RE: Economists’ Statement on Carbon Dividends

I just got an email asking me to sign on to an open letter arguing for some carbon tax policies. I’m seeing some push back from (smart, economically literate) Facebook friends, but I think it’s a viable step in the right direction.

Here’s the statement paraphrased:

We think global warming is an important and urgent issue and we recommend these five things:

1. A carbon tax is the best, most cost-efficient way to do as much about carbon as needs to be done. [For a given level of carbon reduction, I agree. How much carbon reduction should happen (and how much at government behest) I am deeply agnostic about.]

2. We think this should be phased in over time and should be revenue neutral. [Yes on both points, but the rest of the statement makes it seem like they’re talking about a pretty short time horizon. I’m not sure how fast is too fast, but I’m sure there’s such thing.]

3. A carbon tax is more efficient than a set of specific regulations. [Certainly!] It’s also less likely to be subject to changing political winds. [Is it though?]

4. We should also apply a carbon tax to imported goods. This would reward energy-efficient American firms and prod other countries to follow suit. [Hmmmm… I can’t really disagree with the general principle, but this sounds like it will require bureaucratic oversight that will be subject to regulatory capture. On the other hand, we’ve already got that.]

5. We should give the revenue collected back to U.S. citizens, to offset increases in energy prices. [Okay, but if it’s going to be revenue neutral and come with a transfer scheme, that’s going to take some detangling!]

I buy into the notion that carbon emissions create large scale externalities that will probably be more bad than good on balance. Not universally bad, mind you. And not something that humanity won’t ultimately adapt to. But I think the people who will face the brunt of the bad outcomes will be the world’s poor (who we should help migrate to better climates!).

I don’t think we can just impose “the right” carbon tax and have everything come out just right. Even though I routinely draw out the case with a supply and demand graph in class, the truth is that nobody has access to those curves in real life. But a small tax can serve to reduce the inefficiency of pollution even if we don’t get it exactly right.

The revenue neutral part is important–we’re currently taxing lots of things we actually want more of (like investment). So if we can cut those taxes by taxing things we want less of (pollution), we’re reducing two sources of inefficiency in the current setup. Of course you and I have bolder views about what policy should look like in 100 years, but restricted to a 10 year window, a revenue neutral carbon tax looks pretty good to me.

The letter dramatically over-simplifies things. Climate change is probably a problem, but probably not as big a problem as proffered by proponents of proposals to prepare for apocalypse. It’s not clear to me that we have a good idea of a) all of the effects (good and bad), b) how people will adapt, and c) how people will adapt to a changing policy regimen.

Figuring out how to handle the tax on imports will be difficult and rife with rent seeking. Unmentioned is the impact on exports. If all our trading partners follow a similar policy, there’s no problem, but in the mean time there’s a tension that will probably be resolved with some unfortunate bit of rent seeking.

I’m sure most reasonable people would agree that instantaneous change would probably be unduly costly, but it’s not clear what the right speed of implementation is.

There are some miscellaneous rhetorical points I have issue with, but I suspect those are in there to throw a bone to people who aren’t me.

I hope that 10 years from now this open letter looks a bit silly. But I also hope that 10 years from now pollution taxes start to replace more inefficient taxes. On balance, I’m happy to see the letter prodding us in that direction.

Selective Moral Argumentation

There are two competing approaches to moral theory. Consequentialism posits that actions and policies should be judged by their consequences: an action (or policy) is good if its predictable consequences are good. Deontologist perspectives, on the other hand, claim that actions should be judged according to their own worth, irrespective of consequences.

Note that the differences between these approaches lies not in the specific policies advocated but in their modes of arguing. Consider the death penalty. Consequentialists are generally against killing people because it’s not a good idea, but will support the death penalty if it can be shown that it is a cost-effective way of reducing crime. The deontologist opposition against the death penalty is absolute, but a deontologist may also support the death penalty because criminals deserve it, even if that’s not an efficient way to reduce crime.

