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  pdfauthor={Ivo Welch},
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\title{Economics}
\subtitle{Money's only something you need in case you don't die tomorrow
-- Carl Fox.}
\author{Ivo Welch}
\date{December 31, 2021}

\usepackage{/Users/ivo/.pandoc/templates/pandoc-preamble} %% iaw; will in turn include local directory file pandoc.sty

\begin{document}
\frame{\titlepage}

\begin{frame}{Self-Interest}
\protect\hypertarget{self-interest}{}
\begin{itemize}
\tightlist
\item
  Economics thinks people act selfishly.
\end{itemize}

~

\begin{itemize}
\item
  Will 8 billion humans change?

  \begin{itemize}
  \item
    Become more concerned and altruistic?
  \item
    Become more humane?
  \end{itemize}
\end{itemize}
\end{frame}

\begin{frame}{Red Pill}
\protect\hypertarget{red-pill}{}
\begin{itemize}
\item
  Evidence: People do act selfishly!

  \begin{itemize}
  \item
    There are exceptions to the rule,
  \item
    but overall it's pretty descriptive,
  \item
    especially in large groups.
  \end{itemize}
\item
  \ldots{} whether you like it or not.
\end{itemize}

\pill
\end{frame}

\begin{frame}{Free-Market Capitalism (Fmc)}
\protect\hypertarget{free-market-capitalism-fmc}{}
\begin{itemize}
\item
  Don't be dogmatic---neither pro nor con!

  \begin{itemize}
  \item
    FMC has pulled more people out of poverty than any other invention
    in world history.
  \item
    FMC is intrinsically \emph{not} well suited to (emissions)
    \emph{externalities}.
  \item
    Do you like government more?
  \end{itemize}
\end{itemize}

\begin{quote}
(Really? Trump? GOP?)
\end{quote}

\begin{itemize}
\item
  World requires mixed systems,

  \begin{itemize}
  \tightlist
  \item
    more difficult to balance than extremes.
  \end{itemize}
\end{itemize}
\end{frame}

\begin{frame}{Externalities}
\protect\hypertarget{externalities}{}
\begin{itemize}
\item
  FMC is great when there are no externalities.

  \begin{itemize}
  \tightlist
  \item
    → Private cost includes all social costs.
  \end{itemize}
\item
  FMC is not so great otherwise.
\end{itemize}

~

\begin{itemize}
\item
  Think airplane ticket:

  \begin{itemize}
  \item
    No worries for you or airline.
  \item
    Problem are only non-contracting parties;

    \begin{itemize}
    \tightlist
    \item
      we, who breathe jet fuel and suffer CC.
    \end{itemize}
  \end{itemize}
\end{itemize}
\end{frame}

\begin{frame}{Public Goods / Externalities}
\protect\hypertarget{public-goods-externalities}{}
Simplest form:

\begin{itemize}
\item
  Spend \$1 to reduce world pollution by \$10.
\item
  \textbf{Great project}!!!
\item
  Unfortunately,

  \begin{itemize}
  \item
    benefits accrue equally to 8 billion people;
  \item
    makes each human better off by \$10 / 8 bn.
  \item
    \(\approx\) \$0.000,000,001,250 per person
  \end{itemize}
\end{itemize}
\end{frame}

\begin{frame}{You Pay!}
\protect\hypertarget{you-pay}{}
\begin{itemize}
\tightlist
\item
  Go spend your \$1! Save the world \$10!
\end{itemize}

