Climate models have consistently overestimated the amount of warming that has taken place.

See Climate Insensitivity: What the IPCC Knew and Didn’t Tell Us, Part II by Patrick J. Michaels and Paul C. "Chip" Knappenberger of CATO.

"Global Science Report is a feature from the Center for the Study of Science, where we highlight one or two important new items in the scientific literature or the popular media. For broader and more technical perspectives, consult our monthly “Current Wisdom.”

The bottom line from the new report from the Global Warming Policy Foundation (GWPF) is that the U.N.’s Intergovernmental Panel on Climate Change (IPCC) knew, but didn’t highlight, the fact that the best available scientific evidence suggests that the earth’s climate is much less sensitive to atmospheric carbon dioxide input than the climate models they relied upon  to forecast future global warming portray.

We covered the GWPF report and its implications in this post. But one implication is worth mentioning again, from the report’s conclusions:

The [climate models] overestimate future warming by 1.7–2 times relative to an estimate based on the best observational evidence.

While the report’s authors, Nicolas Lewis and Marcel Crok, are talking about the future, the same thing should apply to the past. In fact, a strong test of Lewis and Crok’s prediction is whether or not the same climate models predict too much warming to have already taken place than observations indicate.

There is perhaps a no better general assessment of past model behavior than the analysis that we developed for a post back in the fall.

The figure below is our primary finding. It shows how the observed rate of global warming compares with the rate of global warming projected to have occurred by the collection of climate models used by the IPCC. We performed this comparison over all time scales ranging from from 10 to 63 years. Our analysis ended in 2013 and included an analysis of the global temperature trend beginning in each year from 1950 through 2004.

As can be clearly seen in our figure, climate models have consistently overestimated the amount of warming that has taken place. In fact, they are so bad, that over the course of the past 25 years (and even at some lengths as long as 35 years) the observed trend falls outside of the range which includes 95 percent of all model runs. In statistical parlance, this situation means that the observed trend cannot be reliably considered to be part of the collection of modeled trends. In other words, the real world is not accurately captured by the climate models—the models  predict that the world should warm up much faster than it actually does.


That the models don’t work when simulating the past is strong indication that they won’t work when projecting the future.

And judging from past performance, the conclusions of Lewis and Crok, that “[t]he [climate models] overestimate future warming by 1.7–2 times relative to an estimate based on the best observational evidence” seem right on the money.

Global climate disaster averted! Too bad the IPCC didn’t see fit to pass this important bit of information along to policymakers, but instead, attempted to sweep it under the rug.

Maybe there ought to be a congressional investigation. Staffers, start your engines!"

Budget Projections Need To Be Realistic About What Will Actually Happen To Discretionary Spending

See The Need for Discretionary Spending Restraint by Chris Edwards of Cato.

"The Obama administration released its 2015 budget this week. The budget shows federal debt held by the public falling from 74 percent of gross domestic product (GDP) this year to 69 percent by 2024. That reduction occurs even though entitlement and interest spending are projected to rise substantially as a percent of GDP. 

One of the tricks behind the projected falling debt is that the administration assumes that discretionary spending falls sharply as a percent of GDP in later years. Congressional Budget Office (CBO) projections show a similar decline in discretionary spending in coming years.

I favor large discretionary reductions, and I have proposed many specific cuts. But does the Obama administration really favor the reductions down the road shown in its own budget? I doubt it. After all, the administration’s new spending proposals would break existing budget caps, and that would come in the wake of both parties breaking caps under the Ryan-Murray budget deal. So projecting declining discretionary spending in later years is an accounting ploy to make the fiscal outlook look better than it really is.

If policymakers don’t restrain discretionary spending, deficits and debt will be higher in coming years than shown in official projections. Let’s call this the “business as usual discretionary spending” scenario.

Here are the implications of the scenario, based on the CBO baseline and my calculations. Let’s suppose discretionary spending remains at the 2014 level of 6.9 percent of GDP through 2024, rather than falling to 5.2 percent as shown by CBO. That higher spending results in interest costs 0.4 percentage points of GDP higher by 2024.



Under this scenario, total outlays would rise from 20.5 percent of GDP today to 24.5 percent by 2024. The deficit would rise to a dangerous 6.2 percent of GDP.

