Scott Sumner  

The Closing of the Liberal Mind (pt. 2)

Larry Summers on Oil Exports, ... What's worse than a sloppy gov...

A few weeks ago I did a post pointing out that pundits on both the left and the right have moved further to the extremes, and away from sensible policy views. I just noticed another example today, an article claiming that if you pay people not to work, it won't significantly increase the number of people not working.

Extending benefits to unemployed workers beyond the 26 weeks provided by most states has little effect on the unemployment rate and essentially no impact on labor force participation, a recent working paper released by the Federal Reserve Board found.
I guess they didn't notice that the natural rate of unemployment in Europe is at least 8%.

Question: When was the last time you saw a liberal pundit point out that extended unemployment benefits increased the unemployment rate? Maybe when Bush was implementing the policy? Here's Brad DeLong in 2008:

The rule of thumb, IIRC, is that the average duration of an unemployment spell increases by 1/4 of the increase in the duration of unemployment benefits. Thus a 13-week increase in unemployment insurance duration should increase the average unemployment spell by 3 weeks. With current mean unemployment spell duration at 17 weeks, and with roughly 2/3 of the unemployed eligible for UI, this would produce a 3/17 * 2/3 * 5.5% = 0.6% increase in the measured unemployment rate.

It seems to me likely that--whatever happens to the economy--George W. Bush has just produced four bad unemployment-rate headlines on the Saturdays August 2, September 6, and October 4. This cannot be news that John McCain is happy to hear.

That was only a 13-week increase, not a 73-week increase, as Obama implemented. And BTW, DeLong's prediction was precisely correct.

I suppose I should bash the other side as well, to be fair and balanced. Here's what GOP politicians privately think about climate change:

In stark contrast to their party's public stance on Capitol Hill, many Republicans privately acknowledge the scientific consensus that human activity is at least partially responsible for climate change and recognize the need to address the problem.

However, they see little political benefit to speaking out on the issue, since congressional action is probably years away, according to former congressmen, former congressional aides and other sources.

In Bloomberg BNA interviews with several dozen former senior congressional aides, nongovernmental organizations, lobbyists and others conducted over a period of several months, the sources cited fears of attracting an electoral primary challenger as one of the main reasons many Republicans choose not to speak out.

Most say the reluctance to publicly support efforts to address climate change has grown discernibly since the 2010 congressional elections, when Tea Party-backed candidates helped the Republican Party win control of the House, in part by targeting vulnerable Democrats for their support of legislation establishing a national emissions cap-and-trade system.

Here's my suggestion for the GOP. Say you'll support a carbon tax if it's used to do an equal reduction in taxes on capital. Even if there were no global warming, a carbon tax would be ten times more efficient than taxing capital income. Of course the Dems would say no. And then the GOP could taunt the Dems as follows:

"So Al Gore has convinced you guys that climate change will produce a catastrophe, and yet you'd rather engage in class warfare than solving the problem, Thanks for clarifying your priorities."

If the GOP weren't so timid on climate change they'd split the Dems right down the middle---class warriors vs. eco-freaks.

PS. There was a time when even liberals supported lower taxes on capital.

PPS. I strongly agree with David Henderson's post praising Summers on export deregulation--even if it undercuts my closing of the liberal mind argument.

Comments and Sharing

COMMENTS (21 to date)
Bostonian writes:

"Say you'll support a carbon tax if it's used to do an equal reduction in taxes on capital."

The Democrats would pocket the concession on the carbon tax but decouple it from the tax cut on capital. Already some Democrats have said carbon tax revenues should be funneled to low-income households as a "green rebate".

JLV writes:

@Bostonian: I believe you'd find the opposite gear amongst lefties - that Republicans would pocket the tax cut but then work to undermine the effectiveness of the carbon tax, carving out exemptions for Koch industries, etc.

In our actually system, it seems likely that both fears would come true to some extent, undermining the entire affair.

