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Standing Up for GDP

Joseph Stiglitz is right. GDP per capita is an inadequate measure of a country’s prevailing standard of living for many reasons. If you want one number, something like median real consumption would be better. But I’m willing to stand up for GDP per capita as a rough and ready indicator of well-being within the bounds of nation states. Why?

First, as an indicator of well-being, it doesn’t get much intuitively wrong. That is, GDP per capita tends to correlate positively with most of the things most of us think are constituents or side effects of well-being and negatively or not at all with most of the things most of us think are corrosive to well-being. (I go through some of this data around p. 29 of my happiness paper [pdf].)

Moreover, alternative rankings such as the UN’s Human Development Index, which accounts for things like health and education, correlate so closely with rankings of per capita GDP, it’s pretty clear that income levels are doing most of the work. As Justin Wolfers put it:

For all the work that goes into the Human Development Index, it just doesn’t tell you much that you wouldn’t learn from simple comparisons of G.D.P. per capita.

And don’t forget that the link between GDP per capita and self-reported happiness is positive and strong! Here’s a reminder of what the relationship looks like this:

As you can see, the doubling in GDP per capita from $1000 to $2000 has about the same effect on average self-reported life satisfaction as the doubling from $16,00 to $32,00. It was this finding that led Daniel Kahneman last year to say:

The implied conclusion, that citizens of different countries do not adapt to their level of prosperity, flies against everything we thought we knew ten years ago.  We have been wrong and now we know it.  I suppose this means that there is a science of well-being, even if we are not doing it very well.

But I think the most neglected argument in favor of GDP per capita as a measure of well-being is its neutrality. Here’s how I put it in my happiness paper:

Many people seem to think that a government’s emphasis on measurements like GDP indicate a kind of collective affirmation of materialist goals, encouraging a narrowly materialist attitude at war with more exalted values. But this is simply a mistake. The very function of money is to serve as a neutral medium of exchange. It is a shape-shifting embodiment of almost any value. The same $100 can be spent on a prostitute or donated to an HIV/AIDS clinic. The relative value neutrality of money is precisely why the measurement of per-capita wealth is well suited to pluralistic liberal societies; it doesn’t beg many questions about competing concep- tions of the good life. Money can’t be converted into  anything that someone might value, but it is of the nature of money to be convertible into a phenomenally broad range of values. Societies with high levels of average income and wealth are societies in which people have more resources at their disposal to achieve their aims, no matter what those aims might be, which is why it should be no surprise that, other things equal, people with more money are more satisfied. By measuring GDP, household wealth, and the like, government is not affirming one set of values over others. It is, in fact, embodying an ideal of liberal neutrality by measuring something that is valuable in varying degrees to all of us.

Because of their neutrality, economic measures are excellent inputs to public deliberation in pluralistic societies containing a great deal of disagreement about ultimate values. There are lots of candidates for alternative indicators or progress and well-being, but most are transparently motivated by ideological antagonism to the kinds of policies known successfully to promote income growth. These are obviously not very well-suited for use in public deliberation in pluralistic societies containing a great deal of disagreement about ultimate values.

The demand for alternatives to GDP resides predominantly in certain quarters of the environmental movement. It’s easy to see why. Many environmentalists demand policies that, if implemented, would show up as unmitigated damage in economic measures like GDP per capita. I think it’s difficult to overstate how huge an impediment this is to much of the environmental movement — especially since these measures do track the elements of well-being pretty well.

Some enviromentalists, like Thomas L. Friedman and Van Jones, go the congruence route and jump into the business of retailing fantasies about pro-growth green central planning. But this kind of “and a pony!” no tradeoffs stuff is a pretty hard sell. Anybody really serious about saving the world from the peril of a more livable Canada is going to have to argue for policies that will indeed gut-punch world income growth. That argument is a lot easier to make if you can first persuade governments and journalists to shelve standard economic measures and replace them with new figures that make a virtue of green-tinted impoverishment. It’s hard to fail when you’ve redefined success.

That’s why I’m ready to hold onto my wallet when luminaries of the left like Stiglitz say they’re eagerly awaiting the September 14th publication of a report by Nikolas Sarkozy’s Commission on the Measurement of Economic Performance and Social Progress. But it probably won’t be that bad.

