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Housing, Transportation, and the Politics of Path Dependency

Tyler Cowen says he doesn’t take the Metro, even though his home and office are near stations, because there are Metro-inconvenient places in between that he likes to go. Matt Yglesias rightly wonders why libertarians don’t complain more about the zoning requirements of suburbs like Tyler’s Fairfax. This is an excellent question. I’ve been long puzzled by the widespread libertarian preference for state-subsidized roads plus building regulations oriented around cars over state-subsidized trains and buses and building regulations oriented around them. Matt writes:

I don’t really understand why it is that this kind of thing doesn’t seem to bother libertarians very much. Bryan Caplan specifically cites America’s large houses and ample parking spaces as the benefits of our free market approach when they are, in fact, the product of systematic regulatory mandates. I think this illustrates the basic tribalism of a lot of our politics. If Fairfax County were considering some kind of hippie-inspired stringent rent control law, we’d be hearing no end of it from blogging George Mason University professors. But given a set of extremely severe land use regulations that happen to antagonize environmentalist and left-wing Europhilic bicycle commuters, suddenly mandatory minimum parking requirements become the essence of capitalism.

What makes this issue so tricky for me is that the status quo pattern of settlement and transportation certainly does reflect systematic regulatory mandates, but it’s not clear how worthwhile it is to try to back out of this pattern once it has been established — even if those mandates were stupid. The way we live is indeed very much a function of choices made by government some time ago and reinforced by its ongoing decisions to maintain the established system. I think the case for the proposition that many of these choices were big mistakes — that we’d have an overall better pattern of settlement and transportation had government made different choices — is pretty compelling. Yet it remains that whole cities have formed around the suboptimal status quo system and many tens of millions of people have invested in goods like houses and cars taking for granted the structure of the status quo system.

I suspect defenders of greater density and more public transport overstrain themselves trying to make the implausible case that a transition to their favored alternative would cost most everyone less than maintenance of the status quo, despite the fact that almost everyone has already arranged their lives around the current system. I don’t think this kind of path-dependency/status-quo bias/lock-in effect would be insuperable if government would simply stop actively subsidizing people to arrange their lives around the status quo system. It could make people pay directly for using roads; price for congestion; shift incidence of taxes from labor income to carbon use, etc.

But this is hard to do in a democracy, since people tend to want what they’ve got and feel entitled to the subsidies that support the status quo. If people live the way they do because they’re being actively subsidized to live that way, and the government takes the subsidy away, people will feel punished. This sort of thing is why democratic politics (ironically) tends to involve frequent attempts by ideologues to jam policies people don’t want down their throats so that they get something new (like it or not!) and eventually come to want it, since people tend to want what they’ve got. This is what I expect many of the dubious cost-benefit analyses of new train lines, etc. really come to. Pretexts for implementing unpopular and short-run inefficient policies in the hope of reshaping the choices, habits, and preferences of a public unfortunately satisfied with their current crappy mode of living.

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The Poor but Unusually Chipper and Long-Lived Index

The Happy Planet Index is an ideologically rigged ranking released each year by the New Economics Foundation as part of their fight against the evils of economic growth. As far as I can tell, the whole thing is based on the false assumption that it is physically impossible for the entire population of Earth to achieve OECD-levels of material wealth. I suspect NEF sort of hopes media outlets will misunderstand what their index is an index of, as they’ve chosen a rather misleading name for a ranking of countries according to this formula:

Nevertheless, here are some of the headlines:

Australia Not Home to the Good Life — Sydney Morning Herald
Costa Rica: World’s happiest place — Xinhua
Happy Costa Ricans top global list for the good life — Financial Times
Costa Rica tops list of ‘happiest’ nations — CNN

I do like the quotes around CNN’s ‘happiest’. So, anyway, what is the Happy Planet Index and index of?! Who can say!? Not journalists, who can be counted on to read no further than the press release. If one takes a moment to poke around the website for the Index, they do get around to saying: “The Index doesn’t reveal the ‘happiest’ country in the world,” which is a help. But they should put this up front, or change the name of the damn thing.

Anyway, so what’s this “ecological footprint”?

The ecological footprint of an individual is a measure of the amount of land required to provide for all their resource requirements plus the amount of vegetated land required to sequester (absorb) all their CO2 emissions and the CO2 emissions embodied in the products they consume. This figure is expressed in units of ‘global hectares’. The advantage of this approach is that it is possible to estimate the total amount of productive hectares available on the planet. Dividing this by the world’s total population, we can calculate a global per capita figure on the basis that everyone is entitled to the same amount of the planet’s natural resources. Using the latest footprint methodology, resulting in the data in the Global Footprint Network’s Ecological Footprint Atlas, the figure is 2.1 global hectares. This implies that a person using up to 2.1 global hectares is, in these terms at least, using their fair share of the world’s resources – one-planet living.

