Friday, October 31, 2014

Study that purports to find that 97% of climate scientists believe that humans are the main cause of global warming might be wrong

See About That 97 Percent by David Henderson of EconLog. 
"I've posted before (here and here) about the John Cook study that purports to find that 97% of climate scientists believe that humans are the main cause of global warming.

Now Richard Tol, a professor of the economics of climate change, has written a further critique of the Cook study.

Some highlights:
Some have claimed that Cook et al. found a consensus on the dangers of climate change (Kammen, 2013) or on the need for climate policy (Davey, 2013). They investigated neither. Even some of the authors of the paper misrepresent its findings (Nuccitelli, 2014, Friedman, 2014, Henderson, 2014). 
Cook et al. took a sample of the academic literature and rated its contents. The raters were recruited through a partisan website (Cook et al., 2013) and frequently communicated with each other (Duarte, 2014). Their sample is not representative of the literature (Tol, 2014a). The sample was padded with large numbers of irrelevant papers (Tol, 2014a). For example, a paper on photovoltaics in Kenya (Acker and Kammen, 1996) was taken as evidence that climate change is caused by humans as was a paper on the coverage of climate change on US TV (Boykoff, 2008). Three-quarters of the "endorsing" abstracts offer no evidence either way (Tol, 2014a). Their attempt to validate the data failed (Tol, 2014a). An attempt to replicate part of the data failed too (Legates et al., 2013). The data show inexplicable patterns (Tol, 2014a) while the consensus rate suffers from confirmation bias (Cook et al., 2014a, Tol, 2014b).
in sum, one of the most visible climate papers of recent years is not sound. Whereas previous critique could be interpreted as a lack of competence (Tol, 2014a), the later data release suggests that Cook et al., perhaps inadvertently, worked towards a given answer. This reflects badly on the authors, referees, editors and publisher. It also weakens the activists and politicians who cite Cook et al. in support of their position."

it seems simply to have never occurred to most statists to apply realistic assumptions about human nature to the government itself

From Cafe Hayek.
"Quotation of the Day…
… is from page 197 of Michael Huemer’s impressive 2013 book, The Problem of Political Authority (emphases original):
A related form of utopianism consists of suspending general assumptions about human nature when considering agents of the state.  Defenders of government are often keen to point out the harms that might result from the widespread greed and selfishness of mankind in the absence of a government able to restrain our worst excesses.  Yet they seldom pause to consider what might result from the very same greed and selfishness in the presence of government, on the assumption that governments are equally prone to those very failings.  It is not that statists have some account of why government employees are more virtuous than average people.  Nor do they have some plan for making that be the case.  Rather, it seems simply to have never occurred to most statists to apply realistic assumptions about human nature to the government itself.  The state is treated as if it stood above the empirical human world, transcending not only the moral constraints but also the psychological forces that apply to individual human beings.
In short, the typical statist case for government intervention depends upon the occurrence of miracles.  It’s very unscientific and not at all reality-based.  It’s utopian in the worst way."

Thursday, October 30, 2014

The poor are always with us, but merely by definition

From Cafe Hayek.
"Quotation of the Day…

… is from pages 38-39 of the manuscript of Deirdre McCloskey‘s extensive and insightful review of Thomas Piketty’s Capital in the Twenty-First Century; (quoted here with Deirdre’s kind permission) (original emphasis; footnote excluded):
The usual way, especially on the left, of talking about poverty relies on the percentage distribution of income, starting fixedly for example at a relative “poverty line.”  As the progressive Australian economist Peter Saunders notes, however, such a definition of poverty “automatically shift[s] upwards whenever the real incomes (and hence the poverty line) are rising.”  The poor are always with us, but merely by definition, the opposite of the Lake Wobegon effect – it’s not that all the children are above average, but that always there is a bottom fifth or tenth or whatever in any distribution whatsoever.  Of course.
[The Saunders citation is: Peter Saunders, "Researching Poverty: Methods, Results, and Impact," Economic and Labor Relations Review, Vol. 24, June 2013, pp. 205-218.]"

