Economists are part of the problem, Part 1: Robert Stavins can’t walk and chew gum at the same time

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"Economists are part of the problem, Part 1: Robert Stavins can’t walk and chew gum at the same time"

One of my New Year’s resolutions is to blog more about the general lameness of the economics profession when it comes to energy and climate issues [Note to self: How about losing a few pounds?].

I was in the midst of putting this resolution off for a few weeks when I saw a quote by Robert Stavins that seemed to sum up the value-subtracted that economists bring to the world.

anti-econ.jpg

In an otherwise excellent New Yorker article on Van Jones’ efforts to push a green jobs agenda, which I will blog on separately, Elizabeth Kolbert feels compelled to “balance” Jones with some people who don’t think it’s a good idea to simultaneously address the climate problem and the poverty/jobs problem. Who else could a respectable journalist turn to than an economist, a profession that arguably has cost the country and the world more jobs than any other?

Indeed, I remember Bill Clinton opining at a Georgetown conference in 1997 on why he ignored the advice of Administration economists, like Larry Summers, who urged him not to adopt a serious greenhouse gas emissions target at Kyoto. Clinton said his economic team had assured him that his balanced budget plan would be a job killer, so he pretty much took everything they said from that point on it with a grain of salt. But I digress.

Kolbert manages to elicit this amazing response from one of our leading economists:

When I presented Jones’s arguments to Robert Stavins, a professor of business and government at Harvard who studies the economics of environmental regulation, he offered the following analogy: “Let’s say I want to have a dinner party. It’s important that I cook dinner, and I’d also like to take a shower before the guests arrive. You might think, Well, it would be really efficient for me to cook dinner in the shower. But it turns out that if I try that I’m not going to get very clean and it’s not going to be a very good dinner. And that is an illustration of the fact that it is not always best to try to address two challenges with what in the policy world we call a single-policy instrument.”

In short, whatever we do to address climate must not attempt to create jobs. And whatever we do to create jobs should make no effort whatsoever to get off our self-destructively unsustainable economic path. That would not be a Pareto optimum, I guess.

Seriously, Dr. Stavins, just because you haven’t figured out how to walk and chew gum at the same time, doesn’t mean nobody else can.

Note to Dr. Stavins: Just for the record, the efficient way to cook dinner is with Energy Star appliances (or perhaps a solar stove in some developing countries), and the efficient (and green-job-creating way) to take a shower is with a solar hot water heater (and heat exchanger connected to the shower drain to preheat the water going into the hot water heater). If you were like my old boss Amory Lovins, you could also capture the waste heat from the stove and use that, too. And while we’re at it, why don’t we make the whole damn house super-efficient (see “American Enterprise Institute (!) endorses tax credits for super-efficient, furnace-free homes“).

Note to future dinner guests of Dr. Stavins: Instead of bringing him some wine, I’m gonna suggest a nice bottle of cologne or a little deodorant. He’ll know what to do with it.

And much as I love Kolbert’s writing, especially her terrific climate book, Field Notes from a Catastrophe, the paragraph right before the Stavins quote is not one of her best gems:

Meanwhile, the basic premise of Jones’s appeal–that combatting global warming is a good way to lift people out of poverty–is very much open to debate. Economists generally agree that the key to addressing climate change is to raise the cost of burning fossil fuels, either directly, through a carbon tax, or indirectly, through a cap-and-trade program. Low-income families are the ones that would be hardest hit by such a cost increase. They could be compensated through some kind of rebate, or a cut in other taxes; it’s been proposed, for example, that revenues from a carbon tax could be used to reduce the payroll tax. But it’s not at all clear that the number of jobs created by, say, an expanding solar industry would be greater than the number lost through, say, a shrinking coal-mining industry. Nor is it clear that a green economy would be any better at providing work for the chronically unemployed than our present, “gray” economy has been.

Uhh, Elizabeth, every major climate proposal rebates money back to low-income people. And you, of all people, should understand the flawed assumptions in that paragraph. After all, the semi-famous last sentence of your book reads:

It may seem impossible to imagine that a technologically advanced society could choose, in essence, to destroy itself, but that is what we are now in the process of doing.

The issue is most certainly not whether “combatting global warming is a good way to lift people out of poverty.” The issue is that we have no choice as a society but to combat global warming in order to avoid destroying ourselves.

The only question is whether we are going to adopt the rigid one-thing-at-a-time single policy instruments of neoclassical economists, in which higher energy prices are the only solution and thus economic pain and hardship is inevitable — or are we going to adopt intelligent “technology-advanced” policies that simultaneously reduce emissions and create jobs?

The coal mining jobs may be unsavable — thanks to conservatives and the coal industry [see “Like Detroit, the coal industry chooses (assisted) suicide“] both of whom rely on traditional economists. But the planet must be saved, and the lost fossil fuel jobs can be replaced by green jobs — again, if we’re smart.