~

\begin{itemize}
\tightlist
\item
  Yes? No?
\end{itemize}
\end{frame}

\begin{frame}{Share Expense}
\protect\hypertarget{share-expense}{}
\begin{itemize}
\item
  What if you could share expense with

  \begin{itemize}
  \item
    30,000 Bruins? \$0.000,0375 benefit.
  \item
    3 million Angelinos? \$0.003,750 benefit.
  \item
    30 million Californians? \$0.037,500 benefit.
  \item
    300 million Americans? \$0.375 benefit.
  \item
    1.371 billion OECD? \$1.714 benefit.
  \end{itemize}
\end{itemize}
\end{frame}

\begin{frame}{Free-Riding}
\protect\hypertarget{free-riding}{}
\begin{itemize}
\item
  Assume no coercion. No exclusion.
\item
  No one really wants to pay themselves.
\item
  Everyone wants everyone else to pay,

  \begin{itemize}
  \tightlist
  \item
    just not oneself.
  \end{itemize}
\item
  If need be:

  \begin{itemize}
  \item
    Advocate loudly for laissez faire FMC.
  \item
    Better yet: pretend total disinterest.
  \end{itemize}
\end{itemize}

\begin{quote}
gone fishing
\end{quote}
\end{frame}

\begin{frame}{Realistic Go-It-Alone Cc Fight}
\protect\hypertarget{realistic-go-it-alone-cc-fight}{}
\begin{itemize}
\item
  What if humans benefit equally from global warming?
\item
  OECD could solo-fund clean projects that reduce negative environmental
  consequences by at least \$5 for every \$1 spent.

  \begin{itemize}
  \tightlist
  \item
    USA and Europe: maybe \$20 benefit for every \$1.
  \end{itemize}
\item
  Globally, this is suboptimal (too low).

  \begin{itemize}
  \tightlist
  \item
    and did we not just state that rich countries will suffer relatively
    less?
  \end{itemize}
\end{itemize}
\end{frame}

\begin{frame}{Hobbes' Leviathan}
\protect\hypertarget{hobbes-leviathan}{}
\begin{itemize}
\tightlist
\item
  Social Contract:

  \begin{itemize}
  \tightlist
  \item
    Police, (Traffic) Laws, Justice;
  \item
    Property Rights (needed for FMC);
  \item
    Defense and Military;
  \item
    Education;
  \item
    Social Services / Medicare / Medicaid;
  \item
    Poverty Reduction;
  \item
    Groundwater preservation and pollution.
  \end{itemize}
\end{itemize}
\end{frame}

\begin{frame}{Los Angeles Before Epa}
\protect\hypertarget{los-angeles-before-epa}{}
\includegraphics{la-smog.jpg}
\end{frame}

\begin{frame}{Beijing Today}
\protect\hypertarget{beijing-today}{}
\includegraphics{beijing-pollution.jpg}
\end{frame}

\begin{frame}{Utopian Government}
\protect\hypertarget{utopian-government}{}
~

\begin{block}{\textbf{\emph{Never compare idealized governments to
realistic FMC!}}}
\protect\hypertarget{never-compare-idealized-governments-to-realistic-fmc}{}
~ ~

\begin{itemize}
\tightlist
\item
  Plato's original sin.
\end{itemize}
\end{block}
\end{frame}

\begin{frame}{Politics}
\protect\hypertarget{politics}{}
\begin{itemize}
\item
  Old Democrats wanted to engineer society.

  \begin{itemize}
  \item
    Identified true real-world ills,
  \item
    but much harder to solve than imagined.
  \end{itemize}
\item
  Old GOP was intellectually more humble,

  \begin{itemize}
  \item
    But never ideal or perfect.
  \item
    Thank the Gods.
  \end{itemize}
\item
  Politics is never ideal; always messy.
\end{itemize}

~

\begin{quote}
Today, parties seem to be polarized capture coalitions.
\end{quote}
\end{frame}

\begin{frame}{The \textbf{\emph{Ur}} Problem:}
\protect\hypertarget{the-ur-problem}{}
\begin{itemize}
\item
  Real-world governments are

  \begin{itemize}
  \item
    inefficient, both collecting and spending;
  \item
    suffer lobbies, voters, demagogues, tribes;
  \item
    are deeply conflicted;
  \item
    are run by people like Trump, Sanders, Warren;
  \item
    attract few non-power-hungry panders to public, though some are
    better and some are worse;
  \item
    make subjects strive less.
  \end{itemize}
\end{itemize}