Luna Park To Shutter By The End Of The Year, Citing Rising Labor Costs

By Andrew Dalton.
"Longstanding Valencia Street hip-casual dinner-and-a-cocktail spot Luna Park will close by the end of the year, the restaurant's owner AJ Gilbert told Uptown Almanac over the weekend. According to Gilbert, the popular brunch spot with the whimsical early-aughts flair, is closing due to an expected increase in labor costs that will come along a $15 minimum wage in San Francisco. Although the minimum wage bill doesn't actually go before voters until election day next week, Gilbert believes it is a sure-thing. (Likewise, many other bars and restaurants aren't happy about the proposal.)

Although Gilbert didn't divulge the bar's new owners, the ABC paperwork lists "Gaslight Cafe Partners LLC" as the proud new owner of the bar's full liquor license. The LLC's address is also listed as 3138 Fillmore Street—better known to the city's bottleservice crowd as MatrixFillmore in Cow Hollow—and also home to Gavin and Hilary Newsom's PlumpJack Group. So, while Gilbert tells Uptown Almanac that the new bar will be "a great addition to the neighborhood," it will also be sharing some DNA with a club that used to have ottomans in the shape of the letters S, E, and X. Also, per Gilbert, the new bar will have fewer staff by virtue of not being a full restaurant, and will thus avoid the increased labor costs that (allegedly) would have sunk Luna Park. While there will apparently be fewer employees at the new establishment, Gilbert says his soon-to-be-former workers will be offered positions there.

A commenter over at Uptown Almanac also points out Luna Park's sister restaurant in Los Angeles changed hands in early 2013. One of the restaurant's original founders also moved to Puerto Vallarta and opened a taco shop awhile back, so this might just be a politically charged exit strategy.
Eater reached out to Mrs. Newsom, who oversees the PlumpJack's operations, for more details on Monday, but our requests for comment were not returned by Tuesday morning (See below). We will, of course, update you as the details come in.

Update: In an email to Eater, Hilary Newsom writes a very political no-comment:
"While it is premature to discuss the future of Luna Park in detail, PlumpJack Group is always looking for opportunities to maximize our investments and add to our dynamic collection of hospitality and lifestyle businesses in Northern California. Luna Park is one of the properties we have looked at; however, it would be premature to discuss plans at this point. I look forward to discussing further as appropriate.""

Wednesday, October 29, 2014

Government Projects and Subsidies: What are the Alternatives?

By Art Carden of EconLog.
"Repeat after the economics profession: resources are scarce, and they have alternative uses. Thomas Sowell has said that this is the first rule of economics. He has also said that the first rule of politics is to ignore the first rule of economics, and this is perhaps nowhere more obvious than in discussions of state and local development policy. 
The state of Alabama has given hundreds of millions of dollars in subsidies and tax breaks to auto manufacturers, and the city of Birmingham has been talking for a long time about building a domed stadium and expanding the convention center. I've seen $500 million listed as a price tag for this venture, but I don't know that the city's prospective commitment is that high.

"What else could we do with the money?" is the question too few people are asking. Questions about economic calculation are important, but given that governments are doing these things in the context of a market economy we can at least use a few benchmarks.

So how should governments evaluate their undertakings? Ignore public choice considerations for just a second and indulge a flight of fancy. There is a collective action problem that, in theory, could mean too few stadiums and the like get produced and that could, in theory, mean that government provision of stadiums and the like would make us all better off. If Alabama, for example, is a better place to live because a government spent $250 million to lure CarCo or to build a stadium, the indirect benefits should be reflected in higher real estate prices and, therefore, higher property tax revenues. The "intangible benefits" of "putting Alabama on the map" or "becoming a big-league town" are more tangible than they might at first appear because they will be capitalized into real estate prices. Hence, we could estimate the project's contribution to tax revenue in order to determine whether it's actually creating value.