As an aside, our trade deficit in oil in the next decade is likely to be several trillion dollars. Somehow I think that spending that money on made-in-America efficient vehicles and alternative fuels will generate a lot more jobs than handing our money over to foreign oil tycoons, but then again I only did a concentration in economics at M.I.T., and I certainly remember arguing at DOE with administration economists who assured me that trade deficits were not at all bad things.

I know it is hopeless ask the media and policymakers to stop listening to economists, but if anyone can tell me of any intelligent thing a major economist has recently said on energy or climate other than Weitzman — (see Harvard economist disses most climate cost-benefit analyses) — or Stern (see Stern admits report “badly underestimated” climate change risks), I’ll cook them a soggy dinner.

All kidding aside, I think the economics profession’s misunderstanding of climate science and its misapplication of cost-benefit analysis are among the single biggest impediments to serious and intelligent efforts to avoid humanity’s self-destruction. I will lay that out in future posts.
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51 Responses to Economists are part of the problem, Part 1: Robert Stavins can’t walk and chew gum at the same time

  1. Maarten Willemsen says:

    Dr. Stavins is referring to the ‘Tinbergen rule’, which says that one policy instrument should address only one policy goal; and that the policy maker should have as many single instruments as there are goals; so if a carbon tax has undesired effects for poor people – or increasing the government share of GNP, there need to be other policy instruments to correct these outcomes (for example, a program to weatherize homes, or a reduction in other taxes).
    Tinbergens’s rule is usually invoked wrongly when an economist or politician doesn’t like a policy proposal.
    Tinbergen’s rule is a (for most purposes over-) simplified version of Ashby’s Law, which states that only complexity can absorb complexity; that means that the policy mix must be able to handle the problems at hand (using complexity filters and amplifiers). Few economists ever heard of Ashby’s laws, because the maximum complexity conventionally trained economists are expected to handle can be computed in two-by-two two-dimensional matrix ;-), or whatever fits their respective ideologies. (I am an economist myself.)
    Tinbergen’s rule is often bogus: If a tax is levied, it raises revenues AND it makes more expensive whatever is taxed (labor in the case of income and payroll taxes; energy or CO2 emissions in the case of carbon taxes.) So any policy instrument does what it does, and that is its purpose (The purpose of a system is what it does, not what its proponents tell you what it should be doing.)
    BTW, it’s quite unclear that the poor would be hit the most by energy tax increases; the rich generally consume way more resources than the poor and would thus bear a higher burden of energy taxes. It’s empirically clear that energy subsidies in the US, in China or India go overwhelmingly to the well-off. Conversely, an energy (or CO2) levy would fall mostly on the rich.
    The idea that energy taxes are regressive reminds me of the poor old widow who cannot write to her grand children anymore because of a postal rate increase (as we are told by the banks and insurance companies and other mass mailers.)

    So if you want to give a dinner party and enjoy it while clean, it’s most efficient and optimal in any way if you have two instruments: cooking in the kitchen, and taking a shower in the bathroom. If you come in a time-constraint (you now have a third variable that you must control) you must have a third instrument; a chef, a catering service, for example, or a telephone to tell your guests to arrive 23 minutes late. Too easy for an economist to understand (or for a journalist to report)?

  2. I have been reading some papers on behavioral economics as it applies to global warming

    They mention the Ultimatum Game – a deceptively simple test of human economic attitude.

    It goes like this: The experimenter tells two people that he will give one of them a sum of money that they must split. One person will decide how much to give to the other. The other person may accept or reject the offer. If accepted then both keep whatever money they hold. However, if the other person deems it unfair then by refusing money prevents from both of them from getting any cash. Session over. The test is given once only – (and experimenters used real cash).

    In examining the results for the Ultimate Game it seems that many groups will accept a small percentage. If the experimenter gave 100 dollars, then $5 might suffice. This changed with Western subjects, who measured 30-40%… meaning they were willing to cut off all wealth until that fairness level . Some even insisted on 50%.

    Economists used to think that we, as rational actors, would always choose the best deal. The irrational choice of cutting off all money and ending play – was difficult to understand. Was it the sense of fairness? Game theory and behavioral economics are pretty new fields of study.

    A related experiment is the Dictator Game where the players who have the money get to keep their share no matter what. Predictably they make less equal offers, keeping more of the cash. The second mover always accepted unequal money. So one privileged person, shares a bit with someone less privileged. The less privileged fellow see this is fine, until he sees the privileged one cross some sort of line that is going too far….
    like Billion dollar fortunes from bailouts that will raise taxes and condemn our future. And like a carbon fuel industry selling a dangerous product that kills our future. That crosses the line.

    Increased stakes seem to make subjects more pliant toward small rewards.

    The privileged ones get vast wealth, vast – the recipient has generations of cheap power, cheap electricity, cheap mortgages, rising value of real estate, easy credit, rising stocks. The wealth runoff to the recipient is a very small fraction of the vast wealth.

