Prizes for Amelioration

by Will Wilkinson on February 12, 2008

Has anyone seen an extended argument for doing nothing at all about global warming other than offering huge prizes for technological fixes?

Update:

Also… from Warren Meyer I see this: “[Some climate scientists] claim now that man-made sulfate aerosols and black carbon are cooling the earth, and when some day these pollutants are reduced, we will see huge catch-up warming.”

Has anyone in the Pigou Club advanced the argument for subsidizing sulfate aerosols and black carbon (and whatever else has cooling effects)?

I’m sincerely asking. Such subsidies are only logical, right?

Viewing 16 Comments

    • ^
    • v
    Why just black carbon? Why not white carbon, too?

    Okay, perhaps we've had enough racism for today. Of course, the real answer to your question is that since AGW is an academic fraud of mindboggling proportions, "solving" it is the last thing anyone wants.

    But the list of "logical" approaches to the "problem" which no one cares to explore is actually much longer. Consider "carbon credits," for example. Obviously there are a huge number of pigs feeding at this trough, perhaps almost as many as on "alternative energy."

    If we assume arguendo that AGW is an actual problem, however, Pigouvian taxes, carbon credits, aerosol brownie points, etc, are horribly complex and cumbersome ways to solve it. There's a much simpler design.

    For simplicity, let's suppose the only fossil fuel is crude oil. The US burned N barrels of crude oil in 2007. Because it cares about its carbon emissions like a good little enviro-boyscout, it wishes to burn only xN in 2008, where x < 1.

    The easy solution is to insert Uncle Sam into the oil pipeline. If you want to burn oil, you have to buy it from Uncle. Using a Dutch auction, Uncle sells xN barrels of 2008 oil. The price is whatever the market cares to pay. Uncle can buy these barrels at the world price, thus making a handy profit - which goes straight to the Treasury. Carbon consumption is deterministically controlled, everything else can be left to the invisible hand, overhead is minimal and the profits (equivalent to taxes) are whatever you want them to be.

    Isn't it curious that no one seems to be proposing anything like this? Perhaps there's something racist about it. I suppose that, since we're segregating the foreign and domestic oil markets, you could see it as a sort of petroleum apartheid...
    • ^
    • v
    Mencius, have you offered to bet any of the AGWers?
    • ^
    • v
    The short answer is that I think Professor Hanson can take his conditional futures markets and return them, as we used to say at one company I worked at in the late '90s, to his portal.

    I have many reasons for believing this. But in any case Caplan is misapplying the principle. There is no point in a conditional bet if the subject of dispute is actually the conditional. How can a market which is betting on the GDP in 2050 produce any information about climate change? Duh, it can't. Professor Caplan has rocks in his head.

    I have no idea what "GDP" and "life expectancy" mean now. The latter is a complete misnomer. No one alive today has any possible idea how long they are going to live. It is like Feynman's example of the Emperor of China's nose. (A lot of these George Mason guys could really stand to read Feynman again.) Can a prediction market determine the length of the Emperor of China's nose, if no one has ever been allowed to see His Majesty's face? Obviously not.

    Of course this is not what "life expectancy" means, but "average age at death." Or something like it. Unless you are actually in the actuarial industry, it is perhaps the most worthless statistic ever. It is certainly worse than GDP, which itself makes the all-time BS list. To simplify broadly, GDP is just the sum of money that consumers spent at stores this year. It is obvious mathematical malpractice to try to somehow separate this number from the effects of fluctuations in the money supply, especially when Cantillon effects are considered.

    But people do it anyway. Why? Because they are quacks. Duh. Like "climatology," the entire field of economics is a quack science. It is half numerolatry, half uncontrolled experiments, and half government propaganda. Its practitioners should remember that it's never too late to build a real career in a real field. Petroleum geology, perhaps?
    • ^
    • v
    Mencius, if prediction markets are a bunch of portals as you say, then you should be able to call them on it and make money out their wazoos.

    I do kind of like the dutch auction idea. (Arguendo, of course.)
    • ^
    • v
    I would like to see the federal government demonstrate that it can control the market for drugs before it takes on the market for oil.
    • ^
    • v
    No, that's not the problem.

    Actually I thought the David Leonhardt article in the Times today, about the guy who kicks Intrade's ass, was quite good. Prediction markets are not magic. They work, when they work, because a market over time goes through the natural Darwinian process of selecting for people like Mr. Ravitch, who have a clue, and against people like the 'tards who bid Ron Paul stock up to 10%. Taking money from suckers is the oldest game in the book. I believe the article explained this, quite well as I recall.

