Is It Possible For Governents To Put A Cap On Carbon Emissions?

Roger Peilke Jr. wrote an article in the Financial Times which argued that a government imposed cap on carbon emissions was logically impossible.  He offered two reasons in support of his argument.  He argued that there is a strong correlation between GDP and carbon emissions.  Since governments do whatever they can to grow their economies, they are not likely to cap carbon emissions.  Moreover, governments cannot provide the innovations that would enable a shift in our energy sources from fossil fuels to alternative sources.  It follows from these two premises that a cap on carbon emissions is logically impossible.

Paul Krugman attacks Peilke's logic in this article.  He points out that the link between carbon emissions and GDP is not as strong as Peilke assumes.  The carbon intensity of GDP can be altered if the price is right.  That is, the social cost of carbon emissions can be factored into the prices that we pay for the products that we consume.  The market system will work to reduce the carbon intensity of GDP as long as we get the incentives right.  He also argues that the two largest contributors to carbon emissions are electricity production and transportation.  A shift from coal to natural gas or green technologies to produce electricity would reduce carbon emissions.  Furthermore, there is not a strong correlation between the consumption of electric power and GDP.  We can also produce more fuel efficient electrical appliances which reduce consumption without reducing appliance production.  We can also reduce the carbon intensity of GDP by using mass transportation and by building less carbon intensive vehicles.  He applauds recent US regulations which require the auto industry to build more fuel efficient vehicles. These requirements will force private industry to invest in innovations that reduce the carbon intensity of transportation.

Krugman understands that it will not be easy to reduce the carbon intensity of GDP but he argues that it is not logically impossible for governments to do so.  Therefore, Peilke is wrong to claim that it is logically impossible for governments to reduce carbon emissions without limiting GDP growth.  The content of GDP can, and should be made less carbon intensive.  Of course, getting the incentives right requires governments to intervene in the economy in a serious way.  For example, the sale of light trucks is more profitable than the sale of fuel efficient vehicles.  US consumers also seem to prefer light trucks to fuel efficient cars.  The fossil fuel industries are also threatened by government interventions that make fossil fuels more expensive.  The unused reserves that they have on their balance sheets would become less valuable.  Moreover, unless developing economies follow the lead of the US and other western countries, the problem becomes more difficult to solve.  China, for example, has passed the US in carbon emissions.

Shuffle Off To Buffalo This Week

I will be traveling the rest of the week.  I will attend the 90th birthday party for one of my cousins.  He is off to Europe after the celebration with his girl friend.  I will have to find out what he is eating. I don't think that his diet is glutton free.  He must have another secret.  I hope it includes things that I like.

Globalization, The Tory Soul And The Nation State

The central economic issue of our time is the advance of globalization.  It is consistent with the free trade wing of the Tory party, but the cultural changes that follow from globalization are inconsistent with the conservative element in the party which likes to keep things the way that they were.  The recent success of the UKIP Party in the European elections reinforces the conservative wing of the party, and it sharpens the divide within the party between the free traders who capture the spirit of the City of London, and the Tories who reside in the countryside and want to preserve the traditional culture. 

This story sounds a bit similar to what we observe today in the Republican Party.  It has embraced the Tea Party which dislikes Wall Street and the cultural and economic changes that result from globalization, but it also supports multinational corporations and the advance of globalization along with the financialization of the economy.

The Labour Party in Britain and the Democratic Party in US are also torn by the advance of globalization.  It has not by good for their constituents in labor unions, but no political party can afford to alienate the large corporations that benefit from globalization and the financialization of the economy.  It would appear that the real tension is not within the major political parties.  Globalization has moved faster than the ability of nation states to adapt to the changes that follow from globalization.

Jeff Sachs Tells Us Why He Likes The New EPA Regulations

Jeff Sachs argues that the EPA and the White House has done its homework.  He describes the EPA's strategy which lets states and regions determine the best path to meeting the carbon reduction goals that have been set.  He also believes that the rest of the world will respond to the leadership that the US is taking to reduce carbon emissions.  That will have an effect on the Paris negotiations at the end of the year.  In previous negotiations the US has been viewed as a reluctant participant in setting international carbon reduction targets.

Sachs is no fool.  He understands the energy industry will do whatever it can to prevent the EPA from enforcing the targets that it has set.  The EPA will generate a lot of revenue for the lawyers and propagandists that the energy companies will employ on their behalf.  The US Chamber Of Commerce has already started its propaganda campaign on their behalf.  Sachs believes that the days of climate change denial are numbered.  Moreover, Sachs does not mention the way that the White House has framed the EPA strategy, but it may be more effective than previous than past efforts to frame the issues.  The president is telling the public that reducing carbon emissions will have immediate public health benefits.  Air pollution from coal burning electric utilities is a public health hazard today. 

How The Concept Of Competitiveness Justifies Rising Inequality

The European Commission is demanding that struggling nations in the eurozone make difficult structural changes to improve their competitiveness.  The underlying assumption is that they will be able to export their way to economic growth by becoming more competitive.  The problem with that assumption is that it is impossible for every nation to run trade surpluses.  One would think that this is an obvious problem with the premise of the neoliberal ideology that defines the appropriate response to the economic problems in the eurozone.  This article argues that the concept of competitiveness has been used to legitimize inequality in all areas of our lives.  Moreover, while fair competition has some redeeming social values in a meritocracy, it becomes unfair when the winners in the competition are able to purchase the support of the referees who are supposed insure that we have a level playing field.