    It is easy to apply this to modern economics – Think of a great experimenter bestowing vast free wealth to humans in the form of Forests, Ocean harvests, Mining ores, and Oil and Coal. All were thought to be essentially free, bestowed like money in the Ultimate Game experiment. The initial recipients redistributing a portion of the wealth to all others: employees, clients, stock holders and consumers. The ratio of owner wealth to consumer wealth is something other than 0 and certainly not 100% – At some time it might have been 5% and now maybe 30% [Students in economics will write many papers describing the percentage of this wealth.] Was it 30%?

    The implicit rule of this real life Ultimatum Game is an honest description of the terms of the deal, and promise of safety. The Ultimate Game starts with an implicit agreement that all the costs will be known. Free coal is dug and sold cheaply, and we get warm electricity. But the soot and CO2 poison life itself and our 30% share (or whatever percentage) is gone – reduced to nothing – or vastly lower.

    So the Ultimate Game is that human recipients are beginning to demand a halt to this play – asking for a new agreement. The carbon fuel companies have reduced the cost of oil, kept coal cheap in effort to move up the percentage of wealth offered to the others. We tacitly accept,
    keep driving and heating and continue the game.

    Now however the true cost of the carbon economy is about to be fully realized. Any further CO2 output moves our species demise closer. Even with increased payoff all the way to 100% is not a good deal if no one survives. Many will ask the game play canceled.

    Those who adopt the dictator stance of economic transaction will be rudely shocked to discover that C02 and atmospheric science does not negotiate with economists.

  3. hapa says:

    stiglitz and sachs come to mind quickly. what’s “major”?

    obviously as many have said, especially mark thoma, there’s no green “crowding out” when private investment is null and dirty investment is shrinking. i think there’s room for getting underemployed and “discouraged” folks back in the system with a long labor-intensive transition.

    i think what the miserly economists object to is exactly that… if we could make a miracle switch while reducing labor “costs” they’d get whole-body forest tattoos and walk arouund naked…

  4. The cartoon is a great public service! I have come to think of economists as gamers who prefer their virtual reality games to the real world. That’s OK, I guess, but they should precede all their utterances with a disclaimer like this one:

    “WARNING! The following is a discussion of a virtual world that differs in very material ways from the real, physical world in which we live. Although I take this stuff very seriously and am trying to improve my skills—like players of Grand Theft Auto or Dungeons and Dragons—many of the things I say (I won’t tell you which ones) are not meant to describe or make predictions in the real world. Therefore, nothing I say should be construed as advice for surviving and prospering in the real world or for establishing norms for the ordering of the real world. Basically, if you’re not a gamer like me, you should just ignore me.”

    From http://www.realitybase.org/journal/2009/1/7/how-many-pinheads-can-dance-on-a-virtual-austrian.html?SSLoginOk=true

  5. Climateer says:

    …Kramer: “Yeah. And here’s to David Puddy for helping me install a much needed and much appreciated garbage disposal in my bathtub.”
    [all four make another toast]
    Peggy: “You have a garbage disposal in your bathtub?”
    Kramer: “Oh, yeah, and I use it all the time. Yeah, I made this whole meal in
    there.”
    Elaine: “This food was in the shower with you?”
    Kramer: “Mm-hmm. I prepared it as I bathed.”
    [Peggy, Elaine, and Puddy all gag and wretch]…
    -Seinfeld: “The Apology”

  6. Dan B says:

    Amazing comments threads here – and an addition to the discussion.

    If Elizabeth Kolbert understood the core of Van Jones’ message she would have selected a conservative or centrist politician. That’s right ‘Politician’.

    Let’s say this again – P.O.L.I.T.I.C.I.A.N – not an acronym for anything yet…

    The African-American community and low-income communities are wary of ‘Green’. They believe it’s for rich people. They can easily be persuaded to vote against renewable energy measures.

    Van’s message uses the language of policy and economics but it is essentially a political message. He got inspired to address the fallout of Proposition 87, a tax on petroleum production in California that would have funded R&D in renewables in the state. Polling 2 months before the vote was 70% in favor. Big oil’s think-tanks came on board with an ad campaign that persuaded Black and low-income voters that it would raise the price of gas and none of the jobs. Proposition 8 lost 30 points in 1 month.

    If we talk economic details we are putting the cart before the horse. We need to discuss policy details that allow at-risk youth who are killing each other at higher rates than ever. We need to talk ex-offenders who have no job prospects – and peel back the layers that keep them from getting the training to qualify for decent jobs. Few gainfully employed people in this country understand the necessary programs to get people off the street, out of jail, and into a career.

    1. Life skills programs must be funded and expanded.
    2. Pre-apprenticeship programs must be given high priority, and plans made for effective expansion.
    3. Short training programs must be expanded so people on welfare can get a preliminary certificate before time limits cut off their payments. (And the law changed to allow welfare payments for people who stay in and complete these programs – preferably in quarterly increments.)
    4. Community college and technical school training programs in all aspects of green technology must be ramped up, and accountability standards made clear. (There is massive under utilized capacity in this area – at least in my area. Many existing programs are forced to hold fund-raisers in order to remain open!)
    5. A reasonable number of union positions and apprenticeships must be available to people from communities where green infrastructure projects are being constructed. These numbers should be adjusted to accept more people where qualified graduates are available.