I used to believe that specific individuals are either consequentialists or deontologists, i.e. some people are very sensitive to consequentialist reasoning while others were immune to it, and vice versa. At the very least, I expected individuals to combine both approaches in a consistent way (for example, by being consequentialists only two-thirds of the time). But now I think this is putting the cart before the horses: what happens in practice is that an individual first decides which policy she wants to defend, and then employs the mode of argument that is more favorable to the policy in question.

Throughout the 1960s and 1970s, right-wing military dictatorships were pretty common in Latin America. These governments often committed heinous crimes. When, years or even decades after the fact, the issue of punishing those responsible came to the fore, right-wingers opposed the move from a consequentialist perspective –social peace is worth preserving, isn’t it?–, while left-wingers took the deontologist stance –surely those who committed crimes against humanity should be harshly punished. But when the discussion turned about pardoning left-wing guerrillas, as in the 2016 peace referendum in Colombia, the tables turned: now the right found intolerable that criminals would be pardoned for the sake of social peace. (It is worth noting that in Argentina, where several former military commanders, including some with atrocious human rights records, contested and won elections after the return to democracy, the right never raised deontologist objections against them.)

I see the same pattern in Mexico today. During the electoral campaign last year, then candidate Andrés Manuel López Obrador was harshly criticized for raising the possibility of an amnesty for members of drug cartels in order to pacify the country. To be sure, there are many ways in which such a strategy could go wrong; but the criticism focused on the moral horror of pardoning drug dealers. Predictably, now that the government of López Obrador cut fuel supplies in order to prevent gasoline theft –something against which his predecessors had done nothing–, his opponents have found the virtues of consequentialism: the policy is creating (serious) fuel shortages. As you may guess, the government highlights the importance of combating criminals, without paying much attention to the consequences.

All of this reinforces the point repeatedly made by Cowen and Hanson: politics is not about policy, but about the relative status of different social groups. That said, the fact that we (unconsciously?) pick our preferred policies/stances first and decide how to defend them afterwards only begs the question: what determines whether we end up positioning ourselves in one side of the political spectrum or another? And given that we sometimes (but rarely) switch sides, what are the motivations behind these changes?

Legal Immigration Into the United States (Part 18): Reforms I Would Favor

Now, here is what I, personally, a US citizen and an appreciative immigrant, as well as a small government conservative, would like to see happen: As I pointed out before, most liberals and quite a few conservatives perceive allowing all immigration as a sort of altruistic gesture. That includes those who do not overtly call for open borders but whose concrete proposals (“Abolish ICE.”) would result in a soft state that would provide the equivalent of open borders. As far as I can tell – with the major exception of Tabarrok, discussed above – many pure libertarians whisper that they are all for open borders, but they only whisper it. I speculate that they are forced to take this principled but unreasonable position to avoid having to defend the nation-state as a necessary institutional arrangement to control immigration.  Frankly, I wish they would come out of the closet and I hope this essay will shame some into doing so.

The most urgent thing to my mind is to separate conceptually and bureaucratically with the utmost vigor, immigration intended to benefit us, American citizens and lawfully admitted immigrants, and beyond us, to promote a version of the American polity close to the Founders’ vision, on the one hand, from immigration intended to help someone else, or something else, on the other. The US can afford both but the amalgam of the two leads to bad policies. (See, for example the story “The Refugee Detectives: Inside Germany’s High-Stake Operation to Sort People Fleeing Death…” by Graeme Wood in The Atlantic, April 2018.)

Next, I think conservatives should favor, for now, an upper numerical limit to immigration, one pegged perhaps to the growth of our domestic population. Though my heart is not in it, it seems to me that this is a prudent recommendation in view of the threatening prospect of a Democratic one-party governance.

