If CO2 in the atmosphere doubled, global temperatures would climb at most by 3.4 degrees Celsius, far below what the UN has been saying for decades

From Investor's Business Daily. Excerpts:

"A new study published in the prestigious journal Nature finds that all those global warming doomsday scenarios aren't credible. Not that you would ever know based on how little coverage this study is getting.

The study, published on Thursday, finds that if CO2 in the atmosphere doubled, global temperatures would climb at most by 3.4 degrees Celsius. That's far below what the UN has been saying for decades, namely that temperatures would rise as much as 4.5 degrees, and possibly up to 6 degrees.
Basically, the scientists involved in the Nature study found that the planet is less sensitive to changes in CO2 levels than had been previously believed. That means projected temperature increases are too high.

Of course this is just one study, but it supports the contention climate skeptics have been making for years — that the computer models used to predict future warming were exaggerating the impact of CO2, evidenced in part by the fact that the planet hasn't been warming as much as those models say it should.

Why is this important? Because all those horror stories told over the past decades are based on predictions of  temperature increases that are much higher than 3.4 degrees.

A 2008 National Geographic series, to cite just one example, contended that scientists are warning that the global average temperature could increase by as much as 6 degrees Celsius over the next century, "which would cause our world to change radically." Oceans, it said, would become marine wastelands, deserts would expand, catastrophic events would be more common.

The Obama administration's EPA put out a report in 2015 claiming that climate change would triple the number of extremely hot days in the U.S. by 2100, increase air and water pollution, cause $5 trillion in damages for coastal property, and result in tens of thousands of premature deaths.
The EPA assumed a global temperature increase of 5 degrees."

"And don't be surprised if scientists end up revising peak warming down even further. That's been the trend up until now, after all. Back in 1977, the National Academy of Sciences said temperatures would shoot up 6 degrees C by 2050 because of CO2 emissions. In 1985, James Hansen claimed that doubling CO2 levels would boost temperatures up to 5 degrees, and other computer models at the time put the upper bound at 5.5 degrees."

"Even if it's true that 17 of the 18 hottest years have occurred since 2001 — which requires one to assume the government's manipulation of past temperature data has been on the up and up — the relevant question isn't what's happening now, but what is likely to happen going forward.

If the scientific evidence is showing that the harm from CO2 emissions will be far less than feared, we should be celebrating."

Reconsidering the ‘China shock’ in trade

By Robert Feenstra, Hong Ma, Akira Sasahara and Yuan Xu.

"Abstract: International trade has become a focus of political debates in the US and around the world, but while previous studies focus on the job-reducing effect of the surging imports from China or other low-wage countries on the US employment, the job-creating effect of exports has receive much less attention. This column employs two approaches – an instrumental variable regression analysis and a global input-output approach – to argue that the negative effects of import competition on US employment are largely balanced out once the country’s job-creating export expansion is taken into account." 

Excerpts:

"the positive effect that US exports have generated on employment has been much less explored. The US is one of the leading exporting countries in the world trading system – in 2014, the value of its merchandise exports reached more than $1.6 trillion, second only to China."

"the total exports-to-GDP ratio in the US increased from 8% to 18% during 1995-2011. No doubt such an expansion in exports has generated increased demand for labour. In recent papers, we therefore provide the first account of the positive effect of export expansion in the US, through an instrumental variable regression approach (Feenstra et al. 2017) and a global input-output approach (Feenstra and Sasahara 2017)."

"Export expansion from the US was not evenly distributed across industries, with semiconductors, motor vehicles, and petroleum refining experiencing the largest increase in exports over 1991-2007, and much smaller export growth in other industries. This creates large variation for our data at the industry level. Industries that experienced export expansion received job gains, while industries that were more exposed to foreign imports suffered from job losses. Industry-level estimation, however, cannot account for cross-sector reallocation and local demand in general equilibrium, so we follow Autor et al. (2013, 2016) and also explore the variation across local labour markets (commuting zones)."

