International comparison of the income tax rate on the wealthy

Thomas Piketty posted the top income tax rate in five of the richest big countries over the past 115 years. Most Americans don’t realize that the top tax rate in the US is considerably lower now than it was for most of the time America has had an income tax, but I didn’t realize that the same is true for the other rich countries as well.

The two big reductions in inequality were the two world wars although the Great Depression might have also had an effect.

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Posted in Public Finance

The politics of global warming

Here are three views of the Chicago skyline. The top photo is a rare day with high air pollution in the 1990s, but that was a typical scene in the 1970s and the third is how Chicago looks today:

All big American cities used to have a reputation for being very polluted because they used to be very, very dirty and Chicago in 1970 probably wasn’t even the worst. Here is an actual 1973 photo of the Clark Avenue Bridge in Cleveland. This was one of the major Cleveland bridges over the heavily polluted Cuyahoga River near downtown.  (This bridge was torn down and today the site is near the Interstate 490 bridge.)

And another photo

That is a true-color photo!  It is hard to tell because the pollution makes everything look black and white, but there is a red stoplight in the middle of the haze.

In the early 1970s, it was completely legal for anyone to spout any sort of toxic waste into America’s air. Below is a 1972 photo of smoke from burning lead-acid car batteries in Houston for recycling. The lead (a potent neuro-toxin) in the batteries is bathed in sulfuric acid (also inherently toxic) and this witch’s brew is encased in the thick plastic battery exterior which produces carcinogenic dioxin when burned. A car battery is extremely toxic even without burning and it and will produce toxic smoke if burned which is why this kind of business model was banned shortly after this photo was taken. Now Americans have to pay a deposit when buying a lead-acid car battery to give a financial incentive to bring used batteries back for safe recycling.

There was also unlimited freedom for anyone to dump any sort of toxic waste in our lakes and rivers. Here is a photo of Cleveland’s 1953 Cuyahoga river fire. The river caught fire in a major way at least 13 times.  The last fire was in 1969 which had flames reportedly reaching five stories high. News reports about that fire went viral nationwide and helped inspire the establishment of the Environmental Protection Agency in 1970 and the Clean Water Act in 1972.

Americans had been so accustomed to rivers being choked with pollution that the idea  rivers catching fire didn’t even seem newsworthy.  This sort of thing never made national news before 1969 and often didn’t even get much attention from the local newspapers. For example the 1952 fire pictured here was one of the most damaging river fires and an even earlier fire is said to have taken three days to put out but even those fires didn’t seem particularly newsworthy outside of the local neighborhood any more than a house fire today would be newsworthy outside of a local neighborhood. It was just a normal part of industrial life in American cities.

Today, due to EPA regulations, fish can survive in the Cuyahoga River again, and the EPA recently announced that enough toxins have washed out or stabilized in the sediments that it is finally safe to eat fish from the river without poisoning yourself.  I personally wouldn’t want to eat much.

Most people think that economic development inevitably brings pollution as a necessary byproduct and there is some truth to that, particularly for poor nations, but economic development also makes people richer which causes them to want to live in cleaner, healthier places and richer people can afford to spend money to achieve that.

The relationship between economic development and pollution is often called the environmental Kuznets Curve. Although the curve in the graph below is less clear for the US than for France and Germany, sulfur pollution rose with industrialization in all these countries until the advent of the environmental movement in the 1970s and then they all began regulating their air quality which rapidly brought pollution back down again. The United States is a bit of a “pollution haven” in comparison with most other rich countries like France and Germany, but at least pollution has been getting better in the US than it used to be here.

Although the Kuznets Curve idea has validity for most of the visibly obnoxious local pollutants like brown, smelly air and rivers that catch fire, there is no evidence that it applies for other environmental problems that aren’t immediately visible in the urban areas where most environmentalists live such as species extinction and global warming. For these problems, so far economic development has just made them worse. For example, CO2 emissions tend to rise with income.

The reason why CO2 emissions haven’t followed the Kuznets Curve so far is due to political will. Although Americans are passionate about preventing our rivers from catching fire and avoiding smog and brown skies in our cities where American elites like to hang out, we just aren’t as passionate about global warming (yet) so we have not made as many efforts to stop the emissions of greenhouse gasses as we have made to reduce noxious-smelling pollutants like sulfur dioxide. But most Americans do worry about global warming and have been concerned for decades:

So the problem of inaction is NOT that the majority of Americans don’t care about global warming.  Although polling is never perfectly accurate, many other polling agencies have found the same thing.  Furthermore, they show that a majority of both Republicans and Democrats agree that global warming is a problem we need to address. This is one of the rare areas of broad, bipartisan agreement at the grassroots level of politics in an increasingly politically divided America today.

Republicans are unfairly stereotyped as not caring about global warming because most Republican national political leaders, including Donald Trump, are climate change skeptics, but the majority of Republicans at the grassroots agree with the vast majority of Democrats on this issue.  Here is another poll:

More recent polls show that a majority of Republicans in nearly every congressional district support policies
to mitigate climate change and an overwhelming 74% want more funding for renewable energy research.

So the real question is, if the majority of Americans of both parties are worried about global warming and want to reduce carbon emissions, why don’t our political leaders listen to popular will and take action? This is particularly true of elite Republican politicians who actively fight to block action, but elite Democratic politicians also make big talk about fighting climate change without actually doing much of anything. For example, President Obama talked a lot about it, but he did not take action on the issue during his first year in office when Democrats had a majority of the House and Senate and so they had control over all branches of the federal government except the Supreme Court. Instead Obama prioritized economic stimulus programs first and then healthcare reform took up most of the attention of the Democrats for over a year. By the time they got around to start working on climate change, the Republican leadership had taken over control of the House and had the power to block legislative action.