Don’t ask me why they think this makes sense. (Artifical trees!) In short it seems to mean that countries get docked for containing lots of people wealthy enough to buy lots of things.

Let’s move on to alpha and beta. What do they mean? NEF doesn’t tell you on the website. But if you diligently hunt around the pdf of the report, it is possible to discover Appendix 2, where it is finally revealed what the Happy Planet Index is an index of:

… a constant (α) is added to the ecological footprint to ensure that its coefficient of variance across the entire dataset matches the coefficient of variance for HLY across the dataset. In effect, this serves to dampen variation in the footprint. Once this is done, HLY can be divided by the adjusted footprint to produce an efficiency measure. This is then multiplied by a second constant (β) such that a country achieving a maximum life satisfaction score of 10, and life expectancy of 85, whilst living within its global fair share of resources (one-planet living), would score 100.

They apparently want to dampen the effect of the footprint to avoid the embarrassment of miserably impoverished countries “winning” simply due to the fact that they’ve got antibiotics but are too poor to buy coal.

It is well known in the happiness biz that Latin American countries tend to do better in terms of self-reported life satisfaction than their economic and political fundamentals would predict–in much the same way East Asian countries do worse. Given that the index strongly penalizes wealth, it’s not much of a surprise that the winner would be a poor-but-unusually-chipper Latin American country that also has a suprisingly good average lifespan.

Here is an article on Costa Rican longevity.

Here is my annoyed response to the 2006 index.

What do you make of this claim, just thrown out there in NEF’s explanation of its notion of ecological footprint: “[E]veryone is entitled to the same amount of the planet’s natural resources”?

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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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Pulped Intentions

The Nation’s Chris Hayes has written a great story illustrating how Washington and environmental policy work together to create wasteful stupidity. 

Thanks to an obscure tax provision, the United States government stands to pay out as much as $8 billion this year to the ten largest paper companies. And get this: even though the money comes from a transportation bill whose manifest intent was to reduce dependence on fossil fuel, paper mills are adding diesel fuel to a process that requires none in order to qualify for the tax credit. In other words, we are paying the industry–handsomely–to use more fossil fuel. “Which is,” as a Goldman Sachs report archly noted, the “opposite of what lawmakers likely had in mind when the tax credit was established.”

What happened?! Read the whole thing. It’s a terrific example of unintended consequences. Chris says, “I’ve come to expect that even nobly conceived laws will be manipulated and distorted for private ends. But once in a while I hear a story that gives me the queasy feeling that I’m nowhere near cynical enough.”

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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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'Green' Energy Needs a Big Leap

That’s the headline on this LA Times piece on Energy Secretary Steven Chu’s aim to produce “revolutionary” breakthroughs. Incrementalism? Highlights added for your convenience and pleasure:

When Energy Secretary Steven Chu talks about how Americans can break their addiction to oil and coal, he starts with his hi-fi amplifier. It’s so old that the on-off light burned out long ago. But inside lies a technology that — in its day — was as revolutionary as the changes needed to solve the nation’s energy problems.

Radios, telephones and other electronics once depended on fragile vacuum tubes the size of small light bulbs. Then scientists pioneered a smaller, cheaper and more durable replacement called the transistor, opening the way to trans-Atlantic phone calls and a host of other marvels, including Chu’s stereo.

Chu, a Nobel Prize-winning physicist, and other experts say similar [revolutionary] scientific breakthroughs are needed to make renewable power sources such as wind, solar and biofuels as cheap and easy to use as costly, environmentally damaging oil and coal. Toward that end, President Obama’s stimulus package contains $8 billion for energy research, including $400 million targeted for game-changing technology.

I’m glad the Times knew enough to add this:

The problem is that over the last three decades, the U.S. has spent many times that much on energy research and development — with nothing like a transistor to show for it.

“It’s very easy to say we should spend more” on research, said Jeffrey Wadsworth, chief executive and president of the Battelle Memorial Institute, which manages several Energy Department laboratories. “What really needs to happen is more effective use of the money.”

As Wadsworth is quick to acknowledge, that’s easier said than done.

Clap harder everybody!

Anyway, if Obama’s Nobel Prize-winning physicist Secretary of Energy says the plan is to shoot for revolutionary, game-changing technology, will folks admit that Obama is in fact shooting for revolutionary, game-changing technology?

[HT: Glen Whitman in comments below]

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Stealing from Taxpayers Is the Easiest

Last week, Robert Bradley, Jr. wrote a terrific review of T. Boone Pickens’ latest autobiography, The First Billion Is the Hardest. The conclusion, in particular, is right on:

Mr. Pickens’s standing to pronounce on energy matters was earned as a free-market producer. He is now using that standing to defy the market itself.