"Our empirical results show important job gains due to US export expansion. We find that although imports from China reduce jobs, the global export expansion of US products creates a considerable number of jobs. Based on the industry-level estimation, our results show that on balance over the entire 1991-2007 or 1991-2011 periods, job gains due to changes in US global exports largely offset job losses due to China's imports, resulting in about 300,000 to 400,000 job losses in net. Estimation at the commuting zone level generate even bigger job creation effects: in net, global export expansion substantially offsets the job losses due to imports from China, resulting in about 200,000 net job losses over the period 1991-2007, and a roughly balanced net effect if we extend the analysis to 1991-2011."

"In Feenstra and Sasahara (2017), we quantify the employment effect of US imports and exports using a global input-output analysis. Following the technique of Los et al. (2015), we use the world input-output table from WIOD and examine the employment effects of US total exports and imports from China and from all countries during the period 1995-2011. Admittedly, this approach only indicates the impact of trade on labour demand, without taking into account the (regional) supply of labour in general equilibrium.

We find that the growth in US exports created demand for 2 million manufacturing jobs, 500,000 resource-sector jobs, and a remarkable 4.1 million jobs in services, totalling 6.6 million. The positive job creation effect of exports in the manufacturing sector, 2 million, is quantitatively similar to the result in Feenstra et al. (2017), in which 1.9 million jobs were created by US exports from the instrumental-variable regression approach. On the import side, our analysis shows that manufacturing imports from China reduced demand for US jobs by 1.8-2.0 million, which is similar to the result in Autor et al. (2016), who finds a decline of 2.0 million jobs due to imports from China.

One advantage of the input-output approach is that it is easy to extend the analysis to other sectors such as services and natural resources. Our results show that, when focusing on the manufacturing sector and the natural resource sector, the net effect of overall trade with all countries in all sectors is slightly negative: 80,000 reduction in demand for jobs in manufacturing, and a 250,000 job reduction in the natural resource sector during 1995-2011. However, when looking at the service sector, we find a substantial net job gain, with a 1.03 million increase in the demand for jobs due to overall trade with all countries. This is large enough to compensate for the net job losses in the manufacturing and natural resource sectors. After taking all of these into account, the net effect of overall trade with all countries led to a net increase in labour demand of 700,000 jobs."

"Conclusions

Our results fit the textbook story that job opportunities in exports make up for jobs lost in import-competing industries, or nearly so. Once we consider the export side, the negative employment effect of trade is much smaller than is implied in the previous literature. Although our analysis finds net job losses in the manufacturing sector for the US, there are remarkable job gains in services, suggesting that international trade has an impact on the labour market according to comparative advantage. The US has comparative advantages in services, so that overall trade led to higher employment through the increased demand for service jobs."

Taking a second look at the idea that antitrust action created the US software industry

James Pethokoukis of AEI.

"Advocates of aggressive antitrust actions against large American technology companies such as Google and Facebook often argue that today’s super-successful tech industry owes a debt to antitrust actions of the past. Under this theory, US government investigations and lawsuits tamed and/or distracted the monopolistic tech giants of the past — even though the companies were not broken up — allowing competitors to bloom and grow. So Google and Facebook should thank the Clinton administration for suing Microsoft in 1998, and the entire US software industry should thank the Johnson administration for beginning a 13-year legal pursuit of IBM in 1969. Likewise, action today is needed to prevent modern tech titans from squashing future competitors.

In a previous blog post, however, I outlined my skepticism about the distraction theory as it applied to Microsoft. And I am also somewhat skeptical of the IBM story. Now as Matthew Stoller of the Open Markets Institute has plainly put it, “IBM implemented a software unbundling policy due to scrutiny from the antitrust suit. This allowed a software industry to emerge.”

This is a strong claim. It refers to the company’s 1968 decision to price and sell software separately from hardware, supposedly the spark that created an independent software market. As Stoller and other activists tell the story, IBM’s decision was in reaction to the antitrust investigation that began in 1967, a failed attempt to head off eventual government legal action.

