Which are the most effective subsidies for green energy?

From Tyler Cowen.

"That is the topic of my latest Bloomberg column, here is one excerpt:

A recent study finds that, of all domestic subsidies, the most effective involve replacing the dirty production of electricity with the cleaner production of electricity. In practice, that means subsidies or tax credits for solar and wind power. Those are more than twice as effective as appliance rebates, the weatherization of homes, or subsidies for buying electric or hybrid vehicles.

Current local and national policies offer subsidies for both electric vehicles and for solar and wind power, though the specifics vary. It would be better if the US switched more of those funds into subsidies for solar and wind power.

Green energy advocates, however, tend to support public subsidies for any policy that reduces emissions. “Less money for electric vehicles” is not the kind of message they necessarily want to send. Nonetheless, in a world of scarcity and limited support for green energy projects, hard thinking about trade-offs is necessary.

When it comes to green energy policies, many countries are having trouble meeting their commitments. Australia, for instance, repealed its carbon tax a decade ago, and many nations are talking about a zero-emissions future in vaguer terms and with looser deadlines. The UK has a net zero pledge for 2050, but is not on track to meet intermediate targets. It’s folly to blindly support an all-of-the-above strategy.

So we need to choose, and this paper offers guidelines.

The original research is from Robert W. Hahn, Nathaniel Hendren, Robert D. Metcalfe, and Ben Sprung-Keyser."

Good News on Global Equality

Chelsea Follett.

"Part 3: Declining Inequality

This is part three of three-part series. In part one of this series, I discussed different kinds of inequality and which ones we should be concerned about. In part two of this series, I discussed measuring inequality. You can find part two here.

There is a widespread but mistaken belief that the tremendous progress across a range of metrics has coincided with increasing global inequality, but in fact the data in the Inequality of Human Progress Index (IHPI) created by myself and Vincent Geloso unambiguously show a decline in global inequality. That’s true on a variety of metrics, including income inequality, education inequality, and most important, overall inequality. In fact, across all but two of the dimensions of inequality that we analyzed, the world has become more equal since 1990.

Worldwide equality has grown continuously since 1990 for life expectancy, internet access, and education. Equality of political liberty has similarly improved almost continuously since 1990, although there has been a slight and troubling downturn in recent years. That recent reversal does not cancel out the long‐​term trend of widening access to political liberty but is a reminder that progress is neither inevitable nor irreversible. Political freedom can be lost if not safeguarded. Globally, incomes became less equal until the mid‐​2000s, but income equality has improved considerably since then. As for adequate nutrition, the trend line has been erratic, with a turn toward greater inequality in the early- to mid‐​2000s. Yet the long‐​term trend has been one of appreciable gains in nutritional equality, as access to an adequate food supply becomes more common around the world.

What about the two exceptions? Two indicators in the index show trends toward more inequality: mortality resulting from outdoor air pollution and infant mortality. Regarding air pollution deaths, they may be a result of economic growth in progress. Economists talk about this with references to the environmental Kuznets curve (created by Simon Kuznets), which predicts that pollution rises along with economic growth until reaching a critical threshold beyond which pollution decreases. The growing disparity in outdoor air pollution deaths may indicate that some countries are in the midst of this transition. Those developing countries will almost certainly experience gains in environmental quality similar to those seen in today’s rich countries as they, too, grow richer.

Regarding infant mortality, it is important to remember that in absolute terms, infant mortality has fallen around the world. The growing inequality in infant mortality outcomes could be attributed to the fact that reductions in child mortality in high-income countries have outpaced those in low-income countries since 1990. While infant mortality has, again, decreased globally as more and more children survive past their first year of life, advancements since 1990 appear to have simply occurred relatively faster in high-income nations with access to cutting-edge medical technologies.

These exceptions are important but our most significant finding is that overall inequality is down. In fact, when compared with inequality trends in prior indexes of inequality, which surveyed fewer dimensions, the IHPI shows a far greater degree of improvement toward global equality. This result suggests that older indexes tended to underestimate how widespread progress has been, as well as the share of improvements in living standards that have gone to the poorest people in the world. Global equality has grown faster than many appreciate.

