Picking Winners

It is hard to pick winners in a sporting event.  It is much harder to pick winners in the economy because you don’t know who is playing.  Arsenal hosts Tottenham tomorrow.  Get the odds from Ladbrokes for win, lose or draw.  You could bet on other events like which player gets the first goal.  Wisconsin hosts Michigan is even easier because it can’t end up in a tie.

Economic events are much harder because the set of alternatives is not known.  It would be like if Chelsea (or even better example, a team that does not yet exist) could win the Arsenal-Tottenham match.  Picking economic winners involves ignoring prices and markets to say X is the best.  Recent evidence shows the problems when the warmists and their allies try to pick winners.

Sidebar One: There are two main issues in global warming (whoops, climate change).  The first is the science side of it.  What determines global temperatures?  To date we have some evidence that carbon dioxide and temperatures are positively related.  The models have been unimpressive in forecasting temperatures but the ability to explain the past suggests we need to pay attention.  The bigger problem is what to do about the forecasts.  The warmists, with the exception of a few like Bjorn Lomborg, want to take action now.  That means picking winners.  End Sidebar One.

Two articles show the problems with trying to pick winners.  One is on Germany from the WSJ and the other is an academic study of ethanol from the University of Wisconsin reported in the Milwaukee Journal Sentinel.  Let’s start with the WSJ.

Mrs. Merkel’s failure [to reach carbon emission goals] comes despite astronomical costs. By one estimate, businesses and households paid an extra €125 billion in increased electricity bills between 2000 and 2015 to subsidize renewables, on top of billions more in other handouts. Germans join Danes in paying the highest household electricity rates in Europe, and German companies pay near the top among industrial users.

On the other hand, the AP reports on carbon emissions in the US:

In a surprising turnaround, the amount of carbon dioxide being released into the atmosphere in the U.S. has fallen dramatically to its lowest level in 20 years [Emphasis added].

It continues to amaze us how often the press is surprised when pricing mechanisms work.  The odds are to be surprised the other way.

Sidebar Two: We were not supportive of the mandate during the George W. Bush administration to require ethanol on a tactical basis.  We support price mechanisms.  We thought that there was a reason to do it on a strategic basis.  During W’s administration it seemed to us that the warmists had the momentum and there was a chance that the government would do something on an epic level of foolishness.  We made the judgment call that the ethanol mandate was the least foolish option available.  It seemed to sap the warming momentum.  End Sidebar Two.

A University of Wisconsin-Madison study has looked at the impact of the ethanol mandate on carbon emissions.  A word of academic caution.  No one study is definitive and this one has not yet been subject to a formal (everyone gets informal peer reviews as they create a paper) peer review.   The authors found that the trade off between more corn and less fossil fuel did not work as hoped:

The study underscores the unintended consequences of a federal policy meant to reduce America’s reliance on fossil fuels.

While adding ethanol means burning fewer fossil fuels, the study found that the benefits were lost as even greater amounts of carbon held in the soil were released into the atmosphere in newly cultivated farm fields.

It is not a surprise when you ignore market prices.  It would be wise to reduce the amount of ethanol in gas.  We need to eliminate wind subsidies.  We would take a reasonable carbon tax instead.  Eliminate the gas tax and make the carbon tax equivalent to the old gas tax is our idea.  It is revenue positive and makes the incentives right.  We are pretty sure that carbon is a bad thing but we don’t know how bad.  There is time for the market to fix it and there is really no other viable choice than to wait for the market.  Epic foolishness is not called for.


Bjorn For Something

Bjorn Lomborg is back at the WSJ telling us to be rational about climate change.  It is a timely message given what happens when a hurricane or two hits the US.  Steven Hayward has a great hurricane chart.  Here is an example of Bjorn being rational:

In this case, the science is unambiguous. Rising temperatures mean that malaria-carrying mosquitoes can become endemic in more places.

But looking mainly to global-warming policies means missing the most important levers of tackling malaria. Malaria is a consequence of poverty: The worst affected are those poorer households in rural areas with less ability to purchase mosquito nets and treatment. Focusing on what we could achieve in the future through global-warming policies takes our attention away from what we could accomplish today.

Do read the whole thing.  If you meet a zealot send him to see Bjorn.  Bjorn is a climate change believer but he recognizes economics too.  See his website.

One topic we like to discuss is binary choices.  You can see that Bjorn uses binary choices as argument.  As he explains in more detail after the quote above, you can fight malaria by fighting climate change or by malaria prevention.  Malaria prevention is much cheaper and much more effective at saving lives.  Bjorn doesn’t mention it but malaria prevention is much more certain to be effective and much more timely than trying to address malaria by addressing climate change.

Unfortunately, Bjorn doesn’t appear to be a US citizen so he would need to be appointed to any government post.  Fortunately, he is making sense.