So two questions here. First, what was IBM’s motivation for the unbundling? IBM argued that the decision was in reaction to changing business conditions, not a ploy to avoid legal action. And there is some reason to think this is not an entirely implausible argument. As Edward Steinmueller writes in his 1995 paper, “The US Software Industry: An Analysis and Interpretive History” (also cited by “The Cambridge Economic History of the United States”):

The motives for IBM’s unbundling decision are disputed. One interpretation is that IBM’s actions were made in response to anticipated litigation. [In “IBM and the US Data Processing Industry: An Economic History,” authors Franklin Fisher, James McKee, Richard Manke] dispute this view, noting that no direct evidence of relation between the announcement and the DOJ antitrust action was discovered during subsequent litigation.  These analysts instead argue that IBM’s costs of software support were increasing rapidly. The costs of developing the System/360 operating system software had proved a major trauma for the company, and seemed to foreshadow still further cost increases.  In addition, the growth of independent software vendors made it possible by the late 1960s for IBM to consider separate pricing for software and to retreat from its commitment to provide all of the software tools that users might need in order to purchase or lease IBM computers.

So if this alternate take is true, market forces rather than government intervention was the action-forcing factor.  Which leads to the second big issue: How important to the emergence of the software industry was IBM’s decision, whatever its reason for taking it?

Clearly there was more happening in the computer industry than just that one decision, no matter how momentous. Indeed, the launch of the aforementioned IBM/System 360 mainframe computer in 1965 seems critical. As Computerworld magazine put it in 1976, citing the US vs. IBM testimony of government witness Larry Welke, president of International Computer Programs: “For the first time . . . software vendors had a large-potential market for their products. Before the 360 and its wide acceptance, the limited transferability of programs for other manufacturers’ machines tended to fracture the market.”

What’s more, the 1960s also saw the development of microcomputers, providing an alternate technology to IBM’s big iron, and an alternative software market to sell into. Again, Steinmueller:

Applications and affordability were responsible for rapid growth in the minicomputer sector during the late 1960s, the period when time sharing operating systems for mainframes were floundering. By 1970 . . . minicomputer unit shipments exceeded those of mainframes and, consistent with their price, were achieving about one seventh of mainframe revenues.

Finally, as for IBM being distracted, guess what: Successful incumbents often fail to keep their eye on the ball, whether or not they have Uncle Sam looking over their shoulder. They find it hard to change what’s been working in response to changing market conditions. This from the MIT Sloan Management Review:

In the 1980s, IBM’s profit margins suffered a steep decline. Because the company’s costs remained level, profits dropped. Critics of the company have widely attributed IBM’s decline to two factors. During this period, IBM became a follower of technological development, more so than in the past. Such a change was marked because, in the 1960s, IBM had led the information technology industry with a grand innovation — the 360 Series of computers. Also, the company displayed a surprising naiveté in its partnering strategies, giving Microsoft and Intel extremely profitable portions of the industry while choosing to retain less profitable portions for itself.
Though these factors are very important, they are not the root causes of IBM’s difficulties. For example, the decline of profit margins was a result of falling customer interest in mainframe computers. That IBM executives failed to foresee this was the result of two more basic factors. First, IBM’s enormous R&D effort of the 1970s should have been directed at the microcomputer, which was about to burst onto the technological scene bringing a future full of personal computers, networks, and computer servers. Instead, the company squandered R&D on building a larger mainframe.  Second, IBM shifted its relationships with customers and lost touch with their interests and concerns. Thus a partial explanation of IBM’s difficulties is that its profit margins on mainframes declined precipitously.

Again, the elegant and simple antitrust explanation may well be correct. And I am certainly open to it. But the issue certainly seems contestable, just as it is for Microsoft. Perhaps more serious research needs to be done before we start breaking up or heavily regulating today’s tech titans in the name of innovation."

Did the Food Pyramid Make Us Fat?

By Richard Morrison of CEI.

"A panel of government experts gets together and decides what is healthy to eat and what isn’t. What could possibly go wrong?