Under the CBO baseline, federal debt rises from 74 percent of GDP today to 79 percent by 2024. But under my business as usual scenario, debt would soar to 91 percent by 2024, as shown in the chart. It would keep rising rapidly after that.

In sum, I hope that discretionary spending as a percent of GDP falls, as shown in the CBO and Obama projections. But without proactive efforts to cut and terminate programs, that may not happen. Of course, entitlement spending also needs to be cut.

However, if business as usual prevails in Washington with entitlement spending gobbling up more of GDP and discretionary spending not cut, we’ve got a really big fiscal crunch coming."

How many of the previously uninsured have signed up for Obamacare?

By Tyler Cowen of Marginal Revolution.

"Amy Goldstein reports:

The new health insurance marketplaces appear to be making little headway in signing up Americans who lack insurance, the Affordable Care Act’s central goal, according to a pair of new surveys.

Only one in 10 uninsured people who qualify for private plans through the newmarketplaces enrolled as of last month, one of the surveys shows. The other found that about half of uninsured adults have looked for information on the online exchanges or planned to look.

…The McKinsey survey shows that of people who had signed up for coverage through the marketplaces by last month, about one-fourth described themselves as having been without insurance for most of the past year. That 27 percent, while low, compares with 11 percent a month earlier.

There is more here.  You will note that a low rate of sign-up is distinct from a rate of sign-up skewed toward the elderly and the sick.  In this sense we still do not know how the new law is doing, though in a broader sense a low rate of sign-up should not be considered good news."

Was Bork Right About Mergers?

David Henderson of EconLog.

"In a just-published NBER study, "Did Robert Bork Understate the Competitive Impact of Mergers? Evidence from Consummated Mergers," NBER Working Paper 19939, economists Orley C. Ashenfelter of Princeton, Daniel Hosken of the Federal Trade Commission, and Matthew C. Weinberg of Drexel University write:

In The Antitrust Paradox, Robert Bork viewed most mergers as either competitively neutral or efficiency enhancing. In his view, only mergers creating a dominant firm or monopoly were likely to harm consumers. Bork was especially skeptical of oligopoly concerns resulting from mergers. In this paper, we provide a critique of Bork's views on merger policy from The Antitrust Paradox. Many of Bork's recommendations have been implemented over time and have improved merger analysis. Bork's proposed horizontal merger policy, however, was too permissive. In particular, the empirical record shows that mergers in oligopolistic markets can raise consumer prices.

Actually, though, they don't show that, by an efficiency measure, Bork's proposed policy was too permissive.

Let me explain.

Bork thought that allowing mergers even in allegedly oligopolistic markets would not harm consumer well-being. Ashenfelter et al, survey "49 distinct studies examining mergers taking place in 21 industries published over the last 30 years." Here's the paragraph that comes closest to summarizing their findings:

The empirical evidence that mergers can cause economically significant increases in price is overwhelming. Of the 49 studies surveyed, 36 find evidence of merger induced price increases. All of the airline merger studies find evidence of price increases, although the magnitude of the price increases appears to be more modest following recent mergers (2-6%) when compared to the mergers that took place in the 1980s. Similarly, most of the banking (6 of 7), hospital (5 of 7), and "other industry" (13 of 18) studies find evidence that mergers have resulted in price increases.

So, if the evidence is good, this is evidence against Bork's view. (By the way, they do credit Bork for a more liberal policy toward mergers. The three authors, like Bork and like most economists in industrial organization who studied the government's merger policy before economists, lawyers, and judges changed it in the 1980s, think that merger policy before the 1980s was way too restrictive, the 1960s Von's Grocery case being one of the most egregious.)

Why, then, do I say that they do not show that merger policy was too permissive? Because Ashenfelter et al, like Bork, abjure Oliver Williamson's insight in his classic 1968 article, "Economies as an Antitrust Defense." Here's what I wrote about that insight in my Wall Street Journal article, "A Nobel for Practical Economics," after Williamson and the late Elinor Ostrom won the Nobel Prize in economics:

Although the Nobel committee did not highlight Mr. Williamson's classic 1968 article, "Economies as an Antitrust Defense," I will. Mr. Williamson showed that horizontal mergers of companies in the same industry--even those that increase market power and even those where the increase in market power leads to a higher price--can create efficiency. The reason is that if mergers reduce costs, the reduction in costs can create more gains for the economy than the losses to consumers from the higher price.