His arguments for a government-led remake of the nation’s energy use are sketchy at best, dangerous at worst. Despite his grand claims, generating wind power is uneconomic, and transmitting it is even more so (windy places are far from electricity markets). Wind is unreliable, requiring constant backup from natural-gas-fired plants in particular. Wind takes summer days off. In Boone-speak, wind is all hat and no cattle.

As for natural gas: Mr. Pickens scarcely mentions the manifold problems with natural-gas vehicles, from the price premium for a new car (around $6,000) to the cost of fuel conversion (averaging around $12,000 per car). Converted vehicles must sacrifice trunk space to accommodate a heavy natural-gas cylinder. The task of retrofitting service stations, let alone cars, puts the cost of the Pickens Plan north of a trillion dollars. And what happens if oil prices fall and natural-gas prices spike?

Why is Mr. Pickens pushing this energy plan so hard, aside from the supposed good of the nation? The most obvious reason is that his Clean Energy Fuels Corp. — invested heavily in natural-gas dispensing stations — would be a big winner. Mr. Pickens also has on the drawing board a $10-billion wind-power project — “the biggest deal of my career.” Another reason, one suspects, is a desire to reclaim the kind of folk-hero status that Mr. Pickens lost after Mesa’s fall. He might become the “greenest” energy man since Ken Lay was at Enron and Lord John Browne rebranded the “BP” of British Petroleum to mean “beyond petroleum.”

A third reason is less obvious. Mr. Pickens refers to Big Oil as “the monster.” Why such an animus toward an industry that has been at the forefront of the American dream? As it turns out, both Mr. Pickens and his father (a failed independent) spent unhappy years at Phillips Petroleum. During the takeover battles with Big Oil, Boone was professionally and personally smeared and was ultimately denied his dream job: running an integrated major. He also links Mesa’s fall to overdrilling by the cash-flush majors.

A man is entitled to his vendettas, of course. But surely the government shouldn’t help fuel them. One hopes that Mr. Pickens can reinvent himself one more time, remembering — how did he put it? — that “the greatest opportunity lies in a free marketplace.”

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No Dice, Pickens!

Last Thursday on public radio’s Marketplace Morning Report, Bob Moon interviewed billionaire T. Boone Pickens about his highly self-publicized energy plan, which centers on using wind power to replace a portion of the natural gas used to create electricity, and then using that replaced natural gas to power cars. As it happens, Pickens has invested in a big way in windmills and is extremely well placed to profit from an increase in the use of natural gas-powered vehicles. But the part that bothers me most isn’t the fact that a billionaire is running a propaganda campaign in an effort to rig the regulatory structure to force consumers to buy what he sells — though that bothers me plenty. The part that bothers me most is the mixture of toxic nationalism and egregious economic illiteracy in the ads Pickens is airing to plump for his plan. Which brings us back to Moon’s interview with Pickens:

Moon: Let me ask you to respond to something that Will Wilkinson of the Cato Institute said in a commentary on Marketplace the other day. Here’s some of his criticism of you:

Will Wilkinson clip: He’s leaning hard on our worst nationalist impulses. What he’s really saying is, why buy the things you need from dangerous foreigners when you could be paying more to buy them from rock-ribbed Americans, like T. Boone Pickens.

Pickens: It’s more than me. I mean, this is about America. This isn’t about Boone Pickens and whether Pickens’ wind farm makes money or whatever happens to it. But I mean, here with $700 billion going out of the country, and let’s say that we could cut it in half — $350 billion in the United States, can you imagine how that would multiply for jobs here. I’d much rather that gonna $350 billion was being used here than to give some for foreign oil.

Allow me to point out that Pickens’ reply is nonsense. He continues to insist on characterizing mutually-beneficial exchange across borders as hundreds of billions of American dollars “going out of the country.” But, in a nutshell, the reason Americans bought all this oil from abroad was that they had no way to get more energy bang for their energy buck. Unless the prices of domestic energy sources decline relative to that of foreign oil, shifting domestic consumption to energy from domestically-produced sources will  require Americans to pay more for energy–leaving them less for everything else.

This is not a recipe for multiplying jobs. Rather, it would leave less money in the economy to start new businesses and to expand successful ones. This is a recipe to make ordinary American consumers poorer and energy corporations, like the ones Pickens owns, richer. If Pickens was making sense, the implication would be that Americans would be better off if we “in-sourced” everything. T. Boone Pickens, meet David Ricardo.

Either one of the world’s wealthiest men doesn’t understand elementary economics, which clearly tells us that his plan will make Americans poorer, or his plan is not really “about America.”

Here’s my July 31st Marketplace commentary on Pickens. And here’s Cato’s Jerry Taylor in March debunking “energy independence.”

[Cross-posted from Cato@Liberty]