Here’s my predication. Good ol’ GDP per capita will be found (perhaps rather annoyingly to this congress of authors) to do better as a measure of social progress than one might have thought, for reasons similar to those detailed above. Chief among the problems with GDP-like measures will be that they fail to capture the value of environmental sustainability. Also, the value of economic equality. But not the value of economic liberty. That GDP fails to capture the value of, say, policies that reduce the probability of a future in which tens of millions die due to a massive flu pandemic, or due the availability of portable nuclear weapons, will go unmentioned. Less severe but equally indeterminate environmental threats will get many pages.

Surprise me Commission on the Measurement of Economic Performance and Social Progress!

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Whereof Game Theory Cannot Speak….

Conor Clarke’s interview with Thomas Schelling is fascinating. And also a bit confusing. And disappointing. Schelling is one of my intellectual heroes. But in this interview, he seems to bounce back and forth between the kind of reasoning I  learned from his work and a kind of aspirational moralizing that I learned from his work to distrust.

For example, when Schelling speaks as an economist, he makes a great deal sense to me:

I think the best hope for India is to grow its economy as fast as it can in order to outgrow its vulnerability to climate change.

[…]

If I were to come clean to the American public I would say that, except for a very low probability of a very bad result — which is the disintegration of the West Antarctic ice sheet, which would put Washington DC under water — we are probably going to outgrow any vulnerability we have to climate change. And in case we’ll be able to afford to buy food or import it is necessary. You know, very little of the US economy is susceptible to climate. All of agriculture is less than 3% of our gross product. Forestry may be endangered. Fisheries may be endangered. But recreation might actually benefit!

So if we can double our GDP in the next 70 or 80 years, even if we lose some of our GDP from climate change — even if we lose 10% of our GDP from climate change — we’re still ahead so much that the effect of climate change wouldn’t be noticed. But it would be pretty disastrous in a lot of the less developed parts of the world. And that’s why I think it’s crucially important not to demand anything of China, India and so forth that will significantly impede their economic progress.

Right on.

But I feel like Schelling is not very enlightening on questions about policies that will affect future generations. For example:

[Clark] I wanted to ask more question, to go back to the moral issue here. It does seem to me that the strongest case for mitigating the effects of global climate change is a moral one. It is based on not on our own interest but on the interests of people in the developing world who don’t yet exist. But it also seems to me that — while I don’t know much about game theory — collective bargaining theories generally assume the participants are rational and self-interested. So how does one go about making sense of an arrangement where we must set our self-interest aside? How does one make the moral case in a situation like this? Or is my description of collective bargaining just totally idiotic?

Well, I think you have to realize that most people have very strong moral feelings. I think in a lot of cases they’re misdirected. I wish moral feelings about a two-month old fetus were attached to hungry children in Africa. But I think people have very strong moral feelings. In fact, I’m always amazed by the number of people who at least pretend they’re worried about the polar bears.

That’s not wrong, but it’s terrifically weak stuff. Which is not very surprising. There is little for a game theorist to do but moralize here, since game theory doesn’t apply here. As readers of Derek Parfit know, deliberation about harm to future generations is doubly confusing because it’s not even quite right to say that, although we can affect people in the future beyond our deaths, those people can’t affect us. Who are “those people” we are talking about? There is a temptation to see future populations as determinate but simply yet-to-be-realized. That’s wrong. Future populations are indeterminate. What we do now, the results of the games we are playing presently, determines who will and will not exist in the future.

So, for example, if we anticipate that the burdens of global warming will fall most heavily on future people in particular regions, we can mitigate those harms in any number ways. We could encourage a lower birthrate later by encouraging various techniques of birth control now. The fewer future Bangladeshis there are, the lower the possible total harm to future Bangladeshis. But… I’m not a fan of this idea. However, in some ways, economic growth is a form of birth control, since birthrates tend to fall with income growth. So, not only does greater wealth allow for greater adaptation, it lowers the expected total harm of current activities by reducing the expected population. Does anybody try to model this?