In Adam Smith’s day, for each very rich man, there were at least 500 poor ones. Inequality was extreme. The wealth explosion since then has made even ordinary people today rich beyond the wildest 18^th century dreams. In the past few decades, the world has become better off, and those gains have been widely shared. Increasing public awareness of the global decline of inequality may bolster support for the systems of free enterprise and liberalized international trade that Smith advocated and that have brought absolute poverty to record lows and made humans across the globe more equal.

Want more?

Nils Karlson, Is Inequality a Problem? a review of The Poor and the Plutocrats at Econlib
Angus Deaton on Health, Wealth, and Poverty at EconTalk
Kerianne Lawson on Equal Economic Freedoms at The Great Antidote (with a Great Antidote Extra by Kevin Lavery)"

Smithian Insights into Shrinking Global Inequality

By Chelsea Follett.

"This is part one of three-part series.

Over the past two and a half centuries, the world has seen significant progress. People live longer, are richer and better educated, and enjoy greater political freedom. (I previously explored the role of cities as engines of such progress for the Liberty Fund’s AdamSmithWorks project). But has that progress been enjoyed by only a few? Has the improvement in living conditions accrued mainly to a small elite, leaving much of the world behind?

What many don’t realize is that these improvements have indeed been widely shared. It seems that globalization and market liberalization—whose power Adam Smith recognized more than two centuries ago—have raised absolute living standards to unprecedented heights and reduced overall inequality. The world is not only wealthier but also more equal.

In this series, I will discuss what inequality is, how it’s measured, and how to understand it’s decline.

 

Part 1: Understanding Inequality

A popular adage states that “the rich get richer and the poor get poorer”—encapsulating the view that progress is enjoyed only by some. In a much-quoted passage subject to various interpretations, Smith wrote, “Wherever there is great property, there is great inequality. For one very rich man, there must be at least five hundred poor, and the affluence of the few supposes the indigence of the many.” How readers understand Smith’s words on inequality often depends on whether and to what extent they consider inequality to be a problem.

Smith was hardly the first to bring attention to the subject of inequality. Some research even suggests that concern about inequality may be evolutionarily hardwired. Human psychology evolved at a time when people lived in small hunter-gatherer bands that tended to divide meat in an egalitarian manner. Society has altered considerably, but moral intuitions remain largely unchanged—highly unequal distributions of resources often strike people as unjust.

Of course, our genetic predispositions for thinking in certain ways should not be given undue weight: human impulses can be bad as well as good. What Smith calls “the odious and detestable passion of envy” is sometimes implicated in the desire to reduce inequality and has long been characterized as negative by sources such as the biblical Book of Proverbs (which says that “envy rots the bones”) and the playwright William Shakespeare (who wrote that “envy breeds unkind division”). The tendency to focus on relative, rather than absolute, measures of well-being can also be harmful because absolute rather than relative measures of progress are the best standard to assess the success of different institutions and policies.

Furthermore, the majority of people have no objection to inequality arrived at by merit, and there is no evidence of widespread inequality-induced unhappiness. In developing countries, increased economic inequality that arises as part of the population escapes poverty is often seen as heartening—proof that upward mobility is possible—and can coincide with greater average happiness. Research has similarly found “a complete lack of any effect of inequality on the happiness of the American poor.” [abstract of this paper is below-CM]

Of course, when the rich are protected through privileged status in law, inequality seems far more troubling. Smith recognized that incumbent businesses sometimes gain unfair privileges from the government—in the form of regulations that strangle competition, for example:

The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition, is always the interest of the dealers. . . . The proposal of any new law or regulation of commerce which comes from this order ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. (Wealth of Nations, Bk 1, Ch 11)

The growth of government since Smith’s time makes those concerns even more relevant. Examples of such laws range from a needlessly expansive regime of occupational licensing stopping individual competitors from entering a field and overbearing regulatory barriers blocking new businesses from entering an industry to bailouts, mandates, and subsidies that artificially boost sales and coddle entire industries. Inequality that arises from such cronyistic government policies is concerning, and reforms to prevent governments from increasing inequality in this manner are a prudent idea with broad appeal.