The first category of immigrants would be admitted on some sort of merit basis, as I said, perhaps a version of the system I discuss above. The second category would include all refugees and asylum seekers, and, to a limited extent, their relatives. Given a strictly altruistic intent in accepting such people, Congress and the President jointly would be in a better position than they are today to apply any strictures at all, including philosophical and even religious tests of compatibility with central features of American legal and philosophical tradition – if any. (Of course, in spite of the courts’ interventions in the matter, I have not found the part of the Constitution that forbids the Federal Government from barring anyone it wants, including on religious grounds. Rational arguments can be made against such decisions but they are not anchored in the Constitution, I believe. (See constitutional lawyers David B. Rivkin and Lee A. Casey’s analysis: “The Judicial ‘Resistance’ is Futile” in the Wall Street Journal of 2/7/18.)

I think thus both that we could admit many more people seeking shelter from war and other catastrophes than we do, and that we should vet them extensively and deeply. We could also rehabilitate the notion of provisional admission. Many of the large number of current Syrian refugees would not doubt like to go home if it were possible. Such refugees could be given, say, a five-year renewable visa. As I pointed out above, some beliefs system are but little compatible with peaceful assimilation into American society. This can be said aloud without proffering superfluous insults toward any group.  National hypocrisy does not make sense because it rarely fools anyone. In general, I think all American society has been too shy in this connection, too submissive to political correctness. So, think of this example: French constitutions, most of the fifteen of them anyway, proclaim the primacy of something called “the general interest,” a wide open door to authoritarian collectivism if there ever was one. There is no reason to not query French would-be immigrants on this account. I would gladly take points off for answers expressing a submissiveness to this viewpoint. (Yes, I am one of those who suspect that the French Revolution is one of the mothers of democracy but also, of Communism and of Fascism.)

Similarly Muslim religious authorities as well as would-be Muslim immigrants could be challenged like this: Just tell us publicly if Islamic dogma welcomes separation of religion and government. State, also in public, loudly and clearly that apostasy does not deserve death, that it deserves no punishment at all. Admission decisions would be a function of the answers given. Sure, people would be coached and many would cheat but, they would be on record. The most sincere would not accept going on record against their doctrine. Sorry to be so cynical but I don’t fear the least sincere!

The underlying reasoning for such policies of exclusion is this: First, I repeat that there is no ethical system that obligates American society to commit suicide, fast or slowly; second, probabilistic calculations of danger and of usefulness both are the only practicable ones in the matter of admitting different groups and categories. (I don’t avoid jumping from planes with a parachute because those who do die every time they try but because they die more often than those who don’t.) Based on recent experience (twenty years+), Muslims are more likely to commit terrorist acts than Lutherans. (It’s also true that there is a very low probability for both groups.) Based on common sense and the news, most Mexicans must have acquired a high tolerance for political corruption. Based on longer experience, many Western Europeans have extensive and expensive expectations regarding the availability of tax supported welfare benefits. Based – perhaps- on one thousand years of observation, the Chinese tend to favor collective discipline over individual rights more than Americans do. (See my: “Muslim Refugees in perspective.”)

Pronouncing aloud these probabilistic statements does not shut off the possibility of ignoring them because immigrants from the same groups bring with them many improvements to American society, of course. I could easily allow a handful of well chosen French chefs to come in despite of their deep belief in the existence of a common public interest. I even have a list ready. Admitting facts is not the same as making decisions. I can also imagine a permanent invitation to anyone to challenge publicly such generalizations. It would have at least the merit of clearing the air.

Last and very importantly: Invalidating the generalizations I make above, to an unknown extent, is the likelihood that immigrants are not a true sample of their population of origin: Chinese immigrants may tend to have an anarchist streak; that may be the very reason they want to live in the US. Mexicans may seek to move to the US precisely to flee corruption for which they have a low tolerance, etc. The French individuals wishing to come to the US may be trying to escape the shadow of authoritarianism they perceive in French political thought, etc.