ThomasH writes:

Carbon taxation for capital taxation would be a great trade off maybe with a bit of decrease in bottom rates of the (what would then be a) consumption tax combined with elimination of payroll taxes to maintain progressivity and increase LFPR. [I'm assuming that a carbon tax will bring in a lot more revenue than capital taxes, already quite low and exemption ridden, do.] I'll bet you could more easily find liberals to take this deal than "conservatives" to offer it.

BTW how does a "finding" of a low elasticity of work wrt unemployment benefits show anything about closed liberal or conservative minds. I've never understood the "liberal" position on unemployment benefits being that they had zero impact on labor force participation, but rather that those costs were small relative to the benefits to those who cannot find a job. It's sort of like the argument for a minimum wage (given that an increased EITC of not available as an alternative); the loss of low skill employment from the implicit tax is small relative to the income income transfer to those that do not loose their jobs. Different people will make the trade-offs differently.

I think Liberals do make these kinds of trade-off calculations which I have not seen conservatives do wrt carbon taxes.

Silas Barta writes:
Even if there were no global warming, a carbon tax would be ten times more efficient than taxing capital income.

Yes, taxes on capital are very inefficient, but I learned from a Bob Murphy article on Tax Interaction Effects that the consensus in the literature actually says carbon taxes are too, because of "base-narrowing" considerations: to get the same revenue from a carbon tax, the rate has to be a lot higher, which causes rapidly-increasing distortions given that the deadweight loss scales superlinearly with tax rate.

(I'll be flagged as spam for a second link, but if you check out the most recent post on my blog, I break down where exactly the "inefficient carbon tax" argument comes from and where I think it goes wrong.)

ThomasH writes:

Another data point in my observation that only skeptics about climate change cite Al Gore. :) [I know, Scott is just "quoting."]

ThomasH writes:

Summers on oil and gas exports has nothing to do with liberals and conservatives; it's economists v politicians. George Schultz did not invent Nixon's price controls; it was Connolly who was not an economist or a liberal.

Tom West writes:

Unfortunately, in our current political climate, admitting that anything you support has an associated cost, no matter how common-sensical, is tantamount to surrendering the issue to the other side.

Were I in the public eye, a position like mine where I supported extended UI but acknowledged that it does extend the average duration of unemployment would be clipped by the opposition and shown in ads as "see, even the supporters say it has failed".

Likewise, a Republican has saying, "Yes, I believe in AGW, and no I don't think we should act on that information" is setting himself up to be used as ammunition against his party. ("Even the Republicans acknowledge they're monsters!")

It's hard to tell the difference between the politicians believing nonsense, and politicians understanding that truth is simply a weapon that you avoid using when it will arm the opposition.

It's why I don't don't expect anyone of sufficient prominence to say anything measured and balanced (or interesting). That's not their job.

Scott Sumner writes:

Bostonian, Let them try--they don't have the votes for a carbon tax--not even close.

Thomas, I assure you that liberals would not do that deal.

As for unemployment comp, I used to see lots of liberals say it reduces work effort, now most of them deny it. If you haven't noticed the sea change in opinion then I'm afraid you haven't been paying attention.

Silas, Yes, but that ignores the fact that there are many, many other externalities from carbon, even if global warming is a hoax.

Andrew_FL writes:

Taxes are not exchanged for one another. That is pure fantasy of the "Tax Reformer."

Taxes, instead, multiply, as if to obey a command of God. And they bear fruit to, although that brings to mind an entirely different biblical metaphor involving trees and fruit.

Anyway, literary allusions aside. What sad fate has befallen republican government, went the peoples' representatives disdain the views of their own voters and deceive them otherwise. And you lament not that the Republican voter is deceived, but that they still hold enough fearful sway over their representatives to prevent them doing what you want rather than what those who elected them want.

I'll grant you, you'd make a marginally better King than most.