    Without robust policies that give low-income and minority communities a ladder to prosperity we will have no success in the political arena.

  7. Bob Wallace says:

    Richard – I believe there’s methodological
    flaw in the 5%/30% study. (If I understand it correctly.)

    The relative value of $5 in western societies and in much of the rest of the world is vastly different. In the US, for example, $5 buys a Big Mac and coke. In Thailand, where I am now, $5 will buy a great meal. In Bangladesh it will buy a feast..

    The overall value of the minimum amount needs to be equalized before one can say that westerners have a different sense of fairness. I think it more about getting something of significant value out of the deal before you let the other guy get his share

    It’s a message that the rich (who want to get richer) need to understand. The “poorer folks” don’t care as much if you’ve got treasure rooms full of gold as long as you have allowed them a comfortable life.

    (And if the poorer people are reasonably comfortable they will have some disposable cash to buy the products that make you richer and richer.)

  8. Bob Wallace says:

    BTW, to whomever said it, game theory and behavioral economics are not new fields. They’ve been around for at least 40 years.

  9. Mark Shapiro says:

    If I understand cost-benefit analysis at all, it can only work if the party bearing the cost can be compensated by the party getting the benefit. With global warming, the people bearing the costs are too far away in time and space to have any hope of compensation.

    Maybe the good Mr. Stavins should listen to “She got the gold mine, I got the shaft” a few times.

    Bob – enjoy the warmth of Thailand.

  10. I attended a panel at the American Economics Association’s meetings in San Francisco over the weekend and Stavins was on the panel. He assumed in his talk that we had a choice of carbon pricing (he thinks cap and trade) OR a green stimulus package, which he mocked. In the public comment period, I brought up that one needn’t choose between these and in fact, carbon pricing would be more effective if we had a greener infrastructure. Lawrence Goulder of Stanford one of the discussants on the panel, brought up that innovation and research were also externalities that would not necessarily be addressed by carbon pricing. In general though, the economists on this panel and elsewhere were more focused on carbon pricing than other issues in this area…let’s hope that will change.

  11. john says:

    Climateer:

    I was hoping someone would bring up that Seinfeld show. You CAN take a shower and prepare a meal at the same time.

    The Phrase “Open to debate ..” well, yes. If you’re talking to a flat-earther, the shape of the planet is open for debate. If you’re talking to a Ptolemaist, the order of the solar system is open to debate. And if you’re talking to an idiot — I mean and economist — but wait, that’s redundant — reality is open to debate.

    But let’s get down to specifics — one practice that grossly undervalues investments in efficiency, renewables and climate mitigation is discounting — and the appropriateness of discounting future utilities when the thing being protected is an non-substitutable resource is sheer folly. Yet it is broadly accepted.

    As John Peet points out, carried to it’s extreme, discounting can lead to absurd conclusions such as one life today being worth 10,000 lives in 100 years.

  12. paulm says:

    I thinks the rules might change slightly when the end game is extinction rather than something less.

  13. Bob Wallace says:

    Economists are not one and all idiots. I’m sure that there are some in the field who can at times behave idiotically. But where is that not the case?

    Do we not have a lot of very good plumbers as well as Joe the Plumber?

    Have we not had a lot of good presidents or were all as incompetent as the current one?

    Stavins might in fact be an intelligent individual. But it sounds to me as if he is letting his political belief system interfere with his rational judgments. He is losing his objectiveness and not accepting all the possible pieces on the game board. It’s as if he’s saying “I don’t like queens, so I’ll play only with the pawns, kings, etc.”.

    Until one can look at all the possible solutions with an open mind, one can not make rational, quality pronouncements. And Stavins seems to have a particular problem with objectivity.

    As for “the fact that it is not always best to try to address two challenges with what in the policy world we call a single-policy instrument”, that’s a “well, duh”.

    Of course there may be times when we are best off using a single-policy instrument, but many other times when a multiple-policy instrument may give us much more bang for our buck.

    If one needs any evidence for multiple-policy instrument success they should wander some place like the Great Smokey National Park and see the still valuable infrastructure created by the CCC program that put many unemployed back to work during the Great Depression. We fed the poor, gave people hope for a better future, helped restart our economy and created benefits still enjoyed over a half century later.

  14. Koen says:

    This is from another professor of economics:
    “Economic policy is based on a collection of half-truths. The nature of these half-truths changes occasionally. Economics as a scholarly discipline consists in the periodic rediscovery and refinement of old half-truths. Little progress has been made in the past century or so towards understanding how economic policy, rules, legislation and regulation influence economic fluctuations, financial stability, growth, poverty or inequality. We know that a few extreme approaches that have been tried yield lousy results – central planning, self-regulating financial markets – but we don’t know much that is constructive beyond that.