There are of course other possible causes of inequality, particularly in rich countries. Consider income inequality. As countries develop economically, income inequality becomes less and less useful as a measure of well-being. In subsistence economies, everyone is engaged in the same struggle for survival. In contrast, people are engaged in different pursuits in affluent societies because such societies offer diverse avenues for fulfillment.

While some individuals seek to maximize their income, others may choose lower-paid professions that they find enjoyable or meaningful or that confer prestige or greater flexibility. Individuals may prefer work that allows more time for leisure or caring for their children. Smith famously observed that each person pursues self-interest—“the care of his own happiness, of that of his family, his friends, his country”—but as Lauren Hall previously noted for AdamSmithWorks, “Smith never argues that economic interest is or should be the sum total of all human activities” (emphasis added).

When income inequality results from personal decisions that some people make to pursue things other than material prosperity, it is hardly a good measure of well-being. Income inequality in such societies reflects personal choices, not overall well-being. In other words, advanced economies provide numerous paths to happiness, diminishing the significance of income inequality. Fortunately, there is a more meaningful way of measuring inequality which I will discuss in part two of this series by focusing on the Inequality of Human Progress Index (IHPI) created by myself and Vincent Geloso.

Want more?

Vincent Geloso on the Great Antidote podcast talking about Global Inequality at AdamSmithWorks
Chelsea Follett’s Cities as Centers of Innovation: Lessons from Edinburgh and Paris at AdamSmithWorks

Pedro Schwartz, Poverty and Inequality, at Econlib."

"Inequality and Happiness: Are Europeans and Americans Different?"

By Alberto Alesina, Rafael Di Tella & Robert MacCulloch

"We study the effect of the level of inequality in society on individual well being using a total of 123,668 answers to a survey question about “happiness”. We find that individuals have a lower tendency to report themselves happy when inequality is high, even after controlling for individual income, a large set of personal characteristics, and year and country (or, in the case of the US, state) dummies. The effect, however, appears to be stronger in Europe than in the US. In addition we find a striking difference across groups. In Europe, the poor and those on the left of the political spectrum are unhappy about inequality; whereas in the US the happiness of the poor and of those on the left is uncorrelated with inequality. Interestingly, in the US it is the rich who are especially bothered by inequality. We argue that these findings are consistent with the perception (not necessarily the reality) that Americans have of living in a mobile society, where individual effort can move people up and down the income ladder, while Europeans believe that they live in less mobile societies."

Measuring Inequality Across Multiple Dimensions (impressive gains have been made since then 1990 with 1990 most people around the world becoming better off in absolute terms)

By Chelsea Follett.

"This is part two of three-part series. In part one of this series, I discussed different kinds of inequality and which ones we should be concerned about. You can find part one on Understanding Inequality here and part three on Declining Inequality here.

Part 2: Measuring Inequality

Adam Smith was well aware that money is not the sum total of well-being; he once opined that “the chief part of human happiness arises from the consciousness of being beloved.” Smith would easily comprehend why someone might choose greater flexibility over higher pay to spend more time with loved ones and would understand that such a choice does not render anyone worse off but is merely an example of someone acting on personal preferences. The greater an individual’s freedom to make choices to act on her preferences, the better off she is. “Every man is rich or poor according to the degree in which he can afford to enjoy the necessaries, conveniences, and amusements of human life,” as Smith noted. Income is just one (admittedly important) measure of well-being precisely because greater income often affords more options to individuals.

Well-being is multifaceted. Attempts to measure it should include income but should also recognize the complexity of the topic and avoid focusing myopically on income.