Or, to take another tack, if the negative consequences of today’s actions will fall most heavily upon poorer people in certain regions a century hence, the regions most likely to benefit from warming, and those best equipped to adapt, can open themselves more fully to immigration from places where the greatest harm is predicted. We could increase the gains to warming by increasing the proportion of the world population residing in areas likely to benefit from it. Now, that sounds crazy. But it’s just as much a possibility as massive wealth transfers from rich to poor countries, which Schelling recommends (and which, based on the record of development aid, I would anticipate to have many negative consequences).

The interesting question is how we coordinate now to facilitate any prevention or mitigation strategy. And Schelling is not even very helpful here. He is clearly worried. But, at the same time, he sounds pessimistic about the possibility of really effective coordination. It sounds like he thinks the best developed countries can do is to announce the intention to do something and start doing it, while basically hoping that it makes a difference. And the best advice he gives is not advice, but moral exhortation. And even then, it’s pretty indirect. He exhorts churches to do more exhortation about climate change.

And one thing that I think ought to help but doesn’t is that — and my impression is that maybe this is slightly changing — the organized churches in American don’t take seriously preserving the heritage that God gave us. I’ve heard congressmen confess to being devote Episcopalians say that what god gave us ought to be preserved. But I get no impression that Protestants and Catholics are sermonizing on the importance of preserving the bounty of the earth, the richness of the species, or preserving the planet as we would like to know it. And I think that if someone could mobilize the church to be interested…

I spent a long time concerned with smoking behavior. And when I was a boy the churches were very adamant about smoking. And my grandfather, who was sort of devout, he wouldn’t hire a boy to mow the lawn if he knew the boy smoked. And we know how potent the churches can be, because nobody smokes on campus at the University of Utah. And nobody smokes among the Seventh-Day Adventists or the Jehovah’s Witnesses. And the Mormons aren’t supposed to drink coke and coffee, let alone smoke.

And I think the churches don’t realize that they could have a potent effect in not letting so much of gods legacy — in terms of flora and fauna — be destroyed by climate change.

More than a bit disappointing.

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Ryan Avent's Innovations in the Game Theory of International Relations?

In response to my point below about the transparently inconsistent reasoning about public goods employed by many defenders of the woeful cap and trade bill, Ryan Avent writes:

This seems almost deliberately dense. In particular, it makes no distinction between the world of billions of daily, anonymous transactions and the world in which a handful of great powers attempt to hammer out a diplomatic agreement. Unsurprisingly, it’s very difficult to get millions of urban denizens to voluntarily come together to build and fund a road network or transit system in the absence of a coercive mechanism. The benefits are too broadly shared, and the incentive to free ride too great. But the smaller the number of players, the more concentrated the benefits, and the easier it is to find a mutually beneficial agreement.

I certainly wasn’t being deliberately dense. Ryan is, as always, quite charitable in allowing that my denseness might have been involuntary. I am grateful. Perhaps it is this very denseness that prevents me from grasping how I was being dense. I persist in thinking that the standard mode of reasoning about collective action problems applies. So I patiently await instruction.

Ryan evidently believes it is almost obvious that the structure of the strategic problem in securing global climate policy coordination is less complex than the problem of putting together standard-issue public goods, like a system of roads. In the case of global climate policy coordination, we’re talking not about diffuse millions but a mere “handful of great powers,” who will enjoy such concentrated benefits from an agreement that the normal worries about credible commitment, assurance, free-riding, and so forth do not really apply. So the absence of a coercive enforcement mechanism is pretty much irrelevant. Not only shouldn’t we worry about the standard logic of interdependent strategic action, but it’s almost deliberately dense to do so. My bad.

If only we’d known that global coordination problems among “a handful of great powers” was such a breeze, we’d have arrived at Kant’s global federation of perpetual peace centuries ago. Come to think of it, why were there two massive World Wars and a Cold War last century? It’s almost as if the great powers were being deliberately dense. But I guess we now know the trick of aligning the perceived interests of great powers: just make some kind of effort to cooperate. Go ahead and move unconditionally, even if your own country’s move actually signals quite clearly that there is next to zero political will to bear the costs of an agreement with teeth. And then what you do is you wait for other great powers to be impressed and encouraged and convinced by the immense advantages that will accrue to them once they jump on board. It’s easy once you know how.

