Los Angeles Before Epa
Money’s only something you need in case you don’t die tomorrow – Carl Fox.
Ivo Welch
December 31, 2021
Will 8 billion humans change?
Become more concerned and altruistic?
Become more humane?
Evidence: People do act selfishly!
There are exceptions to the rule,
but overall it’s pretty descriptive,
especially in large groups.
… whether you like it or not.
💊
Don’t be dogmatic—neither pro nor con!
FMC has pulled more people out of poverty than any other invention in world history.
FMC is intrinsically not well suited to (emissions) externalities.
Do you like government more?
(Really? Trump? GOP?)
World requires mixed systems,
FMC is great when there are no externalities.
FMC is not so great otherwise.
Think airplane ticket:
No worries for you or airline.
Problem are only non-contracting parties;
Simplest form:
Spend $1 to reduce world pollution by $10.
Great project!!!
Unfortunately,
benefits accrue equally to 8 billion people;
makes each human better off by $10 / 8 bn.
≈ $0.000,000,001,250 per person
What if you could share expense with
30,000 Bruins? $0.000,0375 benefit.
3 million Angelinos? $0.003,750 benefit.
30 million Californians? $0.037,500 benefit.
300 million Americans? $0.375 benefit.
1.371 billion OECD? $1.714 benefit.
Assume no coercion. No exclusion.
No one really wants to pay themselves.
Everyone wants everyone else to pay,
If need be:
Advocate loudly for laissez faire FMC.
Better yet: pretend total disinterest.
gone fishing
What if humans benefit equally from global warming?
OECD could solo-fund clean projects that reduce negative environmental consequences by at least $5 for every $1 spent.
Globally, this is suboptimal (too low).
Old Democrats wanted to engineer society.
Identified true real-world ills,
but much harder to solve than imagined.
Old GOP was intellectually more humble,
But never ideal or perfect.
Thank the Gods.
Politics is never ideal; always messy.
Today, parties seem to be polarized capture coalitions.
Real-world governments are
inefficient, both collecting and spending;
suffer lobbies, voters, demagogues, tribes;
are deeply conflicted;
are run by people like Trump, Sanders, Warren;
attract few non-power-hungry panders to public, though some are better and some are worse;
make subjects strive less.
How about you run for office?
Unfettered FMC is stupidity.
Unfettered government is stupidity.
Good balance is a constant struggle:
a compromise, without ideal outcomes,
but there is no better alternative!
Economists’ Jargon:
“second-best” (more realistic), not first-best.
Real-world is often third-best or worse.
Reasonable Question:
how much government?
how much free market?
Where are we now?
Where should we go?
Stupid Blustering Claims:
Abolish FMC.
Abolish Government.
Want effective social, not more social.
Too libertarian communities always fail.
How should governments deal with (pollution) externalities?
Don’t interfere when no externalities;
Push against bad externalities;
Push for good externalities.
| A | B | C | Welfare | |
|---|---|---|---|---|
| CL | $300 | $400 | $500 | |
| DT | $290 | $421 | $600 | $1,321 |
| A | B | C | Welfare | |
|---|---|---|---|---|
| CL | $300 | $400 | $500 | |
| DT | $230 | $361 | $540 | $1,240 |
| A | B | C | Welfare | |
|---|---|---|---|---|
| CL | $260 | $380 | $480 | |
| DT | $230 | $381 | $560 | 1,201 |
| A | B | C | Welfare | |
|---|---|---|---|---|
| CL | $280 | $380 | Vrbtn | |
| DT | Vrbtn | Vrbtn | $580 | $1,240 |
| A | B | C | Welfare | |
|---|---|---|---|---|
| CL | $300 | $400 | $500 | |
| DT | Vrbtn | Vrbtn | Vrbtn | $1,200 |
| A | B | C | Welfare | |
|---|---|---|---|---|
| CL | a(A,B,C) | b(A,B,C) | c(A,B,C) | |
| DT | a’(A,B,C)-T | b’(A,B,C)-T | c’(A,B,C)-T | ? |
Taxes are not waste!
Tax is all about getting B to do right:
A will never pollute anyway.
C should always (be allowed to) pollute.
B acts in private but should act in social interest.
Pigouvian Tax = Externality = $20 + $20 = $40
Assume A and B do not pollute, C does.
| A | B | C | Welfare | |
|---|---|---|---|---|
| CL | $280 | $380 | $500 | |
| DT | $210 | $341 | $540 | $1,240 |
How to assess private benefit?
How to assess social harm?
→ Use best of both expertise?
Can lobbies twist and capture it?
DC is biggest money train in the history of humanity? Beats Rome and Brussels easily.
Want to send more to DC? (To Trump?)
Want to send more to Putin? Ping? Kim?
What is “fair”?
What is losers can vote?
Tiberius: It is the duty of a good shepherd to shear his sheep, not to skin them.
Worse here! The sheep still shit on you from over the fence and someone else will be getting the wool!
The ills and problems of FMC that other boffins are pointing out are very real!
But their solutions are often not.
Other boffins often imagine ideal governments, which do not exist.
Worse, gov growth is often one-way.
Economists trust governments less.
Economists trust self-interest more.
How to enjoy more hot dogs?
How to exterminate cockroaches?
How to reduce CO2 by driving less?
→ Fix on the margin in cheapest places first!
Be content with imperfect solution.
Economics: Marginal vs. Average.
E.g., build a $20 billion nuclear plant,
then very cheap per extra MWh to generate.
High average cost.
Near-zero marginal cost.
Similar to fixed cost,
RDD = Research, Development, Deployment.
RDD is sunk-cost heavy
Maybe some may be movable
Incidentally, RDD success is often serendipitous
often low chance of success, but high upside,
with all of us usually benefitting.
It’s why humanity no longer lives in caves.
Opposite of diminishing returns to scale:
Factories, specialization, and automation.
→ Industrial Revolution!
Power Plants
FOAK (first of a kind);
NOAK (next of a kind);
Iterative improvements;
Mass Production.
Build now or build next year?
Install Solar Now or Wait 1 Year?
It will likely be 5-10% cheaper,
but it could be more or less.
Install batteries now or wait until cheaper?
They will likely be 2-5% cheaper,
but it could be more or less.
Install Now , or
Delay, Research and Develop?
What if learn only if built?
These are tough decision problems,
but only if your money is on the line,
and not the ratepayer’s (see lobbies).
Innovation is public good for humanity.
Really bad if RDD has high fixed cost:
Who would undertake it?
What if copying and improving is easy?
Knowing whether it can work is often biggest problem.
How long should patent protection last?
Ex-ante needed to entice innovators,
Ex-post undesirable by common good.
System expensive and inefficient:
Except for lawyers.
Similar products often escape protection.
What if inventions would have come about anyway?
Patent may cost $1 million to declare in most world jurisdictions.
What about China?
IP Theft galore!
Attract attention?
Will patenting prevent or induce copying?
→ Processes often not patented.
This chapter laid groundwork to translate climate change problems and solutions into economic terms.