    The main uses of economics as a scholarly discipline are therefore negative or destructive – pointing out that certain things don’t make sense and won’t deliver the promised results.”
    (http://blogs.ft.com/maverecon/2009/01/can-the-us-economy-afford-a-keynesian-stimulus/)

  15. Bob Wallace says:

    You know, Koen, just because “another professor” said it does not make it true.

    After all, that other professor was also an economist.

    (This whole idea that all economists are wrong all the time strikes me as more of the anti-intellectual junk pushed by right-wingers. As if Joe the Plumber could do a better job….)

  16. jorleh says:

    Economics: some kind of mystery. Is economics science? Perhaps. But have we ever seen economics doing some difference? I would say, no.

  17. Dano says:

    Richard Pauli:

    Thank you for that comment.

    Best,

    D

  18. Dano says:

    I agree with Bob W on this excellent comment thread.

    One of the things we learn about wisdom is: what is the right question?

    As Bob says, there are dumb people in every profession. But there are also economists asking good questions. They are out there.

    Economics doesn’t have complete explanatory power for people’s behavior. But it can get us partway there. Our job wrt economics result is to ask the right question when approaching these results.

    Best,

    D

  19. P. G. Dudda says:

    The problem is that economists, like philosophers, rarely live long enough to see the end results of their experiments. Thus, they operate in a vacuum of feedback, and having only the results of others’ past experiments available to formulate their own theories. Hence the consitent production of intellectual garbage in both fields — it takes multiple generations to winnow wheat from chaff, unlike (say) chemistry, where one builds an experiment, and gets results then-and-there. (Whether those be “yep”, “nope”, or “whoops, bad experiment, back to the drawing board”.)

  20. Mark Shapiro says:

    BTW, John Whitehead at env-econ.net responded to this post. The link:

    http://www.env-econ.net/2009/01/i-dont-find-thi.html

    From my own jumble of thoughts:

    1 – Economists are obviously a mixed bag; we are going to need them on our side if we want to slow and then stop burning fossil fuels.

    2 – They are nearly unanimous that a carbon tax is the best economic tool, though they rarely mention the political corollary that the word “tax” is Pure Political Poison unless immediately followed with the word “cut”. Big, big problem.

    3 – Economists don’t have a good handle on AGW. They analyze “externalities”, like a neighbor playing loud music, or a rancher’s cow eating a farmer’s corn. AGW is unique. It is planetary, a singularity, it involves everyone for all time. Let’s help them understand.

    4 – Economists (especially libertarians) come to attention at the word “taking”. Is AGW the biggest taking of all time?

    5 – Economists (and businessfolk) all use discount rates. They must. The big debate is WHICH discount rate to use. Let’s argue, as Stern does, for a low discount rate. That’s how future loss, suffering and death get valued properly.

    6 – You catch more flies with honey than with vinegar. Your outrage is a valuable commodity, Joe. You usually channel it well, but we can all improve. (Just ask my kids.)

    [JR: Oddly, he criticizes me for attacking Stavins one-at-a-time mentality — but never bothers to defend Stavins from a policy perspective!]

  21. Col says:

    Thanks Joe! I love the cartoon on economists. I certainly haven’t found them to be very helpful on energy & climate as a group (with exceptions). The emphasis on price changing is a classic example. A crude and limited device which is, surprisingly to most, a limited part of the problem. Your old boss has it right in his advice to Dr. Chu:

    “Public policy should emphasize barrier-busting — turning into a business opportunity, or otherwise correcting, each of the 60-80 well-known market failures to buying energy efficiency (and distributed and renewable supplies). Otherwise little will happen even if we get energy prices right.”
    More of his advice at: http://www.rmi.org/sitepages/pid578.php

    Let’s hope Dr. Chu and others follow Clinton’s example and Lovins’ recommendations.

    While we’re in the humour mode and poking fun of economists (with some exceptions), here’s a joke I never seem to forget …

    A physicist, a chemist, and an economist are shipwrecked on a desert island. Starving, they find a case of canned pork and beans on the beach, but they have no can opener. So, they hold a symposium on how to open the cans. The physicist goes first:

    “I’ve devised a physical solution. We find a pointed rock and propel it at the lid of the can at, say, 25 meters per second –”

    The chemist breaks in:

    “No, I have a chemical solution: we heat the molecules of the contents to over 100 degrees Centigrade until the pressure builds to –”

    The economist, condescension dripping from his voice, interrupts:

    “Gentlemen, gentlemen, I have a much more elegant solution. Assume we have a can opener…”

  22. rich says:

    maarten,

    you say “BTW, it’s quite unclear that the poor would be hit the most by energy tax increases; the rich generally consume way more resources than the poor and would thus bear a higher burden of energy taxes.”

    we actually estimate this and find that energy price increase are in fact regressive, as expected:

    http://www.rff.org/Publications/Pages/PublicationDetails.aspx?PublicationID=20545

    also, joseph, you write:
    “Uhh, Elizabeth, every major climate proposal rebates money back to low-income people. ”

    Which major Climate Bills are you referring to? I don’t remember rebates to low income households being in L-W, B-S, or L-M.

