Gernot Wagner's Blog, page 16

Gas tax or bust

0.5% of U.S. commuters bike to work.

5% take public transport.

80% drive.

Mayor Bloomberg is trying mightily hard to build bike lanes and change the commuting culture of New York City. He may well succeed, and other cities may yet follow.

Here's hoping we'll all soon live in places as liv- and bike-able as Copenhagen.

But you don't have to head to California or China to realize that it'll be a bit of a challenge to shift a major portion of the population from cars onto bikes altogether—and to do so in time to avoid having the global number of internal combustion engines double from 1 to 2 billion by the end of this decade.

The unobservable counterfactual

Actions have consequences. Sometimes those consequences appear in plain sight: level the playing field by having polluters pay for their own pollution, and you'll see less pollution. Works every time.

Often, these consequences are hidden. Pick winners, and you'll distort markets. That has been the case ever since fossil fuels started receiving enormous direct and indirect subsidies. Fossils still beat renewables in terms of government support, but that doesn't mean renewables don't experience similarly unintended consequences.

There are some very good reasons why new industries with lots of learning-by-doing still to be done deserve public support. Entrepreneurs don't consider that their doing will create learned shoulders for others to stand on. That's a positive spillover deserving of direct subsidies.

We also need to be clear, though, that there are some unintended consequences of that support. It doesn't take many conversations in Silicon Valley to find a venture capitalist who will tell you that he or she isn't investing in a particular industry precisely because government is supporting it.

We'll never know the true extent of that hesitation, but at least we should be aware of its existence. It's a known unknown, after all.

Dash for clunkers

You can motivate people to drive less through various means. Gas taxes come to mind. Or a tax on vehicles miles traveled, or a congestion fee. Whether you call it a "tax" or a "fee," charging money is always part of the equation.

The alternative to a tax is a ban, and that's almost always a bad idea.

Case in point is Mexico City, which in 1989 decided to ban car use on one workday a week, randomly determined by license plate number. The week after the policy came into effect, pollution went down. No surprise there: restrict driving randomly to four of five workdays a week and every given day should see a 20% decrease in driving.

But people still needed to get to work. It didn't take long before drivers got another car only to be used on that one workday, when their primary car had to stay at home. Those second cars tended to be older than the primary ones, and thus were also more polluting.

The result: overall pollution in Mexico City went up, to say nothing of the inefficiencies of having extra cars sit around to be used just one day a week.

If you want to decrease total pollution, make pollution costly—even if doing so involves one of the two four-letter words: t-a-x or f-e-e. Taxes on clunkers beat artificial bans any day of the week.

Tree-hugging, city-style

Cities may be good for the planet, but it's generally still tough to be a tree-hugger in them, when there are few trees to hug. No longer.

Added benefit: it's good for your utility bill and sanity, too.

For all true tree-huggers, out there, take a look at my TreeHugger Radio interview.

Aston Martin Mini

You know things are a-changing, when Aston Martin tries to pack $50,000 worth of luxury into a hyper-efficient, sub-compact car.

Of course, it's still a car. But if the ultimate in luxury now comes at half the original size, perhaps children will soon grow up and aspire to own only 1 instead of 2 tons of steel—while getting passed by bus and bike in London traffic, after paying the congestion charge.

30 to 1

Clean Air Act of 1970: Benefits-to-costs ratio: 30 to 1.

Clean Air Act Amendments of 1990: Benefits-to-costs ratio: 30 to 1.

Average across all Environmental Protection Agency rules passed between 2000 and 2010: Benefits-to-costs ratio: 10 to 1.

That should be cause for celebration, shouldn't it?

Not quite.

Any benefit-to-cost ratio above one means that benefits exceed costs. That's good, of course, but the goal isn't to maximize that ratio. The goal ought to be to come as close as possible to 1:1.

Ratios of 10:1 and above point to real inefficiencies: Too many costs are being socialized. EPA isn't doing nearly enough to protect us from ourselves.

In-flight recycling

Almost as bad as asking people to use their frequent flyer miles to buy carbon offsets.

Newsflash: No matter how short your flight, it's orders of magnitude worse for the planet than recycling that Coke bottle.

If you need more irony: there are no bottles on planes to begin with, just a steady stream of one-way plastic cups.

Reinsurance all but reassuring

For reliable data, go to those who actually make money off them.

There's no better place for natural disaster data than the reinsurance company that's ultimately on the hook to paying some hefty sums if something goes wrong. Munich Re has the most comprehensive database of natural catastrophes.

Turns out those catastrophes may not be all that natural after all.

 

An army for reform, #OWS-style

The glibbest book review I've received so far ends with the words: "Great plans, but do the economists have an army?"

Well, now that you mention it.

Just to be clear upfront: I'm not pretending to say here that anyone at the OccupyWallStreet protests is fighting for any of the specific ideas presented in But Will the Planet Notice?, or knows that it exists. (Perhaps they will, if I add a few more references that makes this post more easily find-able: Occupy Wall Street; We are the 99%; Zuccotti Park!)

The point is that talk about the perfect economic solution without any hope of ever enacting any of it into law is just that: talk.

The system isn't working—certainly not for the other 99 percent, as the OWS movement's possibly best slogan puts it. (Emmanuel Saez can be rightfully proud of providing the thinking behind that number.)

It's still unclear what the unifying message out of the OWS movement will be. You can always find a protester or two who argues against capitalism per se, but there's a much larger number fighting against a rigged system and for a level playing field for all.

At the core of all of this, is the idea that we can no longer socialize costs and privatize profits and pretend it'll just work out. That, of course, goes for the financial sector as much as it goes for the planet as a whole.

Perhaps the army is on its way after all.

When bailout is not an option

The collapse of Long-Term Capital Management should have been a warning sign, alas a few billion dollars in bailout money patched things up to ignore the broader picture.

The collapse of Lehman Brothers should have been a warning sign, alas a few trillion dollars in bailout money patched things up to ignore the broader picture.

The collapse of Iceland should have been a warning sign, alas devaluing the currency did wonders. Interested in vacationing in Reykjavik? Bargain hunters rejoice.

Now we are onto Greece. Devaluing the Greek currency isn't an option. There is none. Signs are finally pointing into the right direction, but it may already be too late to avoid a Europe-wide (and soon a global) crisis.

Privatize benefits while costs are being socialized doesn't work—at least not for long.

It's so obvious, it sounds trite. It's also so difficult to do away with precisely because many rich have benefited from the current sorry state of affairs and are just fine with keeping things the way they are.

What goes for the financial system also goes for the planet—just that bankruptcy, or a bailout, isn't on the table.