James K. Boyce

This is the third installment of a five-part series on climate policy adapted from regular Triple Crisis contributor James K. Boyce’s March 31 lecture for the Climate Change Series at the University of Pittsburgh Honors College. This installment focuses on the costs associated with the institution of a carbon price, both the private costs of measures to reduce emissions and the larger private costs that would be paid for emissions that are not eliminated. The first two installments of the series is available here and here.

The full lecture and subsequent discussion are available, as streaming video, through the University of Pittsburgh website. Click here or on the image below.

Just How Much Would It Cost?

Back in 2009, the Speaker of the House of Representatives, John Boehner (R-Ohio), commented in the debate running up to the vote on the American Clean Energy and Security Act—known as the Waxman-Markey bill, after its main sponsors, Henry Waxman (D-Calif.) and Ed Markey (D-Mass.)—that if this bill were passed, it would be the biggest tax increase on working families in American history.

Now, that was probably political hyperbole, but Boehner wasn’t entirely wrong. It would be like a tax increase, and it would be substantial. It has to be substantial if it’s going to engender the kinds of changes in consumption of fossil fuels that are needed to push forward the clean energy transition. We’re talking about big changes: an 80% reduction in our emissions by the year 2050 below some baseline level. We’re talking about really a revolution in energy, and the kinds of price increases that would be ultimately needed to drive that forward are not inconsequential, and so Boehner had a really serious argument there.

What was the Democratic response? “No, no, it’s not a tax, really it’s not like a tax, and really it’s not a big price increase, it’s not going to hurt people all that much, it’s equivalent to a postage stamp a day.” Now, that postage-stamp-a-day estimate came from an estimate of something quite different from the price increases that households would face.

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By Simon Sturn and Gerald Epstein

A large body of cross-country time-series literature shows that financial development—predominantly measured by private credit as a percent of GDP—fuels growth. But, in light of the many recent episodes of finance driven crisis, these results seem curious. Haven’t we seen that periods of rapid credit expansion are also often periods of economic crisis?

The answer to this puzzle might have to do with the time horizon under consideration. A broad theoretical literature argues that credit demand and supply are correlated with growth in the short-run. Credit demand is “pro-cyclical”—firms are reluctant to borrow and invest during business-cycle slumps, periods of low demand and high uncertainty, while the opposite is true for business-cycle booms. Credit supply is also pro-cyclical, as banks are less willing to lend during recessions, when banks have less capital and borrowers have lower net worth, than during upturns.

Finance and growth, then, are correlated in the short run, but this does not imply that finance also causes long-run growth. Therefore, it is crucial to address the short-run pro-cyclical fluctuations of credit in empirical studies on the impact of finance on growth. Otherwise, the true long-run growth effect of financial development will be overstated.

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Robin Broad

Industrial mining continues to generate horror stories that fill front pages. Among the most recent, in May 2014, more than 300 miners were confirmed dead after an explosion in a coal mine in Soma, Turkey.

To the extent the mainstream is touting solutions, the spotlight is on “transparency”—such as under the Extractive Industries Transparency Initiative. But these efforts focus mostly on ensuring that the gains from mining are more equitably distributed between company and host country. That does not directly address whether mining is being done in an environmentally and socially responsible way.

As I have written elsewhere, we need to make mining policy environmentally, socially, and economically responsible—not just transparent, or even transparent with accountability, regarding who gets what share of the revenues.

So this blog post is sharing the good news about six countries trying to move towards responsible mining policies. Some are more successful, significant, and meaningful than others, but all are worth following.

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Edward B. Barbier

One of the objectives of Thomas Piketty’s economics bestseller, Capital in the Twenty-First Century, is to estimate the evolution of the capital-income ratio of an economy.  According to Piketty, “a country that saves a lot and grows slowly will over the long run accumulate an enormous stock of capital (relative to its income), which can in turn have a significant effect on the social structure and distribution of wealth” (p. 166).

