Monday, December 18, 2017

The Tax Cuts and Jobs Act: Preliminary Economic Analysis

From The Tax Foundation.

"Late on Friday, a congressional conference committee released its final report outlining the compromised version of the Tax Cuts and Jobs Act. This bill, if passed by Congress, would lower individual income tax rates for the next eight years, lower the corporate income tax from 35 percent to 21 percent, and move the United States from a worldwide tax system to a territorial tax system.

According to the Tax Foundation’s Taxes and Growth Model, the plan would significantly lower marginal tax rates and the cost of capital, which would lead to a 1.7 percent increase in GDP over the long term, 1.5 percent higher wages, and an additional 339,000 full-time equivalent jobs. In 2018, our model predicts that GDP would be 2.45 percent, compared to baseline growth of 2.01 percent.
The table below summarizes the overall economic effects of this bill.

Economic Impact of the Tax Cuts and Jobs Act
Source: Tax Foundation Taxes and Growth Model, November 2017.   
Change in long-run GDP
1.7%
Change in long-run capital stock
4.8%
Change in long-run wage rate
1.5%
Change in long-run full-time equivalent jobs (thousands)
339,000

The Tax Cuts and Jobs Act is a pro-growth tax plan, which, when fully implemented, would spur an additional $600 billion in federal revenues from economic growth. These new revenues would reduce the cost of the plan substantially. Depending on the baseline used to score the plan, current policy or current law, the new revenues could bring the plan closer to revenue neutral. Overall, the plan would decrease federal revenues by $1.47 trillion on a static basis and by $448 billion on a dynamic basis, due to the aforementioned $600 billion in dynamic revenue reflow, expiration of multiple provisions, and the addition of the revenue generated from the functional repeal of the individual mandate.

These results are muted by the temporary nature of many components of the tax package. If the entire plan were enacted permanently, it would increase long-run GDP by 4.7 percent, raise wages by 3.3 percent and create 1.6 million new full-time equivalent jobs. However, the long-run cost of the bill would be $2.7 trillion on a static basis ($1.4 trillion on a dynamic basis) over the next decade.

In 2018, taxpayers’ overall after-tax income will increase by 1.8 percent, with a 1.6 percent increase in after-tax incomes for the top 1 percent. Over the long run, the plan would lead to -0.3 percent higher after-tax income on average for all taxpayers and -0.2 percent higher after-tax income on average for the top 1 percent in 2027, on a static basis. When accounting for the increased GDP, after-tax incomes of all taxpayers would increase by 1.1 percent in the long run."

We are living through an unexpectedly bountiful renaissance in some marine ecosystems

See Right on plastics and PCBs, wrong on acidification: The BBC's Blue Planet II is superb, but got a few things wrong by Matt Ridley. Excerpt:

"It was good, too, to hear Attenborough’s recognition, rare on the BBC, that we are living through an unexpectedly bountiful renaissance in some marine ecosystems. Too often we are told only the bad news. The last episode featured the recovery of turtles, as well as the resurgent herring, killer whales and humpback whales of Norway, and the vast concentrations of sperm whales now being seen for the first time since the era of Moby Dick. Many populations of sperm, right, grey, bowhead, fin, blue and humpback whales are now high again, and rising at 5 to 10 per cent a year, something I never dreamt would happen in my lifetime.

The series could have made the same point about the penguins, fur seals and elephant seals of South Georgia, an island denuded of almost all wildlife about 75 years ago, but now once again teeming. Or about walruses, an Arctic species that has rebounded after centuries of exploitation. When I first visited Spitsbergen in the 1970s there were about 100 walruses there. Today there are about 4,000 and the population is still increasing rapidly.
Walruses were brought to the brink of extinction in Svalbard (Norway) during 350 years of unregulated harvesting. They became protected in 1952, when few remained. During the first 30 years of protection, approximately 100 animals became established within the archipelago, most of which likely came from Franz Josef Land, to the east. A marked recovery has taken place since then. This study reports the results of a photographic aerial survey flown in summer 2012, covering all current and historical haul-out sites for walruses in Svalbard. It provides updates regarding the increasing numbers of: (1) landbased haul-out sites (from 78 in 2006 to 91 in 2012); (2) occupied sites (from 17 in 2006 to 24 in the 2012 survey); (3) sites with mother-calf pairs (which increased from a single site with a single small calf in 2006 to 10 sites with a total of 57 small calves in 2012) and (4) a 48% increase in abundance in the six-year period between the two surveys to 3886 (confidence interval 3553-4262) animals, including animals in the water at the time of the survey. Future environmental change might reduce benthic production in the Arctic, reducing the prey-base for walruses, and also impact walruses directly via declines in their sea-ice breeding habitat. But, currently the Svalbard walrus population is growing at a rate that matches the theoretical maximum rate of growth that has been calculated for recovering walrus populations under favourable environmental conditions with no food limitations.
Walruses recovering after 60+ years of protection in Svalbard, Norway (PDF Download Available). Available from: https://www.researchgate.net/publication/266713764_Walruses_recovering_after_60_years_of_protection_in_Svalbard_Norway [accessed Dec 12 2017].
So it was naughty of Blue Planet II, in showing a sequence in which a mother and calf walrus desperately try to find a bit of ice big enough to bear their weight but not already occupied by other walruses, to imply that this was evidence of climate change threatening a species with extinction. Most of the ice in the Arctic Ocean disappears each summer and reappears each winter. Walruses have hauled out on shore, or on what’s left of the ice at that season, forever. The main thing that has changed is that there are now more walruses, and more polar bears feasting on them, throughout the Arctic.