[Editor’s note: in case you missed it, here is Part 17]

Legal Immigration Into the United States (Part 17): Merit-Based Immigration and Other Solutions

The long-established numerical prominence of immigration into the US via family relations makes it difficult to distinguish conceptually between legal immigration responding to matters of the heart and immigration that corresponds to hard economic, and possibly, demographic facts. The one motive has tainted the other and vice-versa. The current public discussions (2016-2018) suggest that many native-born Americans think of immigration as a matter of charity, or of solidarity with the poor of this world, as in the inscription at the foot of the Statue of Liberty: “Give me your tired, your poor, your huddled masses yearning to breathe free,….”  Many Americans accordingly perceive as hard-hearted those who wish to limit or reduce immigration. Inevitably, as whenever the subject of hard-heartedness emerges as a topic in politics, a Right/Left divide appears, always to the detriment of the former.

It seems to me that conservatives are not speaking clearly from the side of the divide where they are stuck. They have tacitly agreed to appear as a less generous version of liberals instead of  carriers of an altogether different social project. Whatever the case may be, the politically most urgent thing to do from a rational standpoint is to try and divide for good in public opinion, immigration for the heart and immigration for the head, immigration for the sake of generosity and immigration for the benefit of American society. Incidentally, and for the record, here is a digression: I repeat that I believe that American society has a big capacity to admit immigrants under the first guise without endangering itself. That can only happen once the vagueness about controlling our national boundaries has dissipated. Such a strategy requires that the Federal Government have the unambiguous power to select and vet refugees and to pace their admission to the country.

“Merit” Defined

In reaction to the reality and also, of to abuses associated with the current policy, a deliberate, and more realistic doctrine of immigration has emerged on the right of the political spectrum. It asks for admission based on merit, partly in imitation of Australia’s and Canada’s. Canada’s so-called “Express Entry System” is set to admit more than 300,000 immigrants on the basis of  formally scored merit in 2118. That’s for a population of only about 37 million. The central idea is to replace the current de facto policy favoring family relations as a ground for admission, resulting in seemingly endless “chain migration,” with something like a point system. The system would attempt scoring an immigrant’s potential usefulness to American society. In its simplest form, it would look something like this: high school graduate, 1 point; able to speak English, 1 point; literate in English, 1 more point; college graduate, 2 points (not cumulative with the single point for being a high school graduate); STEM major, 2 points; certified welder, 2 points; balalaika instructor, 2 points. Rocket scientist with positive record, 5 points.  Certified welder, 10 points.

The sum of points would determine the order of admission of candidates to immigration into the US for a set period, preferable a short period because America’s needs may change fast. With the instances I give, this would be a fair but harsh system: Most current immigrants would probably obtain a score near zero, relegating them to eternal wait for admission.

There are two major problems with this kind of policy. First, it would place the Federal Government perilously close to articulating a national industrial policy. Deciding to give several point to software designers and none to those with experience running neighborhood grocery stores, for example, is to make predictions about the American economy of tomorrow. From a conservative standpoint, it’s a slippery slope, from a libertarian standpoint, it’s a free fall. Of course, we know how well national industrial policies work in other countries, France for example. (For 25 years, as a French-speaking professor on the spot, visiting French delegations to my business school would take me aside; they would buy me an expensive lunch and demand that I give away the secret of Silicon Valley. First, create a first rate university, I would answer meanly…)

Second, the conceit that a merit-based system of admission, any merit-based system, is an automatic substitute for the family reunion-dominated current policy is on a loose footing. Suppose, a Chinese woman receives top points in the new system as a world-class nuclear scientist whose poetry was nominated for a Nobel in literature. She walks right to the head of the line, of course. But she is married and she and her husband have three children. Can we really expect her to move to the US and leave her family behind? Do we even want her to, if we expect her to remain? Does anyone? Then, the woman and her husband both turn out to be busy as bees and hard workers, major contributors to the US economy, and to American society in general. (They are both also engaged in lively volunteering.) So, they need help with child care. The husband’s old but still healthy mother is eager and willing to come to live with the couple. She is the best possible baby-sitter for the family. The problem is that the old lady will not leave her even older husband behind. (And, again, would we want her here if she were the kind to leave him?)