    The most common problem with prediction markets, at least of the imaginary sort peddled by Professor Hanson and his cronies, is that they bet on events in the emperor's-nose category. For example, imagine a prediction market for earthquakes. Since no one can predict earthquakes (at least for certain values of the word "predict"), the market will be pure noise and completely useless. There is no way for your market to breed a population of good earthquake predictors.

    More cracks appear when you try to go from prediction markets to decision markets. Decision markets are not useful for most problems. If they were, someone would use them. If you have to beg the Federal government to roll out something that should, according to all your theories, be useful to the private sector, the odds are pretty high that you're a charlatan, a quack or a shill. Or even all three.

    There are two main problems with decision markets.

    One is asymmetrical information. By definition, you should not trade in markets where you think other players have asymmetrical information. The fact that DoD actually tried to roll out a prediction market for terrorist attacks, which as criminal conspiracies are pretty much the ultimate in asymmetrical information, is perhaps a good indication of the level of mineralization in the Orange Line brain. I'm starting to suspect that all that hard Potomac water causes some kind of heavy buildup in the ventricles.

    Two is that a decision can be worth quite a bit to any group of people, and this may well be worth the cost of "burying the corpse" while manipulating the prediction market. Any market can be manipulated by anyone who is prepared to build up an arbitrarily large position.

    So, for example, if Intrade numbers fully took the place of polls as indicators of momentum in the US presidential election, as they already to some extent have, I can easily imagine how the campaigns might participate in the market with ulterior motives. It's all fun and games until someone is stopped or margined out.

    But since the whole idea of a decision market is to make good decisions which cannot be influenced by sinister hidden conspiracies, the entire design is simply an engineering disaster. You might as well just auction the decision. It's like something out of the President Camacho school of government.

    In the productive sector, oddly enough, there is not so much emphasis on making all decisions, even important decisions, as the result of objective scientific processes. When we have a decision that has to be made, we tend to just give the responsibility to someone smart who has a clue, and let them make the call. Sometimes when the question is really important and totally up in the air, we convene a board or a committee, and they take a show of hands.

    It's backward, I know. It would never fly on the Hill, at Harvard or in Foggy Bottom. But it's actually kind of fun. I believe there's some kind of German name for the principle - I can't think of it right now.
    • ^
    • v
    Gil,

    Give it to Treasury - they conduct auctions every week. Or the Fed. It's practically the same code they're using for the TAF.

    And storing oil is also a core competence of USG. Think of the SPR. It's actually one of the few problems that Uncle Sam would be the honest-to-god low bidder on.

    It's not like I'm proposing that the Federal government should open a fast-food chain, or something that was actually difficult. I'm talking about running an oil futures market. If that's beyond Uncle's powers, it really is time to take to the hills with your gold, women and ammo.
    • ^
    • v
    Has anyone seen an extended argument for doing nothing at all about global warming other than offering huge prizes for technological fixes?

    Be happy to offer an argument, though I'm not sure whether or where I've seen it, and it may not be sufficiently "extended":

    The central point has to do with the cascade of uncertainties that continue to surround the issue:
    - is it actually occurring?
    - if so, are the models associating it with human-forcing correct?
    - if so, do its costs outweigh its benefits?
    - if so, do we know the costs and the likelihood of success of any attempted amelioration, and how they would compare with the net cost of doing nothing?
    - and even if we know or think we know both those costs and probabilities now, do we know how they will be affected by another 50 to 100 years of scientific, technological, and economic advance (which is the sort of time scale involved here)?

    Given these uncertainties, particularly the last, I'd say it's clear that the best policy at this time is to do nothing apart from ongoing research on technological fixes and/or adaptation. I'd be cautious even about the size of those "huge" prizes.
    • ^
    • v
    Mencius,

    How will they control the inevitable black (no racial overtones intended) market?
    • ^
    • v
    Mencius, you have repeatedly mocked AGWers. Aren't they something like the equivalent of the idiots that bid Ron Paul up to 10%? Why not remove those fools from their money? If you don't like GDP or life-expectancy, propose some other measurement. Be the Julian Simon of our time! Buy now or forever hold your peace.

    The most common problem with prediction markets, at least of the imaginary sort peddled by Professor Hanson and his cronies, is that they bet on events in the emperor’s-nose category. For example, imagine a prediction market for earthquakes. Since no one can predict earthquakes (at least for certain values of the word “predict”), the market will be pure noise and completely useless. There is no way for your market to breed a population of good earthquake predictors.
    You said they pick poor topics and then gave an example of a topic they didn't actually pick. And aren't geologists or seismographers or some other specialization supposed to know something about the occurrence of earthquakes? This indicates it's plenty imprecise and sketchy but better than the unknown nose example.