So the climate change obsession is still sometimes getting in the way of telling the truth. The most dishonest sequence in the series was when Attenborough watched shells dissolving in a tank of acid, to a soundtrack of fizzing noises, and was told by Professor Chris Langdon that although this was “more dramatic than what’s happening in the oceans”, nonetheless “the shells and the reefs are really truly dissolving”.

This is highly misleading in several different ways. Was it carbonic acid, or another acid? The reduction in alkalinity will get nowhere near neutral, let alone actual acidity, even by the end of the 22nd century, so “dissolving” is false, let alone happening now. The changes in ocean pH expected even by the end of this century are minuscule compared with what was shown in that tank, and by comparison with the daily and seasonal changes that an average reef experiences. (Coral bleaching, a different issue, is more serious, but more temporary.)

A 2010 analysis of 372 studies of 44 different marine species found that the world’s marine fauna is “more resistant to ocean acidification than suggested by pessimistic predictions” and that it “may not be the widespread problem conjured into the 21st century”:
Ocean acidification has been proposed to pose a major threat for marine organisms, particularly shell-forming and calcifying organisms. Here we show, on the basis of meta-analysis of available experimental assessments, differences in organism responses to elevated pCO2 and propose that marine biota may be more resistant to ocean acidification than expected. Calcification is most sensitive to ocean acidification while it is questionable if marine functional diversity is impacted significantly along the ranges of acidification predicted for the 21st century. Active biological processes and small-scale temporal and spatial variability in ocean pH may render marine biota far more resistant to ocean acidification than hitherto believed.
And recent work has established that corals’ ability to make skeletons is “largely independent of changes in seawater carbonate chemistry, and hence ocean acidification...the relevance of their commonly reported finding of reduced coral calcification with reduced seawater pH must now be questioned”. Indeed, one study found that calcifying plankton “respond positively to acidification with CO2enrichment”,
As a result, cell growth and cellular calcification of E. huxleyi were strongly damaged by acidification by HCl, but not by acidification by CO2 enrichment...The present study clearly showed that the coccolithophore, E. huxleyi, has an ability to respond positively to acidification with CO2 enrichment, but not just acidification.
another that the growth rate of corals also increases with higher carbon dioxide up to 600 parts per mllion and concluded:
Furthermore, the warming projected by the Intergovernmental Panel on Climate Change for the end of the twenty-first century caused a fivefold decrease in the rate of coral calcification, while the acidification projected for the same interval had no statistically significant impact on the calcification rate—suggesting that ocean warming poses a more immediate threat than acidification for this important coral species.
The producers of Blue Planet II claim every word of the commentary was based on solid scientific evidence. Not in this case. In a magnificent series, they got that one wrong."

Sunday, December 17, 2017

Is climate change the culprit causing California’s wildfires?

By Larry Kummer.

"We’re told that climate change caused or intensified California’s wildfires — and that such fires are getting worse. As usual for such scary stories, these claims are only weakly supported by science — except for the ones that are outright fabrications.
“If we keep fighting a war with fire, three things are going to happen. We’re going to spend a lot of money, we’re going to take a lot of casualties, and we’re going to lose.”
— Stephen Pyne, professor at Arizona State University (source: National Geographic).

(1) Those California Wildfires!