Piketty defines capital—which he calls “national capital” or “national wealth”—as “the sum total of nonhuman assets that can be owned and exchanged on some market” (p. 46). Capital therefore includes all forms of real property (including residential real estate) as well as financial and industrial capital (plants, infrastructure, machinery, patents, and so on) used by firms and government agencies. But capital also includes farmland and natural resources, such as fossil fuels, minerals, forests and any other similar natural capital that can also be bought and sold on markets. In sum,

national capital = farmland + marketed natural resources + housing + other domestic capital + net foreign capital

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James K. Boyce

This is the second installment of a five-part series on climate policy adapted from regular Triple Crisis contributor James K. Boyce’s March 31 lecture, part of the Climate Change Series at the Honors College of the University of Pittsburgh. The lecture explores how to turn the atmosphere (heretofore treated as an “open access” resource, into which greenhouse gases can be dumped at no cost to the emitter) into a common-property resource. The first installment of the series is available here.

The full lecture and subsequent discussion are available, as streaming video, through the University of Pittsburgh website. Click here or on the image below.

The Tragedy of Open Access

The kind of problem that carbon emissions epitomize is what’s called in economics the “tragedy of open access.” It’s also sometimes called the “tragedy of the commons,” although since that phrase was coined back in 1968 by Garret Hardin, it’s become clearer to folks that there’s a difference between commons and open access. Very often, commons are, in effect, regulated through systems of common-property resource management. Open access is really the heart of the problem. The problem is that, currently, we’re able to put carbon dioxide in the atmosphere as if there’s no scarcity of the biosphere’s capacity to absorb emissions. There’s no price associated with doing so—it’s free. There are no property rights associated with this—no one owns the carbon absorptive capacity of the atmosphere. And the problem is that when you have resources that are treated as open access resources but in fact are in limited supply, you can get overuse of the resource—you can get abuse of the resource to the point where you’re damaging the resource and the economy.

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Kevin P. Gallagher and Yuan Tian

Regular Triple Crisis contributor Kevin P. Gallagher is an associate professor of international relations at Boston University and co-director of the Global Economic Governance Initiative (GEGI) and Global Development Policy Program. Yuan Tian is the CFLP Pre-Doctoral Fellow for GEGI’s Task Force on Regulating Global Capital Flows. She is currently a third-year PhD student in economics at Boston University.

In the wake of the 2008 financial crisis, the International Monetary Fund (IMF) began to publicly express support for ‘capital controls’ in emerging markets.  In addition to public statements, and the endorsement of controls in Iceland, Ukraine, and beyond, the IMF underwent a systematic re-evaluation of Fund policy on the matter, and published an official view on the economics of capital flows in 2012.  To the surprise of many who witnessed the IMF’s scorn for regulating capital flows in the 1990s, in this new ‘view’ the IMF concludes that capital account liberalization is not always the optimal policy and that there are situations where capital controls—rebranded as ‘capital flow management measures (CFMs)’—are appropriate.

It is well known that the IMF claims that it has changed its tune, but has it really changed its ways?

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Matias Vernengo

Argentina has finalized a deal with the Paris Club two weeks ago. And tomorrow, if I’m not wrong, the case against the Vulture Funds will be finally decided by the Supreme Court. On the first one, Argentina signed an agreement with the Paris Club that implies the country will pay around US$9.7 billions in the next 5 years.

There is an interesting twist in the agreement with the Paris Club. The agreement was reached without accepting an IMF program, which have traditionally been part of all such negotiations. The Club and the IMF used to be joined at the hip. Two Paris Club chairmen, Jacques de Larosière and Michel Camdessus, became later managing directors of the IMF. So in a sense, the idea was that austerity at home was essential for repayment abroad. Here it is important to note a traditional confusion in the conventional view about the role of austerity.

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C.P. Chandrasekhar

With India’s integration with the global economy through trade and investment flows having increased significantly over the last quarter of a century, the days when domestic economic performance was relatively insulated from global trends are over. So as the new government begins its tenure and there is much anticipation about what it would deliver in the short and medium term, it may be useful to consider the global environment it faces. That environment influences both policy space and economic outcomes through many routes: through capital flows and its impact on currency value, through its impact on export performance, and through the cost of imports, to name a few.