George Mason University economist Vincent Geloso and I tried to do just that by creating a new measure of inequality, the Inequality of Human Progress Index (IHPI). The IHPI assesses well-being holistically by seeking to capture a fuller range of choices available to individuals than can be gleaned from income alone. By examining inequality in a multidimensional way, the IHPI takes inequality more seriously than measures that focus solely on income inequality. In fact, we surveyed international inequality across a greater number of dimensions than any prior index.

We first constructed a Human Progress Index that includes income as well as other metrics, each speaking to a different component of progress that matters in terms of human well‐​being: lifespan , childhood survival , nutrition, environmental safety , access to opportunity , access to information, material well‐​being, and political freedom.

We chose those variables to capture the multifaceted nature of well-being with the best available data. Smith may be right that “the consciousness of being beloved” is a key component of well-being, but it is rather hard to find a good measure of it; we limited ourselves to readily quantifiable metrics where the extensiveness of each data set’s year range and coverage of different countries allowed for meaningful analysis. Including so many variables meant we had to constrain ourselves to measuring how global inequality has changed since ​1990, because data were often not available or limited before that date. The index confirmed that impressive gains have been made since then, with most people around the world becoming better off in absolute terms.

Importantly, were those gains shared, or did a few countries see most of the benefits while other countries were left behind? To find out, we looked at how inequality between countries has changed over time across those dimensions which I will discuss in part three of this series.

Want to read more?

John V. C. Nye on Standards of Living and Modern Economic Growth in the Concise Encyclopedia of Economics.

Jeremy Horpedahl, Americans Are Still Thriving at Econlib.

James R. Otteson’s Brief Biography of Adam Smith at AdamSmithWorks"

The Long-Term Effects of Income for At-Risk Infants: Evidence from Supplemental Security Income

By Amelia Hawkins, Christopher Hollrah, Sarah Miller, Laura R. Wherry, Gloria Aldana & Mitchell Wong.

Abstract

"The Supplemental Security Income (SSI) program uses a birthweight cutoff at 1200 grams to determine eligibility. Using birth certificates linked to administrative records, we find low-income families of infants born just below the cutoff receive higher monthly cash benefits (equal to 27% of family income) at ages 0-2 and small but significant effects on transfers through age 10. Yet, we detect no improvements in health care use and mortality in infancy, nor health and human capital outcomes as observed through young adulthood for these infants. We also find no improvements for their older siblings."

New Analysis Finds Lasting Impact for Students Affected by COVID School Lockdowns

According to a new report, the average eighth-grader needs over nine months of extra school time to catch up with pre-COVID achievement levels.

By Emma Camp of Reason. 

"Over four years after the start of mass school lockdowns during the COVID-19 pandemic, many children are still feeling the educational effects. According to a new report from the testing nonprofit Northwest Evaluation Association (NWEA), student test score growth is still failing to rebound to pre-COVID levels, and some children would need as much as nine months of extra schooling to catch up.

"Our findings make it clear that the road to recovery from the pandemic's impact on student achievement is far from over," reads an NWEA research brief released this week. "The effects continue to reverberate, even for the youngest students entering the education system years after the initial onset of the pandemic. At the end of 2021–22, we optimistically concluded that the worst was behind us and that recovery had begun. Unfortunately, data from the past two school years no longer support this conclusion."

NWEA researchers studied the scores of over 7.7 million public school students in grades 3–8 who took the nonprofit's reading and math assessments since the start of the pandemic. The NWEA found that test score gains continued to fall short of prepandemic trends for all but the youngest students during the 2023–24 school year.

These score gaps mean that the average eighth-grader would need over nine extra months of schooling to catch up with pre-COVID achievement levels. The least affected students—third-graders, most of whom would not even have been enrolled in school at the start of the pandemic—would need 2.2 months and 1.3 months of extra schooling to catch up in reading and math respectively. 

"At the end of the 2023–24 school year, across all grade levels, the average student will require the equivalent of 4.8 months of additional schooling to catch up to pre-COVID levels in reading and 4.3 months in math," the report reads. "Prepandemic rates of learning vary across grades and subjects. Younger students tend to make larger gains per year compared to older students, and math gains tend to be slightly larger than reading gains."