“Gov. Jerry Brown surveyed the devastation Saturday in Ventura …calling it ‘the new normal.’ …“This could be something that happens every year or every few years.’” {Source: LAT.}
Climate change is causing more wildfires! Or so we are told. That is a zombie climate myths — repeatedly said, repeatedly debunked by scientists, but too useful to die. When Brown made this claim in 2015 even the LAT said that “Gov. Brown’s link between climate change and wildfires is unsupported, fire experts say.
“{C}limate scientists’ computer models show only that global warming will bring consistently hotter weather in future decades. Their predictions that warming will bring more forest fires — mostly in the Rockies and at other higher elevations, while fires may actually decrease in Southern California — also are for future decades. Even in a warmer world, they say, land management policies will have the greatest effect on the prevalence and intensity of fire. …
“‘There is insufficient data,’ said U.S. Forest Service ecologist Matt Jolly. His work shows that over the last 30 years, California has had an average of 18 additional days per year that are conducive to fire. …
“Today’s forest fires are indeed larger than those of the past, said National Park Service climate change scientist Patrick Gonzalez. At a symposium sponsored by Brown’s administration, Gonzalez presented research attributing that trend to policies of fighting the fires, which create thick underlayers of growth, rather than allowing them to burn. ‘We are living right now with a legacy of unnatural fire suppression of approximately a century,’ Gonzalez told attendees. …
“Fire behavior specialist Jeff Shelton, who provided daily forecasts for the Rocky fire and, later, the Jerusalem fire, said he could not attribute their behavior to climate change. He cited the summer’s dry weather, an abundance of fuel created by a lack of previous fires, and steep slopes that allowed the fires to spread quickly. Ecologists said their behavior was typical of natural chaparral fires, which burn infrequently but intensely. …
“‘They are more and more common because we have more and more fuels,’ said Joaquin Ramirez of Technosylva, an international fire modeling company based in San Diego. …
Bureau of Land Management fire manager Jeff Tunnell {said} ‘One hundred years of fire suppression is building fuel beds,’ Tunnell said. ‘Almost any year can produce a fire like this one.'”

(2) But US wildfires are getting worse! Unprecedented!

(a) See the graph that must not be seen, so journalists never show it.

This myth has repeatedly been debunked, but is too useful to die. David B. South, Emeritus Professor, of Forestry at Auburn U, showed the actual data in his Senate testimony on 3 June 2014 (page 2). Bjorn Lomborg posted an updated version of his graph, using the same sources. Click to enlarge graph. Excerpt…
“Fires in California and elsewhere are devastating. But US fires are nowhere near the record. More likely about one-fifth of the records in 1930 and 1931. Reuters (along with many others), tell us the current US fires are historic …
“Yet, the official historical data of the United States tells a different story. Look at the Historical Statistics of the United StatesColonial Times to 1970 (p537). There we have statistics for area burnt since 1926 and up to 1970. Reassuringly, the data for 1960-1970 *completely overlap* (that from the National Interagency Fire Center}. This is the same data series.
“And when you look at the whole data series, *every year* from 1926-1952 – over a quarter of a century – saw higher, and mostly much higher forest areas burnt than the modern record set in 2015.
“This is not (as some have suggested) an artifact of the US gradually being deforested (and hence having less land to burn). The USDA Forest Service in their Historical Overview (p7) finds that the US “forest area has been relatively stable since 1910” – if anything slightly increasing since 1910 (which would help push up the burnt area slightly).”

US acres burned 1926-2017

(b) Incidence of wildfires in North America 1600-2000. Peaked in mid-19th C.

Multiscale perspectives of fire, climate and humans in western North America and the Jemez Mountains, USA” by Thomas W. Swetnam et al. in Phil Trans B, 5 June 2016. Fires peaked in the mid-19th century! Click to enlarge the graph.
“The combined record of fire occurrence from more than 800 sites in western North America shows relatively high fire frequency prior to ca 1900, and a high degree of synchrony in both large and small fire years. The 15 largest and smallest fire years are labelled. A pronounced decrease in fire frequency occurred at the time of Euro-American settlement, coinciding approximately with the arrival of railroads, intensive livestock grazing, removal of many Native American populations, and subsequently organized and mechanized fire fighting by government agencies.”

Wildfires in North America 1600-2000

(c) A smaller and more precise record: fires in Yosemite National Park. Peaked in mid-19th C.

Climatic and human influences on fire regimes in mixed conifer forests in Yosemite National Park, USA” by Alan H. Taylor and Andrew E. Scholl in Forest Ecology and Management, 1 March 2012 (gated). Different data, same pattern — a peak in the mid-19th century, followed by a long decline. Click to enlarge."
Wildfires in Yosemite National Park: 1600-2000.
Wildfires in Yosemite National Park 1600-2000

Allowing Natural Gas Exports Did Not Lead To Higher Prices

See Results Are In: Freedom to Export Lowers Energy Prices by Marlo Lewis, Jr. of CEI.

"A study released today by Texans for Natural Gas (TNG) demolishes the long-running scare campaign waged by corporate rent seekers, eco-activists, and “progressive” politicians to restrict exports of domestically fracked natural gas.

Anti-export advocates claim that rising exports of liquefied natural gas (LNG) would allow other nations to bid up U.S. gas prices, which in turn would dramatically inflate consumer utility bills and, worse, destroy the competitive advantage of U.S. manufacturers who obtain key industrial feedstocks from natural gas.