    You might be interested in A Manipulator Can Aid Market Accuracy. Hal Finney made the same point about asymmetric information (though he referred instead to no-trade theorems) in the first link of this comment.

    Like “climatology,” the entire field of economics is a quack science.
    You have a lot of respect for Austrians despite that though.

    Its practitioners should remember that it’s never too late to build a real career in a real field.
    I hear the job-market in the private sector for economists is quite good. How do you determine what's a real career vs a fake one?

    In the productive sector, oddly enough, there is not so much emphasis on making all decisions, even important decisions, as the result of objective scientific processes.
    The first prediction market was among the employees of the Xanadu project. The organization best associated with prediction markets now is Koch Industries, which is supposed to be the most successful private company in the country. Yahoo, Microsoft and Google are also significantly into prediction markets. They don't use them as much as they could, but you yourself are fond of pointing out that modern corporate governance is not optimal. I don't know of any governmental agency that actually implemented one yet.

    You may be willing to argue racism with Will Wilkinson, but you're too chicken to actually go toe-to-toe with any prediction-market proponents, even when you knew the author of Predictocracy was simultaneously arguing his case at two different blogs.

    Regarding the government entering the oil business, I think it's an awful idea simply on public choice grounds. Why trust them with anything like that? It sounds like carbon credits. A Pigou tax is simpler, though I don't trust them to use the revenue for its intended purpose.
    • ^
    • v
    Will, I've heard the idea of widespread use of white asphault or roofs painted white discussed. Sadly, I don't think those ideas get enough widespread discussion because people have a mental schema that big problems require big solutions, so something so trivial doesn't seem like it could possibly be effective.

    As for things like aerosols and black carbon, I sincerely hope that all parties to the debate would be moved by the law of unintended consequences. I suppose the law applies everywhere, but it seems to apply in spades to trying to engage in another polluting activity to fix global warming.
    • ^
    • v
    Smuggling cocaine is one thing. Smuggling oil is another. If USG can't keep people from smuggling oil into North America, our institutions are a lot more dilapidated than they look!
    • ^
    • v
    Mencius,

    What you're proposing is just about exactly equivalent to a tax. If you know how many barrels per year you want to country to consume, you can simply set the tax to the difference between the market price and the price your auction would provide. Of course, it would take a few years to adjust this right, but presumably your version would be introduced over a few years too.

    One difference is that the Pigous ask that Uncle Sam reduce the income tax rate to keep his revenue constant. (You could do the same.)

    A bigger one is about where this goes... in your scheme, the consumption of oil will be forever the size of the auction lot. But in a P scheme, if somebody manages to make solar/nuclear/geothermal/biofuel just a little cheaper than oil+tax, then the consumption of oil will fall off dramatically. Which is presumably good.
    • ^
    • v
    The main theoretical difference between a quota-monopoly and a Pigouvian tax is that a quota allows you to directly control the number you (presumably) care about, which is the amount of carbon emitted.

    Of course, it relinquishes control over the (Pigou-equivalent) tax rate. Because there is no way to sample the demand curve except where it intersects, any policy must lose control over one of these numbers.

    Aside from this, I think the main attraction of "oilpartheid" is that it has no obvious way to grow hair. Taxation schemes develop loopholes and turn into complexity furballs. Buying oil is just buying oil. It is relatively hard for Beltway bandits to horn in on.

    And if there is no premium on domestic oil, obviously either (a) the quota is unnecessarily high, or (b) you're done.
    • ^
    • v
    You don't think there would be sweetheart deals with certain domestic oil producers?
    • ^
    • v
    In the extreme worst-case scenario, which is realistically how any such program would be implemented, quotas would apply only to imports and domestic producers would just get to sell directly at the domestic price, capturing all USG's rakeoff.

    Suboptimal, certainly. But not really complicated. The way Washington really bleeds (my mother actually worked at DOE in renewables) is that huge quantities of money get sucked out invisibly through schemes that are too intricate for anyone to understand. It's hard for USG to just give away money to lobbyists. It has to come up with something clever.

    Pigouvian taxes are extremely ripe for all sorts of chicanery. And they are dwarfed by carbon credits, which are already a swamp of pure Third World sleaze. Note that just as Washington prefers taxes to a simple quota scheme, it prefers carbon credits to taxes. Negative selection wins again.
 

Trackbacks

(Trackback URL)

  • The Bellows » Pigoops

    February 13, 2008 at 5:21 pm

    [...] finds Will Wilkinson asking about subsidies for particulates that could help cool the earth. Will writes: Has anyone in ...

close Reblog this comment
Powered by Disqus · Learn more
blog comments powered by Disqus

View My Stats