A good explanation of how regulation differs from litigation, and how California’s water rights differ from other systems.
President-elect Trump has called for imposing significant tariffs to “bring back jobs to America.” Unfortunately, this will be a fool’s errand. The Smoot-Hawley Tariffs in 1930 were imposed to “save” farming jobs, but instead exacerbated the Great Depression as shown in the chart above. There’s no valid reason to think tariffs will work any better this time around.
Yet, there are a set of valid reasons to impose tariffs, that in a roundabout way could lead to job growth in the U.S. These tariffs could be useful tools to pursue other policy goals by forcing other nations to play on a level field with U.S. industries. The tariffs could be adjusted downward as those countries adopt policies in line with those in the U.S. The World Trade Organization (WTO) allows these types of tariffs if properly designed. Just trying to save jobs doesn’t count, but achieving valid policy goals does.
The policy areas where using flexible tariffs could be fruitful include:
- environmental and climate change
- labor and employment
- product standards
Tariffs to encourage nations to comply with global greenhouse gas reduction goals is one type of environmentally oriented use. Since U.S. companies comply with a wide range of environmental regulations, many of which are intended to preserve natural habitat that has worldwide value, asking other countries to do the same seems to be a valid request. Those nations can ignore those standards if they choose, but U.S. businesses should be allowed to compete as though imported products have incurred similar compliance costs.
Similarly, the U.S. has a wide range of labor employment, workplace and safety standards. Ensuring the well being of those outside of the U.S. if we’re going to buy those products is similarly valid.
Product standards is a third area. Many U.S. products last longer and perform better because they meet stricter standards. The increased longevity of automobiles is largely a byproduct of the increased stringency of emission standards that require engine performance meet those standards for at least 100,000 miles. Improved standards also can lead to reduced waste and increased productivity.
But to justify these tariffs will require that American corporations fully support the application of these standards within the U.S. Whether they can be persuaded to the advantages remains to be seen.
From the current issue of American Economics Review:
Robust Social Decisions: We propose and operationalize normative principles to guide social decisions when individuals potentially have imprecise and heterogeneous beliefs, in addition to conflicting tastes or interests. To do so, we adapt the standard Pareto principle to those preference comparisons that are robust to belief imprecision and characterize social preferences that respect this robust principle. [This paper focused on decisions related to climate change.]
Beyond GDP? Welfare across Countries and Time: We propose a summary statistic for the economic well-being of people in a country. Our measure incorporates consumption, leisure, mortality, and inequality, first for a narrow set of countries using detailed micro data, and then more broadly using multi-country datasets. While welfare is highly correlated with GDP per capita, deviations are often large. Western Europe looks considerably closer to the United States, emerging Asia has not caught up as much, and many developing countries are further behind. Each component we introduce plays a significant role in accounting for these differences, with mortality being most important.
(W)hat proportion of consumption in the United States, given the US values of leisure, mortality, and inequality, would deliver the same expected utility as the values in France? In our results, lower mortality, lower inequality, and higher leisure each add roughly 10 percentage points to French welfare in terms of equivalent consumption. Rather than looking like 60 percent of the US value, as it does based solely in consumption, France ends up with consumption-equivalent welfare equal to 92 percent of that in the United States.
(i) GDP per person is an informative indicator of welfare across a broad range of countries: the two measures have a correlation of 0.98. Nevertheless, there are economically important differences between GDP per person and consumption-equivalent welfare. Across our 13 countries, the median deviation is around 35 percent—so disparities like we see in France are quite common.
(ii) Average Western European living standards appear much closer to those in the United States (around 85 percent for welfare versus 67 percent for income) when we take into account Europe’s longer life expectancy, additional leisure time, and lower inequality.
(iii) Most developing countries—including much of sub-Saharan Africa, Latin America, southern Asia, and China—are substantially poorer than incomes suggest because of a combination of shorter lives and extreme inequality. Lower life expectancy reduces welfare by 15 to 50 percent in the developing countries we examine. Combined with the previous finding, the upshot is that, across countries, welfare inequality appears even greater than income inequality.
(iv) Growth rates are typically revised upward, with welfare growth averaging 3.1 percent between the 1980s and the mid-2000s versus income growth of 2.1 percent. A boost from rising life expectancy of more than a percentage point shows up throughout the world, with the notable exception of sub-Saharan Africa. When welfare grows 3 percent instead of 2 percent per year, living standards double in 24 years instead of 36 years; over a century, this leads to a 20-fold increase rather than a 7-fold increase.