Here you go, making ordinary, humane, rational decisions, the merit-based admission of one turns into admission of seven! And, I forgot to tell you: Two of the kids become little hoodlums, as happens in the best families in the second generation. They require multiple interventions from social services. They will both cost society a great deal in the end. In this moderate scenario, the attempt to rationalize immigration into a more selfish policy benefiting Americans has resulted in a (limited) reconstitution of the despised chain immigration, with some of the usual pitfalls.

The arguments can nevertheless be made that in the scenario above, the new merit-based policy has resulted in the admission of upper-middle class individuals rather than in that of the rural, poorly educated immigrants that the old policy tended to select for. This can easily be counted as a benefit but the whole story is probably more complicated. In the exact case described above, the US did replace lower-class individuals with upper-middle class people but also with people possibly of more alien political culture, with consequences for their eventual assimilation. I mean that all Mexicans tend to be experts in Americana and that our political institutions are familiar to them because theirs are copy-cat copies of ours. I surmise further that Mexicans are unlikely from their experience to expect the government to be mostly benevolent. Moreover, it seems to me the children of semi-literate Mexicans whose native language is fairly well related to English and uses the same alphabet, are more likely to master English well than even accomplished Chinese. This is a guess but a well-educated teacher’s guess. (I don’t think this  holds true for the grand-children, incidentally.) Of course, if my argument is persuasive, there would be a temptation to down-score candidates just for being Chinese, pretty much the stuff for which Harvard University is on trial as I write (October 2018).

I described elsewhere how the fact of having relatives established in the country facilitates installation and economic integration, even as it may retard assimilation. Note that a point system does not have to forego the advantages associated with family relationships. Such a system can easily accommodate family and other relationships, like this: adult, self-sufficient offspring legally in the US: 3 points; any other relation in the US: 1 point; married to a US resident with a welder certification: 15 points, etc.

[Editor’s note: in case you missed it, here is Part 16]

Should you vote today? Only if you want to.

Today is election day in the United States and everywhere I turn I see “get out the vote” ads. Even on Facebook my feed is filled with people urging others to vote. I am fine with these nudges insofar that they are just that – nudges.

I am concerned when I see claims that voting is one’s duty. I am especially concerned when I see claims that, if you don’t vote, you are allowing the evil [socialists/white men/etc] to govern. These claims concern me because they respectively promote worship of the state and tribalism.

There is more to life than being a politico. If Americans at large sacrificed their other activities in order to become fully informed voter-activists, we would be a boring lot. If you enjoy politics, go vote, but you needn’t feel superior over someone who thinks their time would be better spent playing music or grabbing a beer with friends after work. Life is short and should be spent doing what one enjoys.

Likewise, it is perfectly okay to have an opinion on how government should be run. I, and I imagine most NoL readers, have strong policy preferences. It is however beyond arrogance to believe that an educated person can only believe X and only a mustached villain would believe Y. To be clear, I am not saying that truth is relative.

NIMBYist policies lead to housing shortages, that is a fact. I am in favor of revising zoning regulations and ending parking subsidies to mitigate the problem. I don’t think that the family that owns a detached unit in Santa Monica and opposes denser development is evil though. I understand their hesitance to see their neighborhood changed.

If you wish to vote today, please do so but please don’t act like a snob towards those who do not. Express your policy preferences, but leave your holier than thou attitude at home.

Tldr; play nice.

Evidence-based policy needs theory

This imaginary scenario is based on an example from my paper with Baljinder Virk, Stella Mascarenhas-Keyes and Nancy Cartwright: ‘Randomized Controlled Trials: How Can We Know “What Works”?’ 