Bork accepted Williamson's insight, as, apparently, do Ashenfelter et al. So they don't abjure it in the sense of repudiating it. But they do ignore it. So if we judge mergers using an efficiency standard, that is, a standard that takes account of increased producer surplus as well as reduced consumer surplus, we can't say, even if the all the evidence they cite on price increases following mergers is solid, that Bork's proposed merger policy was too permissive."

Graphic of the day: Socialism vs. capitalism

From Mark Perry of 'Carpe Diem."

 

Related: The difference between what happens when markets allocate scarce resources and when markets are prevented from operating: In the US, nearly 100,000 patients suffering from renal failure are desperately waiting on a list for a kidney because the price is artificially forced to be $0.00 by government fiat. In Iran, people are compensated for donating a kidney, and there’s a waiting list for people willing to sell a kidney.  In other words:

With markets: Kidney donors wait in line for recipients and most patients with renal failure live.

Without markets: Patients with renal failure wait in a long line for a kidney, and most will die waiting.

9 Reasons Why Raising the Minimum Wage Is a Terrible Idea

It’s time for economic facts, not fallacies.

President Obama and congressional Democrats are pressing to increase the federal minimum wage to $10.10 an hour. Here are nine reasons why that’s a bad idea.

By Ira Stoll of Reason.

"1. It’s a big country. The costs of living, especially housing, vary widely in America from state to state and city to city. If the point of raising the minimum wage is to provide a “living wage,” why should the minimum wage in low-cost areas such as Texas or Oklahoma be the same as in high-cost areas such as San Francisco or Manhattan?

2. The states are already taking care of it. Twenty states and the District of Columbia already have minimum wages higher than the current federal minimum of $7.25 an hour.

3. Private industry and the free market are already taking care of it. Even low-skill, entry level positions in many areas already pay higher than minimum wage.

4. As an anti-poverty tool, it is a blunt instrument. A post by David Henderson cited by the chairman of the Harvard Economics Department, Greg Mankiw, points out that a lot of minimum wage earners are second or third-job holders in households with other income. That could include a teenage summer employee whose parents both have jobs. Other minimum wage workers may include retirees with income from savings and Social Security who own their homes mortgage-free.

5. It’s not clear that it’s constitutional. The Supreme Court, in its opinion in the 1923 case Adkins v. Children’s Hospital of District of Columbia, made a strong argument that a minimum wage was a violation of the constitutionally guaranteed freedom of contract embedded in the Fifth Amendment’s language about due process and the deprivation of liberty and property: “To the extent that the sum fixed exceeds the fair value of the services rendered, it amounts to a compulsory exaction from the employer for the support of a partially indigent person, for whose condition there rests upon him no peculiar responsibility, and therefore, in effect, arbitrarily shifts to his shoulders a burden which, if it belongs to anybody, belongs to society as a whole.” The Court later, in the 1937 case West Coast Hotel v. Parrish, reversed Adkins by a five to four margin. But maybe the court was right the first time around.

6. Even if the freedom of contract isn’t protected by the Constitution, it’s a natural right that should not be infringed. As President Kennedy put it in his inaugural address, “the rights of man come not from the generosity of the state but from the hand of God.” If two free people want to enter into a voluntary, consensual agreement that doesn’t infringe on anyone else’s rights, why should the government stop them? If someone wants to work for $5 an hour, and someone wants to hire that person for that much, and no one is forcing either one of them to enter into the agreement, by what authority does government step in and stop them?

7. It would eliminate jobs. Ordering businesses to pay entry-level workers more will make them hire fewer of them, and consider replacing more workers with robots or computers. That’s good if you are in the robot or computer business, but not so good if you are trying to combat unemployment. The nonpartisan Congressional Budget Office estimated that President Obama’s proposed $10.10 wage, once fully implemented, “would reduce total employment by about 500,000 workers.”