  23. Andy Gunther says:

    A physicist, chemist, and economist are stranded on a desert island and they have only one can of food and no can opener. The physicist proposes that he take a rock, and calculating the correct release height and trajectory, break open the can so they all can eat.

    The chemist and the economist object, saying they food will end up all over the place. The chemist then suggests that the can be placed in a tidepool, and he can estimate how long it will take to corrode the metal enough to weaken the can so they all can eat.

    The physicist and the economist object, saying that fish will likely get the food from the weakened can before it can be removed from the tidepool. Then the economist speaks up.

    “You guys are going about this the wrong way.” The physicist and chemist look at the economist expectantly, and he continues. “First, let’s assume we have a can opener.”

  24. Joseph Romm,

    You say “[JR: Oddly, he criticizes me for attacking Stavins one-at-a-time mentality — but never bothers to defend Stavins from a policy perspective!]”

    I’ve been writing about this for quite a while at http://www.env-econ.net so I didn’t feel the need to go into it again over there. Here is a summary for anyone who might be interested in a critique of green subsidies and why economists might prefer a carbon tax or cap-and-trade:

    http://www.env-econ.net/green-subsidies.html

    Re: Tinbergen, etc.

    While some policies can accomplish two goals, many cannot, or don’t do a very good job. The Pigouvian tax is a good example of not always doing a good job of raising revenue but a great job of reducing negative externalities. A nice sized gasoline tax will reduce the number of miles driven and increase fuel efficiency, but if the transportation departments road budget relies on this tax revenue they will begin to fall short at exactly the same time that the tax is doing a great job correcting the negative externality.

    This sort of unintended consequence often arises when we try to kill two birds with one stone. I’d rather the world wouldn’t be this way, but it seems to sometimes.

  25. Sorry, please add “blog” to “the Environmental Economics”

  26. Tim says:

    “…Assume we have a can opener.” Wait for it, wait for it,…oh I get it! You’re saying that economists are all wrong on everything because they assume a lot of things. I get it now. Thanks. That clears everything up and it’s the best criticism of economics I’ve seen to date. Hmmmm, no wait. I’m pretty sure Einstein made a couple of assumptions to derive the theory of relativity. Must be time to dismiss it. And I’m pretty sure climate scientists make assumptions to develop models for climate forecasts 10, 25, 50, 100 years from now…must be time to dismiss climate science.

  27. Tom Stacy says:

    It is funny to visit a blog like this. I feel like a fox in a hen house, although I am not hungry. Would any of you kind folks would venture a best value mix of electricity generation technologies for, say, the PJM region to mitigate that sectors contribution of CO2 to Earth’s atmosphere by the year, say, 2050? I’d prefere to be contacted at tfstacy at g mail dot com. Thanks!

  28. Dano says:

    I enjoy Joe’s histrionics on occasion, but sometimes they are a bit much.

    It is like fish in a barrel to look at the narrow view of neoclassical economists and bash on them. But we’ve moved beyond this with ecological econ, behavioral econ, etc.

    The key is to point out the relatively antediluvian approaches and bring up, say, Daly or any of the EcolEconomists…oh, wait: bring up Tim and John too.

    There are folks out there with workable approaches. Let’s not tar all with too broad a brush, shall we?

    Best,

    D

  29. Ah, Dano. Sometimes I miss Dano at http://www.env-econ.net.

  30. Mark Shapiro says:

    Tom Stacy – I’ll jump in with a mix of no carbon power by 2050, for PJM and anywhere:

    Roughly equal parts of conservation, efficiency, CSP and wind brought in via an upgraded grid, rooftop PV and local cogeneration. Balance it with demand side management and possibly PHEV’s. I see from your site that you don’t like wind turbines. Okay – the Plains where the wind blows have been depopulating for decades. Not perfect. Nothing is.

    Dano – so who are Daly and the EcolEconomists? Are TIm and John at Environmental Economics? Just saw the site today; I plan to return.
    I like Weitzman and Stern – Joe has noted them.

  31. Bob Wallace says:

    Joe –

    Perhaps it’s time to start charging folks for advertising their sites here in the discussion section.

    Bet you could rake in some serious bucks.

    (To the others – ever heard the term “spam”? Hate it when people do it you you?)

  32. Eli Rabett says:

    John Whitehead gives up the argument when he admits that:

    “While some policies can accomplish two goals, many cannot, or don’t do a very good job.”

    Which reduces to you have to be careful, but it can and has been done. Something very different from what Stavins said.

    The further problem with Stavins’ silliness is that it assumes the two problems are disjoint, completely separated. If that is NOT the case (and an economic stimulus and climate change are linked) then if you have two separate programs, you really don’t, because they both effect each other.

    To make it short, I remain unimpressed by the depth of analysis that Whitehead and Stavins display. Actually it’s kind of amusing.

  33. llewelly says:

    Economists are not one and all idiots. I’m sure that there are some in the field who can at times behave idiotically. But where is that not the case?