The pervasiveness of competition in our lives is overwhelming.  We watch TV shows in which chefs attempt to win competitions with other chefs and a plethora of other shows in which contestants compete with each other in wide variety of contests.  The outcome of these competitions is always the same.  There is only one winner, and there are a large number of losers who must accept their defeat gracefully.  To the winner goes the spoils of victory.

It is a simple step to take the idea of individual competition to the next level.  Corporations and states compete in a global economy and they are do what they can to adapt the economic contests to their advantage.  We have gotten to the point where it is no longer possible for the state to legitimize the competition because everything can be purchased.  The market economy has been transformed into a market society in which everything is up for sale.  The winners in the competition are in a position to purchase the referees. The media are perfectly happy to turn everything into a horse race that attracts an audience eager to bet on the outcomes.

CNBC recently interviewed Thomas Piketty.  The opening preamble to the interview was that we live in a meritocracy in which inequality is legitimized by the outcomes of a fair competition.  The preamble assumes that the race to the top is a fair competition and that the rewards that go to the winners are based upon merit.  How could anybody write a book that argued against growing inequality? Following the Piketty interview, CNBC asked Kevin Hassett, an economist from the conservative American Enterprise Institute, who wrote a book during the dotcom boom that predicted a rise in the Dow Jones to 36,000, about Piketty's book.  Hassett declared that the Financial Times destroyed Piketty's thesis, and he made several comments about the book which showed that he had not read it.  CNBC did its job.  It delegitimatized Piketty and it legitimized the underlying logic of a meritocracy which properly rewards the winners and punishes the losers.  Competition is the magic that makes the system work.

France And Italy Are Caught In An Economic And Poitical Trap

Economic and political problems continue to escalate in the eurozone.  France and Italy are the second and third largest economies in the eurozone and they are not meeting the economic goals set by the European Commission.  Budget deficits in both countries continue to grow as a percent of GDP.  The basic problem is slow economic growth in both countries.  Slow growth means slow growth in tax revenues.  Its difficult to cut budget deficits when tax revenues are not growing.  When that happens, the government can either cut spending, which might slow down economic growth even further, or it can cut taxes which might stimulate the economy, but it may also cause budget deficits to rise even further.

The fiscal austerity demanded by the European Commission may worsen the economic problems in France and Italy.  Furthermore, it will not be easy to implement unpopular spending cuts demanded by Brussels after the strong performance of euroskeptic parties in the European elections.

Leaders in the European Commission continue to be committed to neoliberal economic ideology.  The central tenet of this ideology is that France and Italy can become more competitive by making difficult structural changes in their economies.  That usually translates into making their labor markets more flexible.  It is assumed that wages will fall and make their products more price competitive in export markets.  Falling wages, however, are a double edged sword.  Lower wages may make their products more competitive in export markets, but they will also reduce consumer demand in their domestic markets.

The eurozone is also struggling with another problem.  Prices continue to fall throughout the eurozone.  The inflation rate is well below the 2% target and there is a risk of deflation in the eurozone.  Deflationary spirals are very difficult to stop.  The central bank may use more aggressive monetary policies to stimulate demand but it is unlikely that they will be as aggressive as those that have been employed in the US.  Inflation in the US is still well below its 2% target.

The Short Answer To The Financial Time's Critique Of Piketty

Thomas Piketty wrote a ten page response the the FT's critique.  This article summarizes his response to the critique.  It does not alter his major conclusions at all.  One of the reasons for the popularity of his book is that it is well written.  Much of the technical detail is presented in footnotes which provide links to the raw data, and the rationale for the choices that he made about the data sources that he selected.  The FT used the links that he provided to his Excel files but it ignored the careful explanations that were provided for the data sources that he selected.

The major criticism made in the FT's critique is that inequality in Britain has not increased in recent years.  Moreover, when the British data are combined with that of other European nations it leads to a conclusion that there has been no growth in inequality in Europe.  Much ado has been made about nothing.  However, it turns out that the FT reached its conclusion that inequality in Britain has not grown in Britain by altering the data sources that it used to reach that conclusion.  The FT used Piketty's tax record data for part of its analysis, but then it shifted to the use of survey data for the more recent period in which it found no increase in inequality.  Piketty chose not to use survey data in his analysis because wealthy people traditionally under report their wealth.  The difference between the survey data and the tax data is very large.  It would appear that the FT shifted to the use of survey data in order to reach its conclusion that there has been no recent growth in inequality in Britain or in Europe.

If the goal of the FT critique was to shift debate away from growing inequality it may have done its job.  The debate is now about methodology and not about the real problem of growing inequality.  This is much like the debate about climate change.  A handful of denialists have shifted the debate from the conclusions reached by the vast majority of climate scientists to methodology.  Those who benefit from climate change denial have taken great advantage of this shift.