8. It would reduce the incentive for low-wage workers to get an education and move up to a higher-paying job. The lower the minimum wage, the more eager a minimum wage worker would be to enroll in a community college course at night, improve his or her skills, and apply for a higher-paying job. Making the entry-level jobs higher paying increases the risk that workers will get stuck in them for longer instead of moving on to something more rewarding.

9. It’s a sneaky way to increase welfare spending and raise taxes. Raising taxes to spend more on welfare is a political loser. But raising the minimum wage puts money in the pockets of working poor people, at the expense of business owners (and of consumers who would pay in the form of higher prices). If politicians want to increase the earned income tax credit or other work-related welfare benefits, they should do the hard work of building political support for such policies, rather than choosing the roundabout approach of a minimum wage increase."

Economists Should Consider Government Imperfections, Not Just Market Imperfections

See Witch-Doctory by Don Boudreaux of "Cafe Hayek." I think Milton Friedman said that we often replace market failure with government failure.

"Here’s a passage from pages 16-17 of the third edition of Paul Krugman’s and Robin Wells’s Economics (2013):

When markets don’t achieve efficiency, government intervention can improve society’s welfare. That is, when markets go wrong, an appropriately designed government policy can sometimes move society closer to an efficient outcome by changeing how society’s resources are used…  An important part of your education in economics is learning to identify not just when markets work but also when they don’t work, and to judge what government policies are appropriate in each situation.

This passage is featured in the PowerPoint presentation for Jim Gwartney’s plenary-session talk today at the 2014 meeting of the Public Choice Society (in Charleston, SC – one of my favorite towns on the planet).  Jim noted about this passage: “Apparently, according to Krugman and Wells, it’s not an important part of your education in economics to learn to identify just when governments work but also when they don’t work.”

The theme of Jim’s talk (based on research that he’s doing with Rosemarie Fike) was that it is not only intellectually sloppy or lazy but, in fact, deeply unscholarly and unscientific for economists today to ignore public-choice analyses of political decision-making.  Jim presented evidence – of which this quotation from Krugman’s and Wells’s book is just one example – of the still-widespread failure of economists to take public choice seriously.

Stated differently, Jim presented powerful evidence from several current economics textbooks that an embarrassingly large number of such texts – many written by the world’s most acclaimed economists, such as Paul Krugman – are surprisingly naive and unscientific.  The authors of these texts pretend to write about reality, but they instead write about a fantasy world.  Far too many economists, such as Krugman – because they either ignore or are ignorant of  public choice – simply assume that government somehow is not affected by the many imperfections that these economists readily find in markets.  As Jim said, this continuing ignorance of public choice is embarrassing to those economists who do think seriously and realistically about their discipline and about the reality that that discipline aims to illuminate.

I’ll likely write more in a follow-up post about Jim Gwartney’s excellent presentation, but I conclude this post by asking you to suppose that the above passage from Krugman and Wells had ended not with

An important part of your education in economics is learning to identify not just when markets work but also when they don’t work, and to judge what government policies are appropriate in each situation.

but, instead, ended with

An important part of your education in economics is learning to identify not just when governments work but also when they don’t work, and to judge what market policies are appropriate in each situation.

That is, if someone suggested that you assume that markets always work perfectly (or always work better than markets), what sort of scientific credibility would you accord to that person?  I hope none.  It’s profoundly misguided simply to assume that, if government fails to achieve some attainable and desirable outcome, that outcome can be achieved instead by markets that are assumed to operate perfectly.  Such an assumption about market perfection (or superiority) would be unscientific.  But such an assumption – as is made by too many economists today – about government perfection is equally unscientific.  To assume or to suggest (as do many economists) that governments operate more ‘perfectly’ than do market is no more scientific than to assume or to suggest that, if your child is seriously ill with a terrible disease and medical doctors cannot guarantee that they will cure him or her, a local witch doctor can be trusted to bring about the desired cure.

You can assume witch-doctory to be an effective cure for whatever ails your child, but that assumption doesn’t make witch-doctory so.  Yet your assumption about the wonders of witch-doctory does speak volumes about your understanding of reality.  Jim Gwartney rightly laments that far too many economists today simply assume that the witch doctor – the state – has both the miraculous powers and the benevolent interest necessary to cure all social ailments, or at least to deal with these ailments better than can admittedly ‘imperfect’ markets."