevent panic, or xenophobia, or something. But in retrospect, an international travel ban would have been helpful if instituted back in January. Indeed travel bans largely explain why some countries have mostly avoided Covid-19, although in fairness other policies such as masks and test/trace/isolate also played a big role.

2. Early in the pandemic, experts suggested that masks don’t help average people. Even then they must have known that was wrong—why else would doctors wear masks? Their white lies seem to have been motivated by a feeling that masks might make people feel overly self confident (which might be true), as well as the fear that a mask shortage might deprive health care workers of masks.  Unfortunately, these “white lies” had extremely negative long run consequences.

3. More recently, Dr. Fauci suggested that it was important for the FDA to spend several weeks evaluating the Pfizer trial data before making a decision. According to experts cited by Tyler Cowen, that also seems to have been inaccurate. Alex Tabarrok suggests that the motivation seems to have been to make the public feel like the FDA was being careful:

I am getting very angry at people like Anthony Fauci who say that FDA delay is necessary or useful to alleviate vaccine hesitancy.

Fauci told Fox News that the FDA “really scrutinises the data very carefully to guarantee to the American public that this is a safe and efficacious vaccine. I think if we did any less, we would add to the already existing hesitancy on the part of many people because … they’re concerned that we went too quickly.”

The WSJ says much the same thing just with a slightly different flavor:

…this regulatory rigmarole is essentially a placebo to reassure the public it will be safe to get inoculated.

The ‘we must delay to allay’ argument is deadly and wrong.

Tabarrok points out that the effect could easily go in the opposite direction, making the public even more wary of vaccines, and Matt Yglesias is rightly skeptical of public health officials becoming amateur social psychologists:

The internet is full of conspiracy theories about almost everything.  Most of the theories are unsubstantiated.  Unfortunately, if our experts believe that white lies are frequently in the public interest, this will gradually erode confidence in expert opinion, breeding even more conspiracy theories.

As an analogy, deposit insurance is often useful in the midst of a financial crisis.  But in the long run, the existence of deposit insurance encourages banks to take excessive risks, and this makes financial crises more likely in the long run.

Tabarrok and Yglesias are right that Dr. Fauci should not try to be an amateur psychologist.  And this is true for reasons even beyond those that they cite—the fact that he’s not very good at it.  Even if Fauci were an expert in knowing just how to manipulate public opinion at a point in time, the long run effect of his action would to reduce public trust in experts, with consequences much greater than any short run benefit.

When it comes to regulators, there are no “white lies”.

 

 

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Tobin Taxes and Elasticity

Don’t mess with taxes

 

According to The Dallas Morning News, [Texas governor Greg] Abbott’s office has been talking with Nasdaq and other exchanges about moving their data centers to Dallas because of a potential tax on financial transactions in New Jersey.

The proposed tax would charge a quarter of a cent per “financial transaction” at entities in New Jersey that process at least 10,000 transactions annually via electronic infrastructure, the Dallas Morning News reported. That tax would generate an estimated $10 billion annually for the state.

Most major stock exchange operators, including the New York Stock Exchange operate their trading platforms from data centers in New Jersey.

This is from “Wall Street moving to big D? Nasdaq, other stock exchanges consider relocating to Texas,” ksat.com, November 10, 2020.

One of the dumbest things to tax, whether your goal is raising revenue or minimizing deadweight loss, is goods or services whose elasticity of supply or demand is high. The reason is that in response to those taxes, the equilibrium amount that’s left to be taxed falls substantially.

The Tobin tax, named after Yale University economist and Nobel Prize winner James Tobin, is a small tax on conversions of one currency into another. But since his proposal in 1972 in, coincidentally, New Jersey, others have extended the idea to taxing transactions in the stock market. The New Jersey tax above is not literally a Tobin tax but is a tax on transactions in the stock market.

One of the easiest things to do, when your service is sold electronically, is to move to a place where you can still do it electronically but where it is untaxed.

Thus Texas.

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Pritzker’s Proposed Top Marginal Tax Rate was 896,508%

That masked man struck even harder than I had thought.

On yesterday’s post on income taxes in Illinois and other states, commenter Boris pointed out something I had missed. He stated what I had written about Illinois governor Pritzker’s proposal for the top marginal tax rate to be 7.99% and then added:

It’s worse than that. It’s 7.99% on all your income if your income is over that line.