Freethink Media’s new video on the history of the Food Pyramid will make for surprising viewing for anyone who assumes official health and nutrition advice should be taken at face value. Starting in the late 1980s, the office of the U.S. Surgeon General took the lead in waging the federal government’s war on dietary fat. This led to years of recommendations and public information campaigns that, among other things, demonized animal protein sources (that often come along with a significant amount of fat) and steered Americans towards consumption of lots of low-fat carbohydrates instead—the base of the pyramid. Many Americas will remember the 1990s as the golden age of carbs.

Now, of course, further research suggests that going down that path has actually made diet-related chronic health issues like obesity and diabetes even worse. And the same is true for other items on the government’s food enemies list. My colleague Michelle Minton documented in her detailed 2016 study Shaking up the Conventional Wisdom on Salt the largely false narrative most Americans have come to believe about sodium consumption and high blood pressure. Not only does increasing salt intake not automatically lead to hypertension, over 10% of people are actually inverse salt sensitive, meaning that when they eat more salt, their blood pressure actually goes down.

All of this should lead us to be skeptical of the politically-influenced process by which government agencies come up with their healthy eating guidelines. As the Freethink video points out, the original anti-fat jihad apparently started when people in the Surgeon General’s office decided that they were going to do for food what previous public reports had done for tobacco and smoking. When stakes are high and the goal is to change the ingrained behavior of millions of people, the motivation is to put out a simple, unchanging message – everyone needs to eat less fat – rather than reporting the often contradictory findings of a succession of different studies.

That refusal to countenance ambiguity and make room for atypical sub-populations can lead to people getting dramatically incorrect advice and experiencing real health problems as a result. Surely if the government is going to spend our tax money on lecturing us on what we’re supposed to be eating, we can ask that their recommendations abide by a “first, do no harm” standard."

Competition – not regulation – is the way to a stronger internet for all (article I co-authored with Rosyln Layton)

From RCR Wireless News.

The general public thinks the average company makes a 36% profit margin, which is about 5X too high, Part II

From Mark Perry.

"This is an update of a CD post from a few years ago, with some new data and supplemented by a video below created by Richard Rider.

When a random sample of American adults were asked the question “Just a rough guess, what percent profit on each dollar of sales do you think the average company makes after taxes?” for the Reason-Rupe poll in May 2013, the average response was 36%! That response was very close to historical results from the polling organization ORC International polls for a slightly different, but related question: What percent profit on each dollar of sales do you think the average manufacturer makes after taxes? Responses to that question in 9 different polls between 1971 and 1987 ranged from 28% to 37% and averaged 31.6%.

How do the public’s estimates of corporate profit margins compare to reality? Not surprisingly they are off by a huge margin. According to this NYU Stern database for more than 7,000 US companies (updated in January 2018) in many different industries, the average profit margin is 7.9% for all companies and 6.9% for more than 6,000 companies excluding financials (see chart above). Interestingly, for nearly 100 industries analyzed by NYU Stern, there’s only one industry that had a profit margin as high as 36% – and that was tobacco at 43.3%. The next highest profit margin was 26.4% for financial services, but more than 72% of industry profit margins were single-digits and the median industry profit margin is 6%. 


“Big Oil” companies make a lot of profits, right? Well, that industry (Integrated Oil/Gas) had a below-average profit margin of 5.6% in the most recent period analyzed, and separately, the Production and Exploration Oil/Gas industry is losing money, reflected in a -6.6% profit margin. For the general retail sector, the average profit margin is only 2.3% and for the grocery and food retail industry, it’s even lower at only 1.6%. And evil Walmart only made a 2.1% profit margin in 2017 (first three quarters) which is less than the industry average for general retail, possibly because grocery sales now make up more than half of Walmart’s revenue and profit margins are lower on food than general retail. Interestingly, Walmart’s profit margin of 2.1% is actually less than one-third of the 6.5% the average state/local government takes of each dollar of Walmart’s retail sales for sales taxes. Think about it – for every $100 in sales for Walmart, the state/local governments get an average of $6.50 in sales taxes (and as much as $10.12 in Louisiana and $9.45 in Tennessee, see data here), while Walmart gets only $2.10 in after-tax profits!