But you can't be King. Instead you can attempt to play at being a member of the Consulting Class. Unfortunately politics doesn't work the way you imagine. Sloganeering and innuendo that produces water cooler sneering laughter wins elections. Clever, correct full sentences involving calling your opponent's bluff is entirely beyond the attention span of the modern electorate.

On second thought, let me rethink that. Are we sure you can't be King?

I support science, that is, the process of careful data collection and experiment followed by a transparent release of data, code, and plain argument. Real science is sceptical. It throws out fuzzy argument and unsupported or unrepeatable claims. History shows that anything less leads to costly error.

There are a few facts about carbon dioxide and direct warming, and a pile of speculation, models, and government manipulation. Most of climate science is not science. Publishing only a graph is scientifical, not science.

I trust in results produced by a group of skeptic scientists attempting to disprove/improve on the theories floating around. Government climate scientists embrace one result but (strangely) not one model, and they obscure the data leading to their conclusions. That is a cabal, not a scientific community.

It is ridiculous to trust in the integrity of a "scientific community" or "peer review" where prominent members of academic and government institutions announce they are willing to lie for the supposed good of the peasants.

The models are complex, Dr. Mann won't release his data, and manipulations of peer-reviewed, published graphs to "hide the decline" are explained as unfortunate limitations of space. The warmists have no credibiility, meaning that there is no reason to believe anything they say which is not supported in transparent detail. They are revolutionaries or true believers, not scientists.

One might argue that these liars are only a few. If so, why aren't the rest denouncing them, proclaiming proudly that the data is enough, proclaiming that exaggeration and lying are not needed? Their silence demeans the global warming community and their science.

( )
Lying for climate change
3/3/12 - Ed Driscoll   [edited]
=== ===
It is a fascinating development when people admit that they’re willing to lie for their cause.

•  Prof. Chris Folland, Hadley Centre for Climate Prediction and Research
“The data doesn’t matter. We’re not basing our recommendations on the data. We’re basing them on the climate models.”

•  Dr David Frame, Climate modeler, Oxford University
“The models are convenient fictions that provide something very useful.”

•  Paul Watson, Co-founder of Greenpeace
“It doesn’t matter what is true, it only matters what people believe is true.”

•  Sir John Houghton, First chairman of the IPCC
“Unless we announce disasters no one will listen.”

•  Christine Stewart, former Canadian Minister of the Environment
“No matter if the science of global warming is all phony … climate change provides the greatest opportunity to bring about justice and equality in the world.”
=== ===

The global warming scare is political, not scientific. It represents an old political ploy. When you scare the sheep, they are more willing to be sheared.

There can be no discussion with liars. It is worse when the liars claim the status of learned, dispationate science, and then tell you that your peasant mind should just believe, because you can never match the facts to their "models". You are not allowed to question their models because they were never designed to be questioned.

Jeff writes:

Republicans in Congress have to worry about primary challengers seizing on any public remarks they might make, also, regarding a carbon tax and turning it into "he supports a tax increase!" Your proposal might succeed in dividing Democrats, but it may well divide Republicans, too, in other words.

Roger McKinney writes:

There is a major flaw in comparing the two examples. Support for paying people to remain unemployed is junk economics.

AGW is junk science. See the many columns on it at the Independent Institute by Singer like this one:

Scott Sumner writes:

Andrew, You said:

"Unfortunately politics doesn't work the way you imagine."

And what do I imagine?

Andrew #2, The global warming scare is political, but global warming is real.

Jeff, As my post said.

Roger, When I want to learn about global warming I read scientific journals, I do not go looking for the views of the Independent Institute.

Tom West writes:

There is a major flaw in comparing the two examples.

Indeed, it's fairly amazing how the science that is ideologically inconvenient is all junk (and done by corrupt scientists!), and the science that supports our ideology is completely correct.