Of course, there are a lot of ways to use $250 million. A government could fund a stadium, give it to a car company, cut taxes, pay for better schools, or simply invest it in stocks and bonds. What is the baseline to which we should compare government spending on economic development, and how should we evaluate the outcomes?

I'm tempted to say we should evaluate taxes and spending by comparing it to a program of investing in stocks, bonds, or a combination of the two, distributing the proceeds, and relying on entrepreneurs to provide the things governments currently provide. Essentially, we turn states into big mutual funds. Stocks, though, are too risky while risk-free bonds are too conservative. What benchmarks and metrics would you propose?"

7 reasons why income inequality is not killing the American Dream

From James Pethokoukis of AEI.

Thomas Piketty, Emmanuel Saez
Less income inequality is self recommending, according to the left. Full stop. Reducing the income gap as much as possible — while still, of course, leaving some incentive for wealth creation — should be a top priority of government. Maybe the top priority. As President Obama said late last year: “The combined trends of increased inequality and decreasing mobility pose a fundamental threat to the American dream, our way of life and what we stand for around the globe.”
We know now, however, that mobility has not been decreasing. Economic research also suggests that income inequality — at least so far — is not a fundamental threat to the American way of life. The Manhattan Institute’s Scott Winship draws the following conclusions from his review of the literature:
1.)  Across the developed world, countries with more inequality tend to have, if anything, higher living standards. The exception is that countries with higher income concentration tend to have poorer low-income populations.
2.)  However, when changes in income concentration and living standards are considered across countries—a more rigorous approach to assessing causality—larger increases in inequality correspond with sharper rises in living standards for the middle class and the poor alike.
3.)  In developed nations, greater inequality tends to accompany stronger economic growth. This stronger growth may explain how it is that when the top gets a bigger share of the economic pie, the amount of pie received by  the middle class and the poor is nevertheless greater than it otherwise would have been. Greater inequality can increase the size of the pie.
4.) Below the top 1 percent of households—and prior to government redistribution—developed nations display levels of inequality squarely in the middle ranks of nations globally. American income inequality below the top 1 percent is of the same magnitude as that of our rich-country peers in continental Europe and the Anglosphere.
5.) In the English-speaking world, income concentration at the top is higher than in most of continental Europe; in the U.S., income concentration is higher than in the rest of the Anglosphere.
6.) Yet—with the exception of small countries that are oil-rich, international financial centers, or vacation destinations for the affluent—America’s middle class enjoys living standards as high as, or higher than, any other nation.
7.)  America’s poor have higher living standards than their counterparts across much of Europe and the Anglosphere, while faring worse than poor residents of Scandinavia, Germany, Austria, Switzerland, the Low Countries, and Canada.
So income inequality doesn’t seem to correlate with lower living standards in advanced economies, particularly America’s. And income inequality doesn’t seem to be reducing upward mobility. These would seem to be an important conclusions to acknowledge before beginning  an all-out  War on Inequality.

Likewise, it’s important to have a deep understanding of the American economy — an economy that is the most innovative in the world and created 50 million jobs over the past three decades —  before government implements policies that might alter its essential, unique nature.  Example: Before raising investment taxes “on the rich,” consideration should be given to the impact on venture capital investment. Do we want fewer billionaires, even ones that get rich by creating wonderful new products or services rather than, say, inheriting their wealth or benefiting from government favor? A less dynamic  and entrepreneurial economy may be one with less inequality and less opportunity. And more opportunity is what we want even if some folks get really wealthy as a result."

Tuesday, October 28, 2014

A good deal of regulation consists in creating barriers to entry.