\begin{quote}
How about \textbf{\emph{you}} run for office?
\end{quote}
\end{frame}

\begin{frame}{Constant Struggle}
\protect\hypertarget{constant-struggle}{}
\begin{itemize}
\item
  Unfettered FMC is stupidity.
\item
  Unfettered government is stupidity.
\item
  Good balance is a constant struggle:

  \begin{itemize}
  \item
    a compromise, without ideal outcomes,
  \item
    but there is no better alternative!
  \end{itemize}
\item
  Economists' Jargon:

  \begin{itemize}
  \item
    ``\emph{second-best}'' (more realistic), not \emph{first-best}.
  \item
    Real-world is often third-best or worse.
  \end{itemize}
\end{itemize}
\end{frame}

\begin{frame}{Right Questions}
\protect\hypertarget{right-questions}{}
\begin{itemize}
\item
  Reasonable Question:

  \begin{itemize}
  \item
    how much government?
  \item
    how much free market?
  \item
    Where are we now?
  \item
    Where should we go?
  \end{itemize}
\item
  Stupid Blustering Claims:

  \begin{itemize}
  \item
    Abolish FMC.
  \item
    Abolish Government.
  \end{itemize}
\end{itemize}

\begin{quote}
Want effective social, not more social.\\
Too libertarian communities always
\href{https://www.vox.com/policy-and-politics/21534416/free-state-project-new-hampshire-libertarians-matthew-hongoltz-hetling}{fail}.
\end{quote}
\end{frame}

\begin{frame}{Ideal Government}
\protect\hypertarget{ideal-government}{}
\begin{itemize}
\item
  How should governments deal with (pollution) externalities?

  \begin{itemize}
  \item
    Don't interfere when no externalities;
  \item
    Push against bad externalities;
  \item
    Push for good externalities.
  \end{itemize}
\end{itemize}

~

\begin{itemize}
\tightlist
\item
  Detailed numerical example follows.
\end{itemize}
\end{frame}

\begin{frame}{Basic Example: 3 Firms, 2 Tech}
\protect\hypertarget{basic-example-3-firms-2-tech}{}
\begin{longtable}[]{@{}ccccr@{}}
\toprule()
& A & B & C & Welfare \\
\midrule()
\endhead
CL & \textbf{\$300} & \$400 & \$500 & \\
DT & \$290 & \textbf{\$421} & \textbf{\$600} &
\textbf{\emph{\$1,321}} \\
\bottomrule()
\end{longtable}
\end{frame}

\begin{frame}{Dt= Dirty Tech \$60}
\protect\hypertarget{dt-dirty-tech-60}{}
\begin{longtable}[]{@{}ccccr@{}}
\toprule()
& A & B & C & Welfare \\
\midrule()
\endhead
CL & \textbf{\$300} & \textbf{\$400} & \$500 & \\
DT & \$230 & \$361 & \textbf{\$540} & \textbf{\emph{\$1,240}} \\
\bottomrule()
\end{longtable}
\end{frame}

\begin{frame}{\$20/Externality, Free For All,
\&Nbsp;\&Nbsp;\&Nbsp;\&Nbsp;\&Nbsp;\&Nbsp;\&Nbsp;\&Nbsp;
\textbf{\emph{In Equilibrium}}}
\protect\hypertarget{externality-free-for-all-nbspnbspnbspnbspnbspnbspnbspnbsp-in-equilibrium}{}
\begin{longtable}[]{@{}ccccr@{}}
\toprule()
& A & B & C & Welfare \\
\midrule()
\endhead
CL & \textbf{\$260} & \$380 & \$480 & \\
DT & \$230 & \textbf{\$381} & \textbf{\$560} & \textbf{\emph{1,201}} \\
\bottomrule()
\end{longtable}
\end{frame}