So for a married couple, going from $999,999 to $1,000,001 (to be safe; not sure how exactly $1 million is treated) increases tax liability from $70,935 to $79,900.

I still haven’t figured out who thought it was a good idea to have a discontinuity in the assessed tax like that and why everyone played along.

This is so important that it deserves a post of its own.

First, thanks to Boris. I checked his math and he’s right. I did add the pennies.

So the 1,000,001th dollar that puts the married couple over the line causes the couple to pay $79,900.08 in income tax. That’s an increase of $8,965.08.

So the marginal tax rate on that 1,000,001th dollar would be 896,508%.

I’m guessing that in reality there are at least a couple of tax writers on the Democratic staff in Springfield, IL who would have seen this. What would have been interesting, though, and fortunately we won’t see it, would have been what they did when they discovered it.

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State Income Tax Rates Over Time

Who is that masked man?

 

Things bad begun make strong themselves by ill.

Illinois residents dodged a bullet on Tuesday when voters refused to change the Illinois constitution to allow state income tax rates to vary by income. Currently the constitution requires a flat income tax rate and the current rate is 4.95 percent. That means that if the government wants to raise income tax rates, it must do so for all income classes. That puts a brake on the legislature.

About 55% of Illinois voters voted against the change. That’s a more overwhelming victory than it looks because the change required a 60% vote to pass (or a simple majority of all of those voting in the election.)

Governor Pritzker’s (pictured above) and the Democratic legislature’s plan, had the measure passed, was to cut the rate very slightly (by at most 0.2 percentage points) for joint filers with income below $250,000 and single filers with income below $100,000 and to raise it for everyone with income higher than that. It would have reached a peak of 7.99% on income over $1,000,000 for joint filers and on income over $750,000 for single filers. That likely would have caused an even greater exodus of high-income people from Illinois than the current rate of exodus.

Similar attempts to impose a graduated rate structure in Massachusetts have also failed. The flat income tax rate there is 5.0%.

Once the flat tax barrier is breached, marginal tax rates at all real income levels tend to rise over time. I wouldn’t be surprised if a fair a number of voters in Illinois understood that.

Interestingly, just in my adult lifetime a number of states have adopted an income tax and the rate started low but went high because it was not constrained by such a constitutional provision.

New Jersey, for example, adopted an income tax in 1976, with two rates: 2.0% for income below $20,000 and 2.5% for income above $20,000.

By 2018, the marginal tax rate on singles with income between $35,000 and $40,000 was 3.5% and on married couples filing joint with income $50,000 and $70,000 was 2.45%.

$20,000 in 1976 dollars translated to $88,000 in 2018. So almost everyone was paying a higher rate in 2018 than in 1976. And the top two rates were 8.97% and 10.75%.

Similarly, Connecticut adopted an income tax in 1991, with a flat tax rate of 4.5%. Now the lowest rate is 3% and applies only to income below $10,000 for single payers and below $20,000 for married payers filing jointly. Everyone else pays rates that are higher than the original $4.5%. The rates range from 5% to 6.99%.

 

 

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Some thoughts on polling

Pollsters can try to adjust their sample for gender, race, political party, education, and a dozen other demographic categories. But there’s one category for which it would seem inherently impossible to adjust—differences in willingness to talk to pollsters that cuts across the other demographics. Many Trump voters simply don’t want to respond to pollsters.  And you don’t discover the political skew of the non-responders until the election itself.

We’ve already seen that there’s a huge partisan difference in willingness to use mail-in ballots; why should we be surprised that there’s a modest difference in willingness to talk to pollsters?

Perhaps this anti-pollster attitude is more common in places like Wisconsin, with lots of farmers and smaller industrial towns, as compared to Arizona, which fewer farmers and small industrial towns. At least that seems to have been the case in both 2016 and 2020.

On a separate issue, I’ve frequently argued that working class whites that are struggling to get by don’t like being told by Ivy League professors that they benefit from “white privilege”. I don’t even think Hispanics like the concept. (Note to commenters: This point is completely separate from the question of whether working class whites do in fact benefit from white privilege.)

All year long I’ve had a nagging feeling that the “woke” movement could hand the election to Trump. Perhaps it did not, but I suspect it came close to doing so. Perhaps a Trump victory was prevented by something as random as a big October surge in Covid deaths in Wisconsin.

Too soon to say!

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