Economics and Climatology?

Reading P3 and mt I got stuck at

…economics makes grandiose claims to be the science of collective behavior, or even the science of collective happiness. Yet it dismisses any philosophically interesting aspects of these questions in favor of counting dollar-denominated transactions. Nevertheless, it claims for itself a unique position among the sciences, as the crux, the central weighing mechanism, for all public decision-making.

Leaving to the side, if I can for the moment, the “philosophically interesting” aspects I’m interested in the “central weighing mechanism” point.

It isn’t clear to me if mt is rejecting (a) the idea of having a weighing mechanism, or (b) the idea that economics is it?

I don’t think (b) is plausible – economics is, pretty well by definition, the weighing mechanism. Assuming you believe in one.

That leaves (a) (I think. Are there other options?). I think that’s a bad choice – the only alternative to a central mechanism is a decentralised mechanism, where everyone uses their own prejudices. Which is the bad bits of the current political mess (if you want an example of decision-making not based on economics, then try this or more generally). I think you want more economics, not less, but done properly.

Once upon a time I think I would have rejected (a), or perhaps I would have not got past my reservations over it. There are still immense problems with reducing everything to a common monetary unit (e.g. Stern is broken). But I now think that to refuse to accept (a) is just to stick your head under a blanket. These decisions and trade-offs will be made anyway; its impossible not to make them. So they should be made in the best way.

[Update: if you want an example of why doing things non-economically is a bad idea, try this].

Refs

* Carlyle and the Racist Origins of the Idea that Economics was “the Dismal Science”
* The crash wasn’t derivatives and it wasn’t big banks: as Spain shows
* Covered in Bees finds mt a bit hand-wavy too.

Ozone regs

According to the Economist:

Barack Obama socked it to the left on September 2nd, by backtracking on a new rule to mitigate air pollution. As proposed by the Environmental Protection Agency (EPA)–a hate object to many Republicans–the rule would have reduced ambient ozone, a toxic gas created by power-plant emissions and exhaust fumes, to less deadly levels than America currently permits. According to the EPA, this would by 2020 have saved up to 12,000 lives and 2.5m working days and school days lost to the toxic effect of ozone on American lungs each year. It would also have cost polluters and government up to $90 billion per year–a toll that, in hard times, Mr Obama felt unable to levy.

Doing a quick-n-dirty [ahem; but also wrong – see update] calculation, that is $50 million per life saved. Which isn’t economic, those it isn’t wildly out – as I recall, first-world lives go for about $10 million a go. Which is to say, if you’ve got that much money and want to save lives, there are ways to spend that money and get a far better result.

So Obama was correct to veto the regs; at least based on that analysis [but according to the update, things are much more ambiguous]. Not everyone is happy though. That analysis ends with “the EPA estimated that increasing the stringency of the standard would produce up to $37 billion in health benefits annually”, which sounds impressive, but they don’t even attempt to mention the costs, which seems odd (note, BTW, that if you’re up in arms about attempting to value a life, then you can’t accept that $37B figure either). As I’ve said, the Economists quotes $90 billion/year, so that too makes it a net loss.

Oddly enough, Krugman (although an economist, and a noted one at that) doesn’t even attempt a cost benefit analysis. As I read his argument, it goes “the country needs economic stimulus, ozone regs would have cost money, so that’s great lets do it”. But even based on that kind of analysis, perhaps there are other ways of achieving the same aim (i.e., that of throwing money at the economy).

[Update: thanks for a couple of refs found. Both say The Clean Air Act bars EPA from considering costs in setting or revising any national air quality standard. EPA analyzes the benefits and costs of any major rule under requirements of Executive Order 12866 and according to guidelines from the White House Office of Management and Budget. which is interesting and might be reasonable: they need to try to find out the cost/benefit, but aren’t allowed to use it. That, however, is only reasonable if there is a clear understanding that their regs can be overturned on cost/benefit grounds.