    When the Glass-Steagull act and the other protections that had prevented a repeat of the Great Depression were reversed, many economists warned that this would result in a boom followed by a bust,
    followed by a depression – possibly another great depression. They were attacked and derided ‘communists’, ‘socialists’, ‘liberals’, ‘class warriors’ and whatever other insulting terms their opponents could dig up. They did not have, and could not get the influential finance and political positions.
    For most of the last 30 years, the influential finance and political positions traditionally held by economists have been dominated by economists of the ‘greed is good’ school. Economists of other sorts have been marginalized.

  34. Dano says:

    Whoops – corrected version. Preview good!

    Finance, not Econ, largely got us into this mess – as well as a crew with an ideology that has, purposefully, robbed our treasure and redistributed wealth upward to a few. [/rant]

    —–

    Mark Shapiro:

    There is an entire discipline called Ecological Economics. It has a journal. I recommend starting with Valuing the Earth, Daly and Townsend, Eds. Tim and John are Profs of EcolEcon at two different Unis – altho their blog isn’t tilted way over toward Ecol, as they try to balance the views of neoclassicism and others for critical analysis by the audience.

    I also recommend Environmental Valuation & Cost Benefit News for releases on the outcomes of study by this discipline – many of these releases have the papers attached to them. Hot New Docs has many papers behind subs too (AUS focus).

    —–

    I often agree with Eli, but not this time.

    It is incorrect to assert that just because John relays the reality on the ground he is giving up the argument. It is equally likely that he has argued for win-win or win-win-win policies. Pointing out our framework for crafting policy is rickety isn’t giving up the argument.

    In fact, this is the point of the Stavins kerfuffle; Stavins is stuck in his disciplinolatry, and such people craft policy. We have discussed many times how disciplinolatry can be overcome to frame issues such that the public can understand. Stavins chose – for us – an unfortunate example, but that’s what he knows and perhaps is unable to craft useful policy.

    This is the essence of my comment above – neoclassicists are undereducated in the natural sciences, and this is a fish-in-a-barrel exercise. Too easy.

    Best,

    D

  35. Jon Rynn says:

    Joe might want to look at neoclassical economics this way: it’s an attempt to use the theoretical model of statistical mechanics to make predictions that social sciences are incapable of making.  Like statistical mechanics, the system that the neoclassicals use are made up of homogenous elements that are never created and destroyed, that have no differentiation in terms of power or function, and that are very numerous.  What this leads to is attempts to basically treat all economic phenomena as if they were substitutable and essentially similar.  In addition, the models are basically set up to consider a particular part of the system, that is, one industry, so that the goal of the models is to find local optima.

    So the example Joe gives is set up to attempt to find two local optimal points — taking a shower and cooking a dinner.  Neoclassical economics is incapable of determining the optima for a complex system.  So they do what any self-respecting profession would do — they don’t consider situations where there paradigm breaks down.  Which means that they can’t analyze or rather understand the holistic systems of global society interacting with a global environment.

    I hope that Joe soon turns from tearing up neoclassical economics, which is always fun to do, to putting forth an alternative economic paradigm.  The most obvious right now is ecological economics, as for instance put forward by Herman Daly.
    I’ve also argued that the economy is an ecosystem.  In other words, as opposed to the model used by neoclassical economists, each part of the economy has a function; each part has varying power; each can interact in complex positive and negative feedbacks among themselves; and the economy must be seen as a holistic system (I elaborate on this is a series called “Extreme Makeover, Global Edition”, as well as part 2 and part 3).

    [JR: I haven’t begun to tear up neoclassical economics. I’m a big fan of Daly et al. Sadly — or maybe happily — I’m not an economist, a group that has essentially ignored Daly.]

  36. Bob Wallace,

    Sorry that you think I was advertising our blog. Wasn’t.

    The first link was an attempt to alert readers here that we had attempted to take on the defense of economics.

    The second was to try to get Dano’s attention that he has been missed.

    I’ll refrain from posting any other links.

  37. Eli,

    The in-depth analysis has been conducted and published in the academic journals. I’m simply spouting off a very shortened version of the conclusions of this research.

    I’d send you to a link on my website that I wrote in response to one of your comments over there, I think, but I’ve been scolded about that already.

  38. Eli Rabett says:

    Been there done that, quite not impressed after having expected better. On second thought the point about not being able to decouple the two things that we want done means that even if Whitehead and Stavins are right in the case that you can decouple them, they are wrong in this case.

    See you over there, tho, he misses you. Me? Well tastes vary.

    Oh, and Dano, John Whitehead most explicitly does not believe in win-win or really even in win

  39. Jon Rynn says:

    Joe — Thank God you’re not an economist. As my friend the late Professor Seymour Melman used to call any neoclassical organization that he’d heard about, they are more like “The society for the prevention of understanding about economics” than whatever society they are.

    I think that an openness to ecological theory (and in the physical sciences, Prigione-type nonlinear dynamic studies) is the key to a new conception. Charles A.S. Hall, at Syracuse University, also has some interesting ideas, although I think he’s a little too focused on energy. Anyway, good luck and I’d be glad to help in any way I can.