From Don Boudreaux of "Cafe Hayek." 
"Quotation of the Day… 
… is from pages 38-39 of Israel Kirzner’s excellent 1985 volumeDiscovery and the Capitalist Process (original emphasis):
A good deal of regulation consists in creating barriers to entry.  Tariffs, licensing requirements, labor legislation, airline regulation, and bank regulation, for example, do not merely limit numbers in particular markets.  These kinds of regulatory activity tend to bar entry to entrepreneurs who believe they have discovered profit opportunities in barred areas of the market.  Such barriers may, by removing the personal gain which entrepreneurs might have reaped by their discoveries, bring bring it about that some opportunities may simply not be discovered by anyone.  An entrepreneur who knows that he will not be able to enter the banking business may simply not notice opportunities in the banking field that might otherwise have seemed obvious to him; those who are already in banking, and who have failed to see these opportunities, may continue to overlook them.  Protection from entrepreneurial competition does not provide any spur to entrepreneurial discovery.
Imposed price ceilings may, similarly, not merely generate discoordination in the markets for existing goods and services(as is of course well recognized in the theory of price controls), they may inhibit the discovery of wholly new opportunities.  A price ceiling does not merely block the upper reaches of a given supply curve – further increases in supply to meet demand.  It may also inhibit the discovery of as yet unsuspected sources of supply … or of wholly unknown new products.
The point is straightforward, yet it and its implications are often missed.  One implication is that we must be more skeptical of empirical studies of the effects of government intervention.  By all means, perform such studies.  But in doing so, and in reading and in interpreting them, be aware that they will never measure that which would have been discovered but which remains undiscovered.  The tamping down of the discovery – the discovery of new products, sources of supply, and production processes – that is prevented by regulations (and by taxes) is among the costs of government regulation (and taxes), yet it is not seen; it is not quantifiable.  Yet it is as real as is, say, the cost to consumers of waiting in queues for a chance to purchase price-controlled gasoline or bread.
That these inchoate yet missed opportunities are not seen and measurable is excuse enough for researchers who mistake quantification as the chief mark of sound social science to ignore these missed opportunities.  ”If we can’t measure them, either directly or by some quantifiable proxies, they’re not real.  And so we Scientists must ignore them” – that’s the scientistic attitude.  (It’s an attitude that dominates the economics profession, although, I boast, not at George Mason.)
Another point: Kirzner above uses price ceilings as his example of how price controls stymie the entrepreneurial discovery process.  Yet price floors do so as well (as I know Israel would agree). Consider “Progressives’” favorite price floor: a legislated minimum wage.  Not even the best possible empirical study of the consequences of such legislation can measure the value of the opportunities that would have, but for minimum-wage legislation, been discovered, tested, and honed.  Who knows if, in the absence of minimum-wage legislation, some entrepreneur in the U.S. would have discovered a method of profitably employing legions of very low-skilled inner-city teens at a starting hourly wage of, say, $4.00, and thereby have created attractive employment opportunities for the millions of young people who are today unemployed or working in the black market?

The current national minimum wage in the U.S. has been in place now for more than three-quarters of a century, with no reasonable hope (at least of yet) of it being repealed.  This reality is one to which employers and entrepreneurs (and workers) have long ago adjusted.  Empirical studies of changes in this national minimum wage, or of differences across states and locales of state and local minimum wages, are all done against the backdrop of this long-standing policy of minimum-wage legislation imposed by Uncle Sam.  Any phenomena measured even by the very best empirical studies will never include the possible employment opportunities that would have been discovered and exploited had there been no minimum wage at all.  Likewise, such studies necessarily cannot quantify the additional job skills (and, hence, worker productivity and subsequently higher worker earnings) that might have been gained had these missed opportunities been realized.

Yet to deny the possibility that such mutually beneficial opportunities would have been discovered or created and exploited were there never a minimum wage is to deny the very possibility of entrepreneurial discovery and creation that we see all around us when markets are left reasonably free.  Such a denial, although allowing the deniers to strike more-scientific-than-thou poses, is in fact deeply unscientific.  The reason is that it rejects some knowledge of reality – knowledge of the reality of entrepreneurial discovery and creation – that we already possess."