Bottom Line: The public’s complete overestimation of how much companies earn in profits as a share of sales explains a lot. If $36 of every $100 in sales at a company like Walmart, McDonald’s, Home Depot, Ford Motor Company or a local dry cleaner or restaurant really did turn into profits, then of course those companies could afford to pay unrealistic minimum/living wages of $15 per hour, accept unreasonable demands from labor unions, provide all sorts of generous fringe benefits including weeks of paid holidays, long paid maternity leaves, and gold-plated pension programs, etc. The general public that believes in the fantasy-world of unrealistically, sky-high 36% profit margins would naturally think companies are just being greedy and stingy when they don’t pay higher “living wages” and have to be forced to do so through minimum wage legislation.

If the average person could realize that a 36% profit margin isn’t even close to reality and that the typical, median firm has a profit margin of only less than 8% or almost 30 percentage points below what the public thinks is a normal profit margin, then hopefully the average person would become a little more realistic about how the business world operates. Companies aren’t being stingy when they pay competitive wages, they’re just trying to survive on what are sometimes razor-thin profit margins, in a competitive environment where there’s not a large margin of error. If they’re not operating efficiently and watching costs very carefully, it’s pretty easy for a business to go from a 7-8% profit margin (and only 1-2% for retailers) to a 0% break-even situation, and then from there to losses and bankruptcy — just look at the more than half a million businesses that fail every year."

Texas Model Playbook Provides Winning Strategy

By VANCE GINN and ELLIOTT RAIA of the Texas Public Policy Foundation. Excerpt:

"The Fraser Institute’s new Economic Freedom of North America (EFNA) report provides valuable insight into which states have policies that make them economically free.

States with relatively less government spending, lower taxes, and more labor market freedom — three major categories in the EFNA — allow entrepreneurs to take risks, with benefits for everyone. Study after study (and more than 230 scholarly articles ) find that freer states have higher standards of living.

The Fraser Institute report serves as a valuable guide when states design policy. Consider the polar opposite approaches of Texas and California to state policy. As the two most populous and richest states, each has taken a different policy path — with starkly different results.

According to the EFNA, California again ranked the second-least economically free state, ahead of only New York.

California’s government spending posts its lowest score on record on its ballooning state budget and massive unfunded pension liabilities. Taxes score a nearly record low because of the highest top marginal income tax rate and other burdensome taxes. Labor market freedom ranks in the bottom half of states with excessive regulations and a high minimum wage.

Texas’ economic freedom improved one ranking to second best with its overall score setting the state’s record high.

Texas received a good score for government spending, with the Texas Legislature’s passage of two straight conservative budgets. On taxes, the state scored its highest since at least 1995, as Texas has no personal income tax but has onerous business and property taxes (the Foundation advocates eliminating both). Labor market freedom set a record and leads the nation because of its right-to-work status and a federally matched minimum wage.

These scores and rankings do not mean much on their own. Examining how lives are affected, the prosperity gains in Texas far exceed those in California.

After the last major federal tax reform in 1986 —and Texas’ conversion over time to fiscally conservative policies — Texas’ real private economy quadrupled from 1987 to 2016, for a compounded annual growth rate of 4.9 percent.

Meanwhile, California continued its big-government ways, and the Golden State’s economy grew less than the Lone Star State. California’s real private output tripled, giving a compounded annual growth rate of only 3.8 percent.

While the 1.1 percentage point difference may not seem like much, it amounts to Californians being roughly $800 billion poorer partially from not practicing economically free policies.

In addition, the U.S. Bureau of Labor Statistics’ state-level jobs report for November 2017 shows that Texas employers have created the most net nonfarm jobs in the last 12 months of any state. The remarkable streak of positive net nonfarm job creation is now at 81 of the last 86 months.

Even as new population estimates by the U.S. Census Bureau show that growth in Texas was more than double that in California last year, Texas jobs have kept pace and managed to set its record-low unemployment rate of 3.8 percent. California’s rate is at 4.6 percent, partially driven lower by workers leaving the state."