Bailouts, Time Inconsistency, and Optimal Regulation: A Macroeconomic View: A common view is that bailouts of firms by governments are needed to cure inefficiencies in private markets. We propose an alternative view: even when private markets are efficient, costly bankruptcies will occur and benevolent governments without commitment will
bail out firms to avoid bankruptcy costs. Bailouts then introduce inefficiencies where none had existed. Although granting the government orderly resolution powers which allow it to rewrite private contracts improves on bailout outcomes, regulating leverage and taxing size is needed to achieve the relevant constrained efficient outcome, the sustainably efficient outcome.
Long-Run Risk Is the Worst-Case Scenario: We study an investor who is unsure of the dynamics of the economy. Not only are parameters unknown, but the investor does not even know what order model to estimate. She estimates her consumption process nonparametrically…and prices assets using a pessimistic model that minimizes lifetime utility subject to a constraint on statistical plausibility…[A] way of interpreting our results is that they say that what people fear most, and what makes them averse to investing in equities, is that growth rates or asset returns are going to be persistently lower over the rest of their lives than they have been on average in the past.
An interesting discussion about the failures and lessons for broad scale retraining programs.
My own thought is that we need to buy out the homes of displaced workers at the higher of either their purchase cost or the assessed value to facilitate moving to a new job location.
This blog post on Fox & Hounds is an example of how to take statistics of one cause-and-effect relationship and misapply them to another situation. In this case, this graphic above shows how GHG emissions have dropped dramatically in states that used to burn coal to generate electricity, but now rely much more on natural gas. The decline in coal emissions has occurred over the last half-decade due to the fall in gas prices and the increased stringency in air quality regulations. But more importantly, those states had higher emissions that California to start with because they have been laggards in protecting their environments. The chart shows that these states are finally starting to catch up! If anything, this supports adopting SB 32 as a follow on to AB 32!
Yet the blog post misconstrues this situation to argue that it’s the “free market” that somehow is generating these greater reductions, implying that California and Mississippi had started from the same place–which of course if far from the truth. Yes, the market push from natural gas fracking explains some of this, but California was already so far ahead due to its own efforts that it has less room to improve.
Watch for these types of misrepresentations. Understand the initial premises by the authors. Ask hard questions before you accept their conclusions.
Here’s a summary of the findings:
The report includes a number of significant findings, including:
- There is no quantitative evidence that CEQA has a retarding effect on the state’s economic prosperity.
- Legislative changes to CEQA aimed at streamlining the CEQA process to encourage infill development are working. In San Francisco, only 14 environmental impact reports were prepared in the last three years. In that time, 100 projects proceeded with CEQA exemptions or expedited review.
- Despite rapid population growth and development, the number of CEQA lawsuits statewide has remained constant over the past 14 years. Between 2013 and 2015, legal challenges were filed in 0.7 percent of projects subject to CEQA review.
- Less than one percent of projects subject to CEQA review face litigation.
- Direct costs for complete environmental reviews under CEQA typically range from 0.025% to 0.5% of total development costs.
- California is the 11th most densely populated state in the nation. Its urban areas compare favorably to cities around the country with regard to the rate of infill vs. greenfield development.
- The state’s largest cities show ongoing improvement in walkability. California is home to 12 of the nation’s 50 most walkable cities.
- CEQA does not hamper the development of affordable housing in urban areas. Although the need to provide more affordable housing in California is undisputed, when compared to other states, California produces the second highest number of affordable housing units per 100,000 residents in the nation.
I was struck by the juxtapose of these two items:
- AquaMetal is building a new environmentally-friendly battery recycling plant near Sparks, NV. They considered California, but “In California, you put in your permit application, and six months later, someone tells you you filled out line 26 wrong.”
- “(T)he Governor’s Office of Business and Economic Development (GO-Biz) today awarded 23 state officials across various agencies and departments certificates of completion for the Lean 6-Sigma training program administered by GO-Biz which helps streamline permitting and make state government more business friendly.”
California has many progressive and necessary regulations, but the state does an awful job of administering them. Too often, the bureaucrats are too wrapped up in believing the process is actually important. Instead, they should be thinking about how they can ease the permitting and compliance process so that businesses can focus on achieving everyone’s goals.
A bureaucrat should be filling in the missing blanks rather than waiting for months to kick back an application. A friend noted the all too common “NIGO” response–“not in good order.” Being NIGO’d is not conducive to good business.