A research group of practically-minded military engineers are trying to work out how to effectively destroy enemy fortifications with a cannon. They are going to be operating in the field in varied circumstances so they want an approach that has as much general validity as possible. They understand the basic premise of pointing and firing the cannon in the direction of the fortifications. But they find that the cannon ball often fails to hit their targets. They have some idea that varying the vertical angle of the cannon seems to make a difference. So they decide to test fire the cannon in many different cases.

As rigorous empiricists, the research group runs many trial shots with the cannon raised, and also many control shots with the cannon in its ‘treatment as usual’ lower position. They find that raising the cannon often matters. In several of these trials, they find that raising the cannon produces a statistically significant increase in the number of balls that destroy the fortifications. Occasionally, they find the opposite: the control balls perform better than the treatment balls. Sometimes they find that both groups work, or don’t work, about the same. The results are inconsistent, but on average they find that raised cannons hit fortifications a little more often.

A physicist approaches the research group and explains that rather than just trying to vary the height the cannon is pointed in various contexts, she can estimate much more precisely where the cannon should be aimed using the principle of compound motion with some adjustment for wind and air resistance. All the research group need to do is specify the distance to the target and she can produce a trajectory that will hit it. The problem with the physicist’s explanation is that it includes reference to abstract concepts like parabolas, and trigonometric functions like sine and cosine. The research group want to know what works. Her theory does not say whether you should raise or lower the angle of the cannon as a matter of policy. The actual decision depends on the context. They want an answer about what to do, and they would prefer not to get caught up testing physics theories about ultimately unobservable entities while discovering the answer.

Eventually the research group write up their findings, concluding that firing the cannon pointed with a higher angle can be an effective ‘intervention’ but that whether it does or not depends a great deal on particular contexts. So they suggest that artillery officers will have to bear that in mind when trying to knock down fortifications in the field; but that they should definitely consider raising the cannon if they aren’t hitting the target. In the appendix, they mention the controversial theory of compound motion as a possible explanation for the wide variation in the effectiveness of the treatment effect that should, perhaps, be explored in future studies.

This is an uncharitable caricature of contemporary evidence-based policy (for a more aggressive one see ‘Parachute use to prevent death and major trauma related to gravitational challenge: systematic review of randomised controlled trials’). Metallurgy has well-understood, repeatedly confirmed theories that command consensus among scientists and engineers. The military have no problem learning and applying this theory. Social policy, by contrast, has no theories that come close to that level of consistency. Given the lack of theoretical consensus, it might seem more reasonable to test out practical interventions instead and try to generalize from empirical discoveries. The point of this example is that without theory empirical researchers struggle to make any serious progress even with comparatively simple problems. The fact that theorizing is difficult or controversial in a particular domain does not make it any less essential a part of the research enterprise.

***

Also relevant: Dylan Wiliam’s quip from this video (around 9:25): ‘a statistician knows that someone with one foot in a bucket of freezing water and the other foot in a bucket of boiling water is not, on average, comfortable.’

Pete Boettke’s discussion of economic theory as an essential lens through which one looks to make the world clearer.

Lunchtime Links

  1. David Reich’s essay in the New York Times on genetics, race, and IQ
  2. Henry Farrell’s essay at Crooked Timber on genetics, race, and IQ
  3. Ezra Klein’s essay at Vox on genetics, race, and IQ
  4. Chris Dillow’s essay at Stumbling and Mumbling on genetics, race, and IQ
  5. Andrew Sullivan’s essay at Daily Intelligencer on genetics, race, and IQ

Andrew’s essay is a must read. It’s careful, well thought out, and bolder than the other ones. All are well-worth reading, though.

Reich’s essay has sparked an important dialogue in the Anglo-American world (props to the NY Times). Globally, I think conceptions of race, genetics, and IQ in the non-Anglo world are based on pseudoscience (at best), so it’s nice to see this debate unfold the way it has (so far).

I don’t think any of them have done a good job grappling with Charles Murray’s argument. (More on that later.)

Thanks to Uncle Terry for bringing this to light in the first place.