\begin{frame}{Benevolent Dictatorship}
\protect\hypertarget{benevolent-dictatorship}{}
\begin{longtable}[]{@{}ccccr@{}}
\toprule()
& A & B & C & Welfare \\
\midrule()
\endhead
CL & \textbf{\$280} & \textbf{\$380} & Vrbtn & \\
DT & Vrbtn & Vrbtn & \textbf{\$580} & \textbf{\emph{\$1,240}} \\
\bottomrule()
\end{longtable}
\end{frame}

\begin{frame}{Green Dictatorship}
\protect\hypertarget{green-dictatorship}{}
\begin{longtable}[]{@{}ccccr@{}}
\toprule()
& A & B & C & Welfare \\
\midrule()
\endhead
CL & \textbf{\$300} & \textbf{\$400} & \textbf{\$500} & \\
DT & Vrbtn & Vrbtn & Vrbtn & \textbf{\emph{\$1,200}} \\
\bottomrule()
\end{longtable}
\end{frame}

\begin{frame}{Pigouvian Tax}
\protect\hypertarget{pigouvian-tax}{}
\begin{longtable}[]{@{}ccccr@{}}
\toprule()
& A & B & C & Welfare \\
\midrule()
\endhead
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 & \textbf{\emph{?}} \\
\bottomrule()
\end{longtable}
\end{frame}

\begin{frame}{Workings}
\protect\hypertarget{workings}{}
\begin{itemize}
\item
  Taxes are \emph{not} waste!

  \begin{itemize}
  \tightlist
  \item
    Collected and redistributable to A, B, and C.
  \end{itemize}
\item
  Tax is all about getting B to do right:

  \begin{itemize}
  \item
    A will never pollute anyway.
  \item
    C should always (be allowed to) pollute.
  \item
    B acts in private but should act in social interest.
  \end{itemize}
\item
  Pigouvian Tax = Externality = \$20 + \$20 = \$40
\item
  Assume A and B do not pollute, C does.

  \begin{itemize}
  \tightlist
  \item
    A and B suffer \$20 externality in eqbm.
  \end{itemize}
\end{itemize}
\end{frame}

\begin{frame}{Pigouvian \$40 Tax}
\protect\hypertarget{pigouvian-40-tax}{}
\begin{longtable}[]{@{}ccccr@{}}
\toprule()
& A & B & C & Welfare \\
\midrule()
\endhead
CL & \textbf{\$280} & \textbf{\$380} & \$500 & \\
DT & \$210 & \$341 & \textbf{\$540} & \textbf{\emph{\$1,240}} \\
\bottomrule()
\end{longtable}
\end{frame}

\begin{frame}{Real-World Advantage}
\protect\hypertarget{real-world-advantage}{}
\begin{itemize}
\item
  How to assess private benefit?

  \begin{itemize}
  \tightlist
  \item
    Presumably better assessed by firms.
  \end{itemize}
\item
  How to assess social harm?

  \begin{itemize}
  \tightlist
  \item
    Presumably better assessed by government.
  \end{itemize}
\item
  → Use best of both expertise?
\end{itemize}
\end{frame}

\begin{frame}{Real-World Problems}
\protect\hypertarget{real-world-problems}{}
\begin{itemize}
\tightlist
\item
  How much money is wasted in collection?
\end{itemize}

~

\begin{itemize}
\item
  Can lobbies twist and capture it?

  \begin{itemize}
  \item
    DC is biggest money train in the history of humanity? Beats Rome and
    Brussels easily.
  \item
    Want to send more to DC? (To Trump?)
  \item
    Want to send more to Putin? Ping? Kim?
  \end{itemize}
\end{itemize}
\end{frame}

\begin{frame}{Winners And Losers}
\protect\hypertarget{winners-and-losers}{}
\begin{itemize}
\item
  What is ``fair''?
\item
  What is losers can vote?
\end{itemize}
\end{frame}

\begin{frame}{Perhaps Worst Problem}
\protect\hypertarget{perhaps-worst-problem}{}
\begin{block}{\textbf{\emph{Taxed subjects can move elsewhere!}}}
\protect\hypertarget{taxed-subjects-can-move-elsewhere}{}
~