Or maybe that’s not how Ryan thinks it goes. But then how does it go? I still don’t get it.

Other things I don’t get:

(a) The idea that “great powers” are headed by some kind of unified intelligence or agency that can make agreements and just stick with them. I thought the governments of states–even authoritarian ones–were semi-stable coalitions of various and often conflicting interests subject to the vagaries of mass public opinion.

(b) The idea that the benefits of global climate policy coordination — which will not be realized for many decades — will accrue to the relevant state decisionmakers and so provide them with sufficient incentive to make and stick to an agreement, but that the costs of coordination — which will be significant and immediate — will somehow not be borne by those decisionmakers (e.g., “the people” will not complain about these costs in a politically threatening way) and so will not overwhelm the posthumous payoff in the political accounting.

(c) The triviality of time inconsistency problems. I had thought that time inconsistency problems–that the government now cannot really bind the government later–were endemic to politics. This makes it almost impossible for a current government to credibly promise that a policy will persist over time. I had thought you needed some kind of mechanism (which we do not appear to have) to align the incentives of the parade of future decisionmakers to sticking with it over time.

(d) The option value of empty gestures. The Waxman-Markey bill appears to everyone–even advocates like Ryan–to be mostly a bust, if not a complete bust. It remains unclear to me why a transparently bad bill does more to improve the U.S.’s bargaining position than no bill.

I don’t see that Ryan addresses any of this as he goes on:

[T]here are fewer than ten relevant players, and only two really relevant players not already committed to reductions — the US and China. Given that climate negotiations are part of a repeated game between the two great powers (that is, they’re more or less constantly talking about one economic or political issue or another), it seems very likely indeed that an American pre-commitment to emission reductions would facilitate a similar Chinese commitment.

India? Cheap talk?

The repeated game between the U.S. and China looks to me trickier than this. First, it’s better for China in the short and medium term if we tax carbon emissions and they don’t. They sure will be happy to see us go first. (It will, among other things such as encouraging capital flight to China, give them more slack with which to clean up things like SO2 that really do matter to them in the short term.) So then what do we do if they don’t play along? Impose carbon tariffs? Then we have probably just started a trade war with our chief source of inexpensive manufactured goods. Is this the repeated game Ryan has in mind?

Ryan sums up:

Will Wilkinson works for Cato, and Jim Manzi writes for National Review, two great outposts of climate change denialism and do-nothingism. It occurs to me that if more of their compatriots were willing to discuss the issue responsibly, then upwards of 90% of the GOP might not be committed to a policy based on utter stupidity, and a better bill might be feasible. Instead, they’re busily arguing against Waxman-Markey. That’s their right, but it certainly says quite a bit about their priorities.

I wonder if Ryan would like to be more explicit about what he thinks my priorities are. I’ll tell you what I think my priority is: to make people, especially poor people, better off. I am against this bill because I honestly believe it will leave many people worse off and make almost no one other than politically-connected domestic interest groups better off. I think Ryan has a different assessment of its likely effects, but I don’t see any need to slyly impugn his motives. If he thinks his argument is so winning, then it might benefit him to drop this kind of well-poisoning rhetoric, which is beneath him, and start actually winning the argument.

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Waxman-Markey

IMO, Jim Manzi continues to own defenders of the preposterous cap and trade bill. His latest assessment of the state of play:

So let’s review the overall bidding, at least as I see it:

1. Everybody agrees that if Waxman-Markey becomes law, and it does not lead to a global, binding and enforced agreement to severely reduce global greenhouse gas emissions, then it makes U.S. taxpayers worse off economically.

2. I have presented an economic argument that even if such a global agreement were achieved it would accomplish in the best case a net increase in NPV of global consumption of 0.2%, and a practical argument that it would almost certainly reduce global economic welfare. These specific arguments remain undisputed.

3. Those who argue that Waxman-Markey would lead to a global agreement have provided no evidence that it would have this negotiating effect, and are presenting what is, at best, a pretty idiosyncratic negotiating premise that by giving away our leverage as one participant in a collective action problem we will somehow increase our ability to get others to sacrifice on our behalf.