There are a couple of different proposed standards, which accounts for some of the vast range of costs/benefits. It looks like it is best to talk about 0.070 to 0.075 parts per million, which might be the EPA’s favourite.

http://www.epa.gov/glo/fs20070802.html says Annual net benefits for implementation of the proposed standards (i.e., 0.070 ppm to 0.075 ppm) in 2020 range between -$20 billion and +$23 billion. Because of the high degree of uncertainty in these calculations, EPA cannot estimate whether costs will outweigh benefits, or vice versa. which means the numbers I have must be wrong, since I get a clear net loss. I only used the deaths, not the days-lost stuff, but even so I doubt that fits. I think the answer is that I was wrong to think of the deaths as being “up to 2020”; that figure is annual, at 2020. Hence the deaths-saved are actually about 7 times bigger than I thought, which brings costs and benefits back into approximate balance. The original language of the EPA is a touch vague, but the Economist transformed “in 2020” into “by 2020” which didn’t help (but with some faint justification; it is the year EPA uses, and they use it because that is when they estimate the new unknown controls could come in).

http://www.epa.gov/glo/pdfs/fs20100106ria.pdf says The benefits estimates include the value of an estimated reduction in the following adverse health effects in 2020:… 0.060 ppm… Avoided premature death 4,000 to 12,000…The costs of reducing ozone to 0.070 ppm would range from an estimated $19 billion to $25 billion per year in 2020. For a standard of 0.060 ppm, the costs would range from $52 billion to $90 billion.

There is clearly a pretty big range in all this: Setting a standard at 0.075 ppm would reduce ozone- related premature deaths by 200 deaths per year in 2020; using the three studies that synthesize data from a large number of individual studies leads to an estimated reduction in ozone related premature mortality of 900 to 1,100 per year. which gives a factor of 5 in deaths-avoided calculation.

Also interesting is some breakdown of the costs: The annual control technology costs of implementing known controls as part of a strategy to attain either a standard of 0.075 ppm and 0.070 ppm in 2020 would be approximately $3.9 billion… For areas that cannot meet the standards using known controls, particularly in California, the estimate of additional control technology costs for unknown controls range from $5.9 billion to $18 billion annually for a 0.070 ppm standard. So it looks like most of the cost comes from “unknown controls”. That, inevitably, is going to make their costs hard to estimate and perhaps likely to inflate.

What is, however, entirely clear is that any of these measures would be vastly more cost effective than the “war on terror”; you could save a twin-towers worth of people each year at far far lower cost.

That UK budget report in full

Some fairly random thoughts on the budget.

* VAT up to 20%: excellent. Calculating 17.5% was always so tedious. Score: +1.
* Child benefit and public sector pay will be frozen – for no clear reason we (as in, our family) get child benefit, which seems silly. The Economist wanted to means test it, but that would be dull and employ yet more bean counters. Still, it might at least ensure that only those who need it bother to apply. Score: -1. Public sector pay: well, tough. I got no pay rise in 2008 and I didn’t see anyone sympathising. Score: +1.
* Personal income tax allowance: To be increased by £1,000 in April to £7,475 – don’t care. Score: 0.
* Capital Gains Tax: To rise from 18% to 28% from midnight for higher rate taxpayers – don’t care; not planning on selling anything in the near future.
* Fags, Beer and Fuel: no increases. Wimps. Score: -1.
* Buying off the boys in Green: bad. Failure to scrap Trident ditto. Score: -2.
* Pensions: some action, looks sensible: +1.
* Bank levy: looks like small beer, but presumably a sop to the “soak the bankers” lobby. Score: +1.
* Environment: The government will “explore changes to the aviation tax system” such as switching from a per-passenger to a per-plane levy. It will consult on major changes. – ha, rubbish. Score: -1. Failure to introduce carbon tax: -1.

I’m sure there will be loads of arguing about “hitting the poorest hardest” but there are enough sops in there that he can bat that away fairly easily.

We are told that Mr Osborne said the state now accounted for “almost half” of all national income which was “completely unsustainable”. and I find myself in agreement: the state is too large. This isn’t just because I now work for the private sector: it is because I get more reactionary as I grow older, like everyone else.

Average real terms budget cuts of 25% over four years – except for health and international aid. – sounds fairly serious. I wonder how they are going to manage that and what will come of it. Still, it made the markets happy and the chance of us going the way of Greece is reduced.

Overall score: -2. Good, I wouldn’t want to agree with a Tory budget, that would be a terrible thing.

Other stuff: football. Good to see the French being so stereotypically Gallic. Full marks. England seem to be on the way out, which will do no harm.

[Update: I forgot to mention my top tip for saving money: abolish Ofsted -W]