~

Tiberius: \emph{It is the duty of a good shepherd to shear his sheep,
not to skin them.}

~

\begin{quote}
Worse here! The sheep still shit on you from over the fence and someone
else will be getting the wool!
\end{quote}
\end{block}
\end{frame}

\begin{frame}{Economists Vs. Other Boffins}
\protect\hypertarget{economists-vs.-other-boffins}{}
\begin{itemize}
\item
  The ills and problems of FMC that other boffins are pointing out are
  very real!

  \begin{itemize}
  \item
    But their solutions are often not.
  \item
    Other boffins often imagine ideal governments, which do not exist.
  \item
    Worse, gov growth is often one-way.
  \end{itemize}
\item
  Economists trust governments less.
\item
  Economists trust self-interest more.
\end{itemize}
\end{frame}

\begin{frame}{Change Of Subject}
\protect\hypertarget{change-of-subject}{}
~

\begin{block}{Economics of Cost and Scale}
\protect\hypertarget{economics-of-cost-and-scale}{}
\end{block}
\end{frame}

\begin{frame}{Diminishing Returns To Scale (Drs)}
\protect\hypertarget{diminishing-returns-to-scale-drs}{}
\begin{itemize}
\item
  How to enjoy more \href{https://youtu.be/MtZfjD8v2Dg}{hot dogs}?
\item
  How to exterminate cockroaches?

  \begin{itemize}
  \tightlist
  \item
    90\%? 99\%? 100\%?
  \end{itemize}
\item
  How to reduce CO\textsubscript{2} by driving less?
\end{itemize}
\end{frame}

\begin{frame}{Drs: Co\textsubscript{2} Reduction}
\protect\hypertarget{drs-co2-reduction}{}
\begin{itemize}
\tightlist
\item
  Cheaper in some places than in others:

  \begin{itemize}
  \tightlist
  \item
    \emph{Really} cheap on 1 GtCO\textsubscript{2};
  \item
    \emph{Cheap} on 3 GtCO\textsubscript{2};
  \item
    Medium on 10 GtCO\textsubscript{2};
  \item
    Impossibly expensive at 50 GtCO\textsubscript{2}.
  \end{itemize}
\end{itemize}

~

\begin{itemize}
\item
  → Fix on the margin in cheapest places first!
\item
  Be content with imperfect solution.
\end{itemize}
\end{frame}

\begin{frame}{Fixed Vs. Marginal Cost}
\protect\hypertarget{fixed-vs.-marginal-cost}{}
\begin{itemize}
\item
  Economics: Marginal vs.~Average.

  \begin{itemize}
  \tightlist
  \item
    The most important concept of economics!
  \end{itemize}
\end{itemize}

~

\begin{itemize}
\item
  E.g., build a \$20 billion nuclear plant,
\item
  then very cheap per extra MWh to generate.
\end{itemize}

~

\begin{itemize}
\item
  High average cost.
\item
  Near-zero marginal cost.
\end{itemize}
\end{frame}

\begin{frame}{Sunk Cost}
\protect\hypertarget{sunk-cost}{}
\begin{itemize}
\item
  Similar to fixed cost,

  \begin{itemize}
  \tightlist
  \item
    but no longer possible to sell and move assets to other uses.
  \end{itemize}
\end{itemize}

~

\begin{itemize}
\tightlist
\item
  Most investments and finished products become sunk eventually.
\end{itemize}
\end{frame}

\begin{frame}{(Sunk) Rdd Cost}
\protect\hypertarget{sunk-rdd-cost}{}
\begin{itemize}
\item
  RDD = Research, Development, Deployment.
\item
  RDD is sunk-cost heavy

  \begin{itemize}
  \tightlist
  \item
    learn for years, set up labs, etc.
  \end{itemize}
\item
  Maybe some may be movable

  \begin{itemize}
  \tightlist
  \item
    education, knowledge, some lab equipment
  \end{itemize}
\end{itemize}
\end{frame}