During the heyday of this controversy, Massachusetts Representative Ed Markey in 2012 introduced legislation to ban the export of natural gas produced on public lands and place a 13-year moratorium on U.S. government approval of new LNG export facilities. In support of those proposals, Markey’s staff produced a report, Drill Here, Sell There, Pay More: The Painful Price of Exporting Natural Gas. Dow Chemical CEO Andrew Liveris organized a corporate coalition dubbed America’s Energy Advantage (AEA) to lobby policymakers for new restrictions on gas exports. 

Well, the results, now in, are exactly the reverse of what export opponents prophesied.

During 2010-2016, U.S. natural gas exports more than doubled, increasing by 105 percent. Instead of skyrocketing, as export foes warned, natural gas prices declined by 42 percent.


Even the U.S. Energy Information Administration (EIA) got it wrong. In EIA’s 2012 report, cited repeatedly by the anti-export crowd, increased LNG exports “lead to increased natural gas prices” in all scenarios examined, with prices in 2017 exceeding the reference (no-additional export) case by five to 25 percent.

Note also that even EIA’s reference case projected prices would remain above $4 per thousand cubic feet (Mcf).

Instead, the TNG study reports, “Between 2010 and 2016, Henry Hub natural gas spot prices declined by 42 percent, from $4.53 per thousand cubic feet (Mcf) to $2.61/Mcf. The average price in October 2017 was $2.98/Mcf. Residential natural gas prices—what households pay for their monthly bills, which include transmission and infrastructure costs—have fallen by about 12 percent since 2010.”


Why did increasing gas exports coincide with declining gas prices? The TNG study does not venture to say, but those outcomes are what Econ 101 tells us should occur.

Allowing U.S. gas producers to compete in the global marketplace spurs new investment, which boosts production, which increases supply, which lowers prices. Export bans or restrictions do exactly the reverse—scare away investment, decrease production and supply, and increase prices.
As noted in an earlier post, freedom to export is an essential component of free enterprise. Economic liberty primarily means the right to offer one’s goods and services for sale. Exporting is just competing for customers on the other side of lines drawn on maps.

In reality, every sale to anyone living outside the walls of your domicile is an export. What we today call capitalism Adam Smith more accurately called the “system of natural liberty”—the spontaneous order that flourishes when government protects rather than suppresses people’s natural propensity to “truck, barter, and trade.”

To put this another way, freedom to export—to sell goods or services to customers outside the household, clan, or tribe—is a fundamental property right. As economist Richard Stroup explains, genuine property rights are 3D—defined, defendable, and divestible (transferable). A total ban on the sale of a product would reduce its market value to zero (assuming no black market and no prospect of the ban’s repeal). To the owner, the injury is the same as outright confiscation.

A ban on sales to foreign customers is similarly injurious, just to a lesser degree. Being confiscatory, export bans and restrictions depress supply and increase prices, whereas free trade generally increases supply and lowers price.

Why are anti-export advocates unable to wrap their heads around that simple logic? Actually, I suspect some do understand it, but seek to drive fossil-fuel producers into bankruptcy, calculating that what oil, gas, and coal companies cannot sell, they will have to leave in the ground.

It is possible that restricting LNG sales to foreign buyers would have temporarily lowered gas prices by creating a glut in U.S. domestic markets, and perhaps that was the economic calculus behind AEA’s opposition to natural gas exports. Lucky for them, their lobbying efforts came to naught, because any short-term gain would soon have been succeeded by long-term price increases as production and supply dwindled along with investment in an industry targeted for hostile regulatory treatment designed to limit its customer base.

Liveris and his AEA partners never responded to criticism that their anti-export argument applied with equal force to their own product lines. Dow, Alcoa, Eastman, Huntsman, and Nucor primarily manufacture intermediate goods, not final goods. As natural gas is an input to them, so their products are inputs to still other companies.

AEA-produced chemicals, plastics, electronic components, aluminum, and steel reach the consumer only after other manufacturers add value by turning those “feedstocks” into paints, cosmetics, fertilizers, pharmaceuticals, computers, cell phones, automobiles, and so on. So by AEA’s logic, the government should restrict exports of chemicals, aluminum, and steel to hold down domestic prices in order to make U.S. manufacturers of final goods more competitive.

In any event, my colleague, Energy In Depth analyst Steve Everley, concisely summarizes the big picture confirmed by the TNG study:

Natural gas exports have increased, investment in U.S. chemical manufacturing has increased, and natural gas prices have decreased. Approving LNG exports has been a clear winner for the United States, creating jobs, reducing our trade deficit, and giving our trading partners access to cleaner and cheaper energy. Meanwhile, the United States continues to reap the benefits of domestic, clean-burning natural gas, which include leading the world in reducing carbon emissions."