The thing is, Jim’s arguing from the basis of extremely generous assumptions.

Many of the people making a big deal about the bargaining value of this bill rarely (never?) use similar logic in similar circumstances. The idea is that coordinated international action toward carbon reduction is a global public good, and that the probability of effective coordination increases significantly if the U.S. acts unilaterally. HOW DOES THIS WORK? Standard statist-liberal reasoning about public goods is that they will not be provided unless there is a  coercive mechanism in place (e.g., a state) to solve the assurance problem. But there is no state with global jurisdiction. So am I to understand that folks making the argument about the crucial role for Waxman-Markey in solving the international collective action problem don’t really believe the standard story about the need for coercion in assuring compliance? Because that would sure change a lot of debates about a lot of things! To put it another way: if you think that the probability is low that smaller-scale public goods can be provided through voluntary mechanisms without government, shouldn’t you think the probability is even lower the larger the scope of the coordination problem?

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Cap and Frayed

Here’s Kevin Drum on what he concedes is the most ambitious cap and trade legislation Democrats can realistically hope for:

First, their [the Waxman-Markey] cap-and-trade program allows a lot of offsets: two billion tons in all, which allows companies to pollute away as long as they “offset” their carbon emissions somewhere else.  In theory, this is fine, but in practice it’s an invitation to abuse, substituting purely fictional reductions for real ones.  Second, it allocates a portion of the emission credits directly to affected industries instead of auctioning 100% of them.  This is yet another invitation to abuse.

It’s possible, of course, that both of these things can be beaten into submission with the proper oversight and regulation.  But what are the odds?

[…]

A bill that started out with no offsets and no allocation might eventually end up with offsets and allocation.  But what happens to a bill that caves in on these issues right at the start?  It gets even worse as it wends its way through the sausage factory, that’s what.

As Ezra says, Markey and Waxman are as good as they come on this stuff, and if they don’t believe that a clean bill stands a chance even as an opening bid, they’re probably right.

Drum is right about those “invitations to abuse,” which is to say, mechanisms that practically gurantee abuse. And Drum’s right that it’s only going to get worse. The “opening bid” comes from some of the most zealous environmental ideologues in Congress. And the sausage factory is about to come online. Yet Drum remains hopeful! We’ll see how he and his comrades feel about what I’ll bet will be a gutted and impotent scheme good for little but corporatist jockeying for government-enforced advantage over competitors. If it turns out that way, will he want to kill it then? The folks who kept telling us that cap and trade and a straight carbon tax are “equivalent” were always full of it. There’s this thing called “politics,” you see, which does not treat them equivalently. 

Here’s my column on cap and trade as a spectacular instance of corrupting and unstable political capitalism.

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What Green Government Does When It Picks Winners

Mother Jones on heavily subsidized biofuels:

Food prices have risen 130% since 2002. The World Bank estimates that up to 75% of the increase is due to demand for biofuels.

Clearing grasslands to plant biofuel crops releases 93 times as much greenhouse gas as will be saved by the fuels grown on the land each year. Destroying Indonesian peat bogs releases 420 times as much.

There were food riots in at least 30 countries in the past 2 years. More than 40 people were killed when Cameroonians protested rising prices.

The US government spent $9.2 billion on ethanol subsidies in 2008. It spent $1.5 billion on food aid.

But now we’ve got better people and won’t destroy the environment and cause food riots this time! Right?

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I Am a Dysonite II

Dyson has great affection for coal and for one big reason: It is so inexpensive that most of the world can afford it. “There’s a lot of truth to the statement Greens are people who never had to worry about their grocery bills,” he says. (“Many of these people are my friends,” he will also tell you.) To Dyson, “the move of the populations of China and India from poverty to middle-class prosperity should be the great historic achievement of the century. Without coal it cannot happen.” That said, Dyson sees coal as the interim kindling of progress. In “roughly 50 years,” he predicts, solar energy will become cheap and abundant, and “there are many good reasons for preferring it to coal.”

I predict the transition to cheap solar will happen faster than that, but I would defer to Dyson.