The report indicates that recovery is unlikely to be so easy and that many students are likely to continue struggling for the foreseeable future. While it will be years before the full educational impact of the COVID-19 pandemic is known, it's hard not to see how school lockdowns caused long-term—or permanent—damage to millions of students.

"Accepting a new normal of lower achievement and widened inequities is not an option," the report reads. "Instead, we must remain committed to using data-driven strategies to understand and address the specific impacts on our students, ensuring they receive the necessary supports to thrive.""

‘Reds’ Review: Communism in the U.S.A.

The Soviet Union cast a long shadow over American fellow travelers, who contorted their beliefs to follow the party. 

By Joseph Epstein. He reviews the book Reds: The Tragedy of American Communism by Maurice Isserman, a professor of history at New York’s Hamilton College. Excerpts:

"the Soviet Union was a powerful state apparatus organized for antisemitism, deliberate starvation of its own people, the establishment of grim gulags, the murder of millions and the deadening of the souls of those compelled to live under its crushing political system."

"anyone of the least political acumen knew the brutal game the Soviet Union played. Anyone, that is, but the members of the American Communist Party. “Many of us were easily deceived,” noted Herbert Aptheker, the Marxist historian who himself joined the party in 1939. “We were credulous because we felt we had to be.”"

"In 1919 Eugene V. Debs, who would win 3% of the popular vote in the next year’s presidential election, declared: “Every drop of blood in my veins is Bolshevik.” Debs would later recant, noting “there is certainly something that is radically wrong with the policy of the Soviet Union in dealing with those who are not in accord with its program.” Debs himself never became a member of a communist party in America."

"American communism was from the beginning and ever after politically hostage to the Soviet Union."

"What would entice one to join this American communist party?"

"Then there is the general challenge, first noted by George Orwell, that those on the political left often feel from people to the left of them: that they are too timid in their views, are not really on the bus, are themselves part of the problem."

"Intramurally, there was no shortage of squabbles and skirmishes, even schisms."

"[John] Dos Passos abandoned his leftist politics when he encountered firsthand the devious politics of the Soviet Union during the Spanish Civil War and would become a strong anticommunist."

"A strong faction of otherwise leftist American intellectuals, while retaining their socialism, came to declare themselves anticommunist."

"Some did spy for the Soviets"

"The Communist Party of America was never more than a branch office of Soviet Communism, and rather a minor branch office at that."

"The chief problem that Soviet communism presented to American communists was the requirement to toe the line—and a most jagged, not to say crooked, line it often turned out to be."

"There was the Soviet Union’s break with, and eventual assassination of, Leon Trotsky, a figure much admired by many American Communists. There was the Nazi-Soviet pact on the eve of World War II, through which Stalin promised nonaggression while Hitler invaded his European neighbors and the two dictators fatefully (and secretly) agreed to divvy up Poland. There were the Moscow Trials, during which once-revered old-line Russian Communists were put on trial by Stalin’s secret police, found guilty and executed for treason. There was Nikita Khrushchev’s 1956 “secret speech,” during which Stalin’s successor as Soviet leader seemed to do an about-face, describing and acknowledging the monstrous crimes of the recently deceased Stalin. Then there was the brutal Soviet suppression of a rebellion in Hungary later that year, and (12 years later) a similar attack against restive Czechoslovakians. Through all this and more, members of the American Communist Party had to adjust to sudden ideological shifts if they were to remain in the party."

"the party took its orders from Moscow, and the Russian party also financed the American Communist Party; in 1987 its annual cash subsidy to the American party was up to at least $2 million. In the great tradition of American politicians, Gus Hall, a leader of the American Communist Party and its hopeless presidential candidate in the elections of 1972 through 1984, was accused of stealing from these funds for his personal pleasures, an accusation that Mr. Isserman seems to believe to be true."