  40. MikeB says:

    Stavins seems not to have realised that the Great Depression was in part finally killed off by the needs of the wartime economy. The idea that you could actually help the economy by reacting to a real and immensely damaging threat is something that he and most other economists would reject as impossible – except that it worked 70 years ago.

    When I studied Economics, I quickly came to the conclusion that reality seldom troubles all too many economists. Unfortunately, the reality of the recession and climate change are here, so perhaps its time for economists to take a bite of a reality sandwich – for all our sake. Its a shame that Kolbert (Field Notes from a Catastrophe is an excellent book) simply took up the ‘village view’, no matter how out of touch it actually is.

  41. Publius says:

    Joe, the technocrat,

    Please stop being obsessed with hybrid cars and pv solar–it is not an equitable global solution and is inconsistent with international justice. We need to focus on decentralized agriculture and resource conservation, not industrial production.

    [JR: Says who? And since when am I opposed to decentralized agricultural and resource conservation. I’m not quite certain how you’re going to sustain economic development for 9 billion people in 2050 though. Or is that not a concern of yours?]

  42. NH says:

    Please don’t so flippantly disrespect the entire discipline of economics. There are plenty of economists who are working hard on environmental and sustainable development issues, such as figuring out the best policies to effectively reduce greenhouse gas emissions internationally. Often they provide insights that people from other fields don’t.

    I think the idea that global warming will be good for Canada is complete rubbish, and I also disagree with all the economists you cite. But that doesn’t mean that economics as a discipline is completely wrong. Yes of course, if you make poor assumptions you get poor results. That is the fault of the economists, not of economics.

    [JR: I’m not flippant — and I’m not done.]

  43. Travis Idol says:

    Another problem inherent with economic analysis, like any other empirical or statistical science, is the fuzzy line between “is” and “ought”. Neoclassical economics has a whole set of inherent value judgments about what is good or bad, and they use terms like “optimal”, “maximizing”, etc. as euphemisms to mask what is essentially a values judgment. A related problem is the masked confusion of assuming price = value, as in “An economist is someone who knows the price of everything and the value of nothing”. What keeps these guys in business (and the eye of the media) is that people do quite often tend to make decisions based on the retail price, as long as they see no value differences between competing, and essentially similar, options, such as which gas station to fuel up.

    And, although perhaps I didn’t read thoroughly enough, no one seemed to catch onto the ludicrous argument that “green jobs might not substitute fully for the loss of coal-mining jobs.” That is so short-sighted as to not even deserve a reply, but here’s a pithy retort: Sure, digging ditches with spoons employs more people, but I think we’re better served in the long-run by using shovels or (biodiesel-powered) backhoes, don’t you think?

  44. Hank Roberts says:

    Joe, it might be useful to ask which economists have basic biology training. Those who do are more likely to understand limits set by the growth of natural systems.
    http://www.michael-hudson.com/articles/debt/CompoundInterest1.html

    I see more students with biology backgrounds are going into economics.
    http://www.allbusiness.com/education-training/curricula/11701532-1.html
    This could be good news — if they were good biology students. Or, if it’s the students who weren’t good at biology changing fields, it’s more trouble.

  45. Lou Grinzo says:

    Joe,

    Not to be a pain in the hind quarters, but can we avoid painting ALL economists with the same tar brush? Please???

    There are some of us (yes, I said “us”) who get it, who are pushing as hard as we can in the right direction on energy and environmental issues. I’ve been writing almost full time on my site The Cost of Energy for coming up on four years (during which I’ve plugged your work very often), so it really rubs my rutabaga the wrong way when I see anyone say “economists are part of the problem”, instead of “SOME economists…”. There are idiots in every field, and it seems that the ones with “economist” tacked onto their name get far more attention than is deserved, making us all look bad.

  46. joshua corning says:

    Why is it so hard to understand that robbing Paul to pay Peter, even if Peter is producing green energy, does not create jobs?

    [JR: Why is it so hard to understand that the dirty jobs are destroying a livable and thus are doomed? If we don’t create the green jobs, then other countries will.]

  47. Kevin Leahy says:

    I believe Stavins’ point was that if your goal is to create jobs there may be other policy mechanisms that are more effective. Yes, you will undoubtedly create some jobs with green investments, but you might have created more if you were simply trying to pursue programs with greatest returns. Likewise, if you care about climate, you want to lower ghg emissions. There could be programs that create large reductions, but few jobs. Do you pass those up for programs that create fewer reductions for more jobs?

    Dealing with climate is going to be challenging enough. We should focus our energies on resolving that and not be distracted by the current economic situation.

  48. evdeneve says:

    Why is it so hard to understand that robbing Paul to pay Peter, even if Peter is producing green energy, does not create jobs?

    [JR: Why is it so hard to understand that the dirty jobs are destroying a livable and thus are doomed? If we don’t create the green jobs, then other countries will.]

  49. stüdyo says:

    thanks for the entry