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I Am a Dysonite

I agree with Freeman Dyson:

Beyond the specific points of factual dispute, Dyson has said that it all boils down to “a deeper disagreement about values” between those who think “nature knows best” and that “any gross human disruption of the natural environment is evil,” and “humanists,” like himself, who contend that protecting the existing biosphere is not as important as fighting more repugnant evils like war, poverty and unemployment. 

Here is my Marketplace commentary from this morning describing the risky fuiltity of cap and trade. I realize now that it may have been too strong to say that China is “the world’s largest owner of dollar-denominated assets,” though I’m not totally sure that’s wrong. What I meant is that China owns more U.S. debt and holds larger USD cash reserves than other country.

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Why Climate Alarmism Alarms Me

He’s not talking about climate alarmism in particular, but Matt Ridley (in an interview with Ron Bailey I finally got around to reading) states my own view nicely:

What the precautionary principle [the idea that when science has not yet determined whether a new product or process is safe, the government should prohibit or restrict its use] misses is the danger that in not progressing you might miss out on future improvements in living standards for poor people in Africa. I’m desperately hoping to persuade the world, not that everything’s going to be fine, but that there’s a chance everything’s going to be better for everybody and that we should be very careful not to cut ourselves off from that chance.

Cheap energy is a main source of prosperity. The effort to make the cheapest sources of energy more expensive is, in effect, an effort to ensure that more people are made to suffer longer in poverty. Energy Secretary Stephen Chu’s openness to using tarrifs against countries like China as a “weapon” in the effort to achieve global climate policy coordination illustrates the clear and present danger climate alarmism poses to the welfare of the world’s poor. I’m simply unwilling to trade certain immediate harm to vulnerable people in exchange for extremely uncertain future benefits.

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On Non-Magical Government Investment

It’s pretty frustrating for libertarians to argue about government investment in science and technology because one is constantly confronted with the problem of the seen and not seen. One is bludgeoned with every government initiative that ever happened to pan out while all the wasted trillions and the private investment therefore foregone is lost to memory. 

My position is not that government investment in technology has zero returns. My position is that on average it does worse than returns to private investement. This should not be controversial. It is the consensus view of economists who study innovation and growth. If you think average returns to government-directed investment are higher than average returns to private investment, then you really do believe that the state has special generative powers. And you should formalize your findings, collect your Nobel Prize, and forever change the world. Or you should chill out about how awesome the Internet is.

I do want to distinguish between government spending on the development of particular technologies and government financing of basic scientific research. I’m convinced that a lot of valuable basic research would not be conducted without state subsidies, and that much of this research is the basis for later technological innovation that leads to increased growth. So here’s one area where I think well-conceived government spending can pay its way by boosting growth. Despite ample motivation to be persuaded, I’ve remained unpersuaded by most libertarian arguments to the effect that scientific research without obviously marketable future applications would be sufficiently funded. There is a lot of waste, and some truly objectionable politicization, in government grant-making. But my sense is that, on the whole, much of American science policy is a good deal.

However, I get skeptical pretty quickly as we move downstream toward engineering and the development of technological applications of science. Here’s where I see government subsidies responsible for a huge amount of misallocated human and financial capital.  People who think that we will tend to do better rather than worse when the government tries to pick winners in technology really do bear the burden of proof here and should stop simply assuming that landing a man on the moon has made us better rather than worse off. 

Last night, Kerry and I were reading Louis Menand’s excellent essay “The Last Emperor: William S. Paley,” about the long-time CBS chief. In the middle of the piece, Menand argues persuasively that almost all of the television technologies that reached American households by 1990, aside from satellite transmission and the VCR, were available in the 1950s, but that regulatory collusion between incumbent businesses and government stifled innovation. “What we might have had for the last forty years is what, almost everywhere we have only had since around 1990: a mixture of local and national programming and commercial-free pay services on a hundred channels — and all in living color,” Menand writes. When government picks winning technologies it creates, as a matter of course, vested interests that will seek to, and often succeed in, creating barriers to further innovation — even if the “winner” the government picked turns out to be a loser. If you generalize the case of the TV lobby — which prevented or delayed innovation at every turn — to hundreds of other heavily regulated industries, one can start to see how government can have a systematically dampening effect on the pace of innovation.