\begin{frame}{Rdd Yikes}
\protect\hypertarget{rdd-yikes}{}
\begin{itemize}
\item
  Incidentally, RDD success is often serendipitous

  \begin{itemize}
  \item
    often low chance of success, but high upside,
  \item
    with all of us usually benefitting.
  \end{itemize}
\item
  It's why humanity no longer lives in caves.
\end{itemize}
\end{frame}

\begin{frame}{Economies Of Scale}
\protect\hypertarget{economies-of-scale}{}
\begin{itemize}
\item
  Opposite of \emph{diminishing returns to scale}:
\item
  Factories, specialization, and automation.
\item
  → \textbf{Industrial Revolution}!
\item
  Power Plants

  \begin{itemize}
  \item
    FOAK (first of a kind);
  \item
    NOAK (next of a kind);
  \item
    Iterative improvements;
  \item
    Mass Production.
  \end{itemize}
\end{itemize}
\end{frame}

\begin{frame}{Economics Of Delay}
\protect\hypertarget{economics-of-delay}{}
\begin{itemize}
\item
  Build now or build next year?
\item
  Install Solar Now or Wait 1 Year?

  \begin{itemize}
  \item
    It will likely be 5-10\% cheaper,
  \item
    but it could be more or less.
  \end{itemize}
\item
  Install batteries now or wait until cheaper?

  \begin{itemize}
  \item
    They will likely be 2-5\% cheaper,
  \item
    but it could be more or less.
  \end{itemize}
\end{itemize}
\end{frame}

\begin{frame}{Optimization Problem}
\protect\hypertarget{optimization-problem}{}
\begin{enumerate}
\item
  \emph{Install Now} , or
\item
  \emph{Delay, Research and Develop}?
\end{enumerate}

~

\begin{itemize}
\item
  What if \emph{learn only if built}?
\item
  These are tough decision problems,

  \begin{itemize}
  \item
    but only if \emph{your} money is on the line,
  \item
    and not the ratepayer's (see lobbies).
  \end{itemize}
\end{itemize}
\end{frame}

\begin{frame}{Economics Of Innovation}
\protect\hypertarget{economics-of-innovation}{}
\begin{itemize}
\item
  Innovation is \emph{public good} for humanity.

  \begin{itemize}
  \tightlist
  \item
    → Socially, we underinvest in innovation,
  \end{itemize}
\item
  Really bad if RDD has high fixed cost:

  \begin{itemize}
  \item
    Who would undertake it?
  \item
    What if copying and improving is easy?
  \end{itemize}
\end{itemize}

\begin{quote}
Knowing whether it can work is often biggest problem.
\end{quote}
\end{frame}

\begin{frame}{Patent Protection}
\protect\hypertarget{patent-protection}{}
\begin{itemize}
\item
  How long should patent protection last?

  \begin{itemize}
  \item
    Ex-ante needed to entice innovators,
  \item
    Ex-post undesirable by common good.

    ~
  \end{itemize}
\item
  System expensive and inefficient:

  \begin{itemize}
  \item
    Except for lawyers.
  \item
    Similar products often escape protection.
  \end{itemize}
\item
  What if inventions would have come about anyway?

  \begin{itemize}
  \tightlist
  \item
    and all patents do is stymie innovation?
  \end{itemize}
\end{itemize}
\end{frame}

\begin{frame}{Patent Protection}
\protect\hypertarget{patent-protection-1}{}
\begin{itemize}
\item
  Patent may cost \$1 million to declare in \emph{most} world
  jurisdictions.
\item
  What about China?

  \begin{itemize}
  \item
    IP Theft galore!
  \item
    Attract attention?
  \item
    Will patenting prevent or induce copying?
  \item
    → Processes often not patented.
  \end{itemize}
\end{itemize}
\end{frame}

\begin{frame}{Conclusion}
\protect\hypertarget{conclusion}{}
This chapter laid groundwork to translate climate change problems and
solutions into economic terms.
\end{frame}

\end{document}