The OECD Secretariat has just recently put out a set of estimates and projections of global growth. Its projections are optimistic and predict a revival of growth over 2014 and 2015. But the background to those projections suggest that this may be one more of the many instances in the recent past when forecasters proclaimed that green shoots of recovery had been sighted, but were proved wrong as the recession persisted.

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Steven Pressman, Guest Blogger

Economist Steven Pressman has been “Live-Blogging” on his reading of Thomas Piketty’s Capital in the Twenty-First Century, and related controversies, at the Dollars & Sense blog. This post combines two installments, focused on the attempted refutation of Piketty by the Financial Times Chris Giles, and Piketty’s rejoinder.

While I am here in Paris reading Capital in the Twenty-First Century carefully, the book has dominated the headlines again. Having just spent a good deal of time thinking about its numbers, I thought it would be useful to reflect on the piece published May 23 in the Financial Times.

There, Chris Giles provides a detailed and lengthy argument against Piketty. He claims there are many instances where Piketty has used the wrong numbers in making his calculations and that many assumptions Piketty makes in doing his research are incorrect.

First, an important point—data transcription and math errors occur all the time in economics. It is a sort of dirty and hidden secret. Typically, errors are not discovered and don’t make front page news. One cost of being an economic rock star is that the data Paparazzi hang on to your every number.

But the “gotcha!” reception of finding math mistakes is worth reflecting on. I have been amused by smug claims that Piketty supporters unthinkingly accepted his numbers, and that Giles has proven Piketty to be totally wrong. Even before examining any numbers, it is easy to see that these claims succumb to the same mistake that they accuse Piketty’s supporters of making. I cannot think of any better evidence that Capital in the Twenty-First Century has hit a raw nerve in the socio-economic psyche.

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James K. Boyce

This is the first installment of a five-part series on climate policy by regular Triple Crisis contributor James K. Boyce, professor of economics at the University of Massachusetts-Amherst and director of the Program on Development, Peacebuilding, and the Environment at the Political Economy Research Institute (PERI).

The series is adapted from Prof. Boyce’s March 31 lecture, part of the Climate Change Series at the Honors College of the University of Pittsburgh. The lecture explores how to turn the atmosphere (heretofore treated as an “open access” resource, into which greenhouse gases can be dumped at no cost to the emitter) into a common-property resource. This requires the establishment of a set of public property rights over the atmosphere’s capacity to absorb and recycle carbon, the imposition of costs (as through a carbon tax or sale of carbon permits) on those who use this finite resource, and a determination of how the rents will be distributed.

The remaining parts of the series will appear once a week for the next four weeks. The full lecture and subsequent discussion are available, as streaming video, through the University of Pittsburgh website. Click here or on the image below.

Demand and Supply

Broadly speaking, there are two types of policies to reduce carbon emissions from fossil-fuel combustion. One set of policies operates on the demand side of the picture, on the need for fossil fuels. These are policies that include investments in energy efficiency, investments in alternative sources of energy, public investment in mass transit, etc.—investments that reduce our demand for fossil fuels at any given price. Even if the prices of fossil fuels were to remain unchanged, people would consume less of them, thanks to these investments in efficiency, alternative energy, alternative modes of transportation, etc. That’s an important set of policies, but it’s not the only one that is relevant.

I’m going to focus on the complementary set of policies that operate not on the demand side of the equation, but the supply side—policies that raise the price of fossil fuels at any given level of demand. Those policies operate by raising the price in either of two ways which are more or less equivalent, either by instituting a tax on carbon emissions or, alternatively, by putting a cap on emissions and thereby restricting supply. In the same way, OPEC restricts supply when it wishes to increase the price of oil and increase profits—it raises the price. Well, that’s how a cap works to raise the price, too.

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