Lucky us!

triclops writes:

Thomas H,

Please show me where some liberals admit the tradeoffs in unemployment insurance and minimum wage. I'm sure they exist, but they are depressingly hard to find. The writers I've read simply dismiss the tradeoffs as nonexistent, and argue that it's just evil conservatives being greedy again.

Andrew_FL writes:

@Scott Sumner-I would have thought my next statement made my insinuation clear. It seems to me you are overly optimistic as to the ability of Republicans to use your "gotcha" sentence on their opponents. The voters don't have the attention span to figure out the hypocrisy being pointed out.

Robert writes:

Wait, so the evidence shows that increasing unemplyment benefit duration does not increase unemployment and you take this as evidence of closed mindedness? What are liberals supposed to do if not follow the evidence? If you think the study is flawed, that's fine, point out where, but simply lumping Europe together as one entity is hardly a response.

Also why is research by the Federal Reserve board an example of the liberal mind? Surely if even the Fed is defending unemployment benefits, then this is proof it has breoken out of just liberal circles.

Finally your don't help your argument by comparing liberals basing opinions on economic research with Republicans completely ignoring scientific consensus.

Daniel Kuehn writes:

I was thinking precisely what Robert said. This is a wacky post Scott.

Sure you ought to look at the Fed research and say "this is weird - how do we square this with prior estimates". It might have something to do with spending multipliers. It might be something else. Or we might not have a good answer. But it seems like what you definitely don't want to do is call people closed minded because they are sharing high quality research around.

Flocccina writes:
Yes, taxes on capital are very inefficient, but I learned from a Bob Murphy article on Tax Interaction Effects that the consensus in the literature actually says carbon taxes are too, because of "base-narrowing" considerations: to get the same revenue from a carbon tax, the rate has to be a lot higher, which causes rapidly-increasing distortions given that the deadweight loss scales superlinearly with tax rate.

If that means what I think it does, it is the reason that I think that co2 tax needs to combined with a payout for net long term removal of co2 from the air. You then target equilibrium. That means the co2 tax will not be a revenue source. One reason for doing it this way is that it may be much cheaper to remove co2 from the air than to avoid putting it in the air in the first place.

Bob Murphy writes:

I meant to post this question earlier, Scott; I'm not sure if you're still checking this one. In any event, I think you are being rather flippant in your response to Silas above.

If you look at the table I reproduced in my article (which Silas linked) from Bovenberg and Goulder's pioneering 1994 paper, you'll see that the "tax interaction effect" is enormous. They estimated that if carbon emissions carried a $50 social cost (negative externality) per ton of carbon, then once you factored in the tax interaction effect, a lump-sum-return of carbon tax revenues to citizens would imply an optimal carbon tax of $0 per ton.

Even if you used 100% of the carbon tax revenues to reduce the Personal Income Tax rates (rather than sending lump-sum rebate checks) the optimal carbon tax would still only be $27/ton.

That is an enormous effect. If you think about what those numbers mean (and by all means, click through the link to look at the table to get a better sense of it), it shows how much worse a tax on carbon is than a tax on personal income. If they were equally inefficient, then the $50 per ton negative externality of carbon emissions would imply that a dollar-for-dollar tax swap would lead to an optimal carbon tax of $50/ton. But to repeat, they estimated it was just a little more than half that, at $27/ton.

I realize you said taxes on capital, not personal income, but still: In light of the above estimates, you're saying that if the social cost of carbon emissions related to climate change were $0/ton, you think it would be a no-brainer to impose a stiff carbon tax if the proceeds reduced capital taxes?

Bob Murphy writes:

No, Flocccina, what you're saying would be much much worse from the perspective of tax distortions. (It might be a good plan on other grounds.) If the government imposed a carbon tax and then sent the revenues out in lump sum fashion to all citizens, that would be "revenue neutral" too (in the way I think you're using the term here), but that would be even worse than what Silas is talking about. Click on the link Silas gave if you want to learn more.

This is really a big point in the carbon tax literature.

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