Consider ethanol. Here’s Michael Levi in an excellent article on “green jobs” in Slate:

For many environmental advocates, of course, these discussions [of whether green initiative will on net increase employment] are of secondary importance; what matters most is that green jobs will help the planet. They’d be wise to be careful there, too. Indeed, the most successful green jobs program to date is one that no environmentalist wants to brag about: the conversion to corn-based ethanol. A recent United Nations report estimated that the heavily subsidized U.S. ethanol industry provides employment for 154,000 Americans, about five times as many as the wind power industry and nearly 10 times as many as the solar industry. That goes a long way to explaining why, despite mounting evidence showing that corn ethanol is a failure (some would say a disaster) on the environmental front, U.S. policy appears to be on cruise control. At its base, corn ethanol is not a green policy so much as a jobs policy—and its success in that respect has made it almost impossible for the government to change course. 

And this is just the way it works. How much money has been sunk into this? Lots. That’s money that could have been spent more productively, but wasn’t. So we’re poorer. And all the tens of thousands of folks right here in Iowa working in corn ethanol are misallocated human capital. So we’re poorer. These are skilled, hardworking people whose diligence and effort is, thanks to the government, making the world worse. And the case of ethanol is no anomaly. It is completely typical.

Judging from some of my comments, one would think all the government ever does is land men on the moon and invent the Internet, and therefore libertarians are blinkered idiots. Now, I truly don’t see the point of the moon landing, which strikes me as nothing more than a 20th-century version of grotesque pyramid-building waste. The Internet, like many other things based initially in government projects, probably helps account for the fact that returns to government investment are above zero. But it is truly hard to honestly identify the relevant comparison when trying to tote up the net benefits of government investment. What has been foregone in the process? (And don’t forget to include the casualties of regulatory sclerosis that so often accompanies winner-picking.)

We cannot glimpse the nearby possible worlds in which the government did not for many decades help incumbents in telephony and television block basically every new innovation. Could we have had something like the Internet earlier had regulation not so effectively locked out any new thing that threatened well-connected interests dependent on the status quo regulatory dispensation? Menand writes that “[t]here were  subscriber-supported cable systems for radio as early as 1923, and television networks have always used coaxial cable, leased from phone companies, to transmit their pictures to broadcasting stations.” I don’t know if this is true, but I have no reason to doubt it.  A well-developed early cable infrastructure might have been able to interface with emerging computer technology in inventive ways that we simply cannot imagine. Who knows what the present might have been had government gotten out of the way? I don’t and neither do you. To simply assume that the value of the seen is greater than the value of the foregone unseen is a most elementary intellectual error. Yet some of you seem very proud of yourselves when you make it.  

Now, if you think Obama’s centralized push toward a “green economy” doesn’t assume one or two great leaps forward, then you should be clear about the fact that the very considerable centralized pushing up until now has taken us to a point where the cost of a unit of energy produced by “alternative” sources is still remarkably high relative to the cost of a unit produced by a carbon-based source. And it looks like this is going to be the case for a good while into the future. The green transition will either require a massive temporary increase in the cost of energy through some combination of taxes and subsidies, or some major leaps in green energy generation that swiftly brings prices in line with prices of energy from coal, natural gas, oil, and so forth. Subsidies may accelerate breakthroughs, but they can just as easily draw a huge amount of money and talent into dead ends, such as ethanol, and create heavily-invested corporate interest groups who will seek to block more promising breakthoughs in areas the government overlooked when first passing out the lucre. 

Also, if advocates of a centralized push toward a green economy (which you have to admit is a pretty radical and romantic thing to even think plausible) aren’t counting on big technological leaps borne of subsidies, then they should be more open about the fact that their plan is really just to make energy incredibly expensive until incrementally developing green energy sources finally become competitive with carbon-based sources. Ten years? Twenty years? Thirty? And they need to explain why they think government winner-picking in green technology is likely to have a better record than government winner-picking generally. 

I predict green energy will pan out and that we’ll have incredibly cheap, clean energy within my lifetime. And I think we’ll get there faster, with much smaller costs to growth and human welfare, if the government continues to subsidize basic scientific research, but stays out of subsidizing technologies. I sincerely wonder why it is so clear to so many people that the big government push is the less risky path.