(Bipartisan note:  The fact that American political party elites are so ideologically sorted into opposing camps on the issue of global warming is an odd quirk of American politics that isn’t shared in any other democracy in the world.  Most industry lobbies try to buy both parties fairly equally, but the fossil fuel industry is unusual in that it has overwhelmingly thrown its lot in with only one party in America.  This sort of ideological sorting is common in a few other political areas.  For example, liberal political party elites in democracies worldwide are always more in hock to organized labor than conservative parties.  A particularly embarrassing alignment of US Democratic Party elites is their consistent relationship of support with trial lawyers over the decades. It is hard to be less popular among Americans than fossil fuel barons, but lawyers are about the least popular occupation and have probably accomplished it.)

How much of global warming is your fault versus the fault of large corporations?

According to the 2017 IPCC report, just 25 multinational corporations accounted for half of all global emissions of greenhouse gases so although you probably buy products from these corporations and bear some responsibility, you don’t deserve nearly as much blame as the people who control these companies.

% of global emissions

1988-2017

25 worst corporations→

50%

100 worst corporations→

71%

Only a few corporations can be responsible for such a large amount of greenhouse gasses because fossil fuel corporations comprise a disproportionate share of the world’s largest corporations.  Many of the rest of the world’s biggest corporations are in industries that heavily rely on the consumption of fossil fuels such as automobile production. The table below shows that the majority of the 18 biggest corporations in the world (measured in 2017 revenues) are corporations that produce fossil fuel or directly depend on fossil fuel consumption to sustain their entire business model.

If America started a modest carbon tax of $20 per ton, the nonpartisan Tax Policy Center estimates that the hardest-hit quintile of Americans would pay about 0.8% of their income and most Americans would pay less.  In comparison, the median-income quintile paid 13.5% of income in federal taxes in 2016 according to the Peterson Foundation.

But the 100 big corporations that account for 71% of global carbon emissions would be hit very hard by a carbon tax.  Sure they would pass on some of that in the form of higher prices to consumers, but that would amount to just 0.8% of income for ordinary Americans at worst and the corporations would feel A LOT more pain than we would and so they have a big incentive to manipulate the public and the politics to get their way. This is the concentrated interest group problem.

A revenue-neutral carbon tax could increase most Americans’ disposable income

A revenue-neutral tax increase is one that is exactly offset by reductions in other taxes or by tax rebates–checks sent to Americans in compensation for the tax increase.  The carbon tax revenues could be perfectly offset by reducing the tax burden from the payroll tax which is by far the biggest part of the tax burden on the median-income American or by sending every American a check for the average amount of the tax revenues.  Then only people who burn more carbon than average would be hurt (which tends to be people who are richer than average) and people who burn less would get a net benefit from the carbon tax.

The people who would pay the biggest price by far are the people in the fossil fuel industry and because they would pay a lot more than average, most Americans would less than average.  Plus, a carbon tax would be more efficient than the payroll tax because the carbon tax discourages pollution whereas the payroll tax discourages working.  Thus, a revenue-neutral carbon tax could increase economic efficiency now, reduce inequality, and help save the planet’s future.  Almost everyone wins!

Of course, this is based on a relatively modest carbon tax and if you wanted to rapidly reduce carbon more dramatically, it would require shared sacrifice by everyone (and most fossil fuel companies would be completely destroyed), but we gotta start somewhere and some baby steps like a modest carbon tax could be implemented without any sacrifice by most Americans. 

But the 50 corporations that emit half of the world’s emissions would pay an enormous amount. It is impossible to reduce greenhouse gasses and avoid causing them harm.   On the other side of the ledger, in addition to the diffuse benefits from a healthier, more productive planet, there some some concentrated interest groups in the form of about 106 clean energy corporations worth about $220 billion (according to Bloomberg) that would directly profit from higher demand for their products.

Which side of the debate has more power?

So most taxpayers would see little change in their overall tax burden and would see benefits from a healthier planet and a bunch of small alternative energy corporations would see their profits skyrocket whereas the main costs would be borne by a few enormous fossil fuel companies. Worldwide in 2014 there were about 1,469 private fossil fuel corporations worth about $4,650 billion (plus some enormous government-run fossil fuel producers that aren’t included in this accounting.) The main cost at stake in the climate debate is estimated to be worth over $4,000 billion to those private corporations.  In addition there would be costs to other industries like the automobile corporations that would have to completely reinvent their businesses to produce electric vehicles.

How much is $4,000 billion? Well a million dollars is already a lot of money and stack of $100 bills that totals a worth of $1million would be 3.5 feet high (and weigh 22 pounds).  A stack worth $4,000 billion is four million times bigger–2,520 miles high. That is a lot of money that the fossil fuel corporations have at stake in the climate change debate.

Most people could be made richer by an optimal carbon tax, especially young people who will see the most future benefits. Globally we are subsidizing the fossil fuel industry to the tune of between $540 billion and $5,000 billion a year, so just eliminating the government subsidies would save the rest of us a lot of money and a carbon tax would raise additional government revenues that could be used to reduce income/payroll taxes that burden ordinary American workers. It is unlikely that a carbon tax could be implemented optimally, but even a poorly designed carbon tax could be implemented in a way that still benefited the majority of Americans.  Only the small minority of Americans who get most of their income from the fossil fuel industry would find it costly and it would be extremely costly for them, especially the wealthy elites who control most of the capital in the industry.

So there are two sides to the global warming debate. One side thinks it is a real problem that we should at least start to do something about and the other side that wants to ignore the issue and burn unlimited fossil fuels. Which side do you trust more?

Which side has more power? Although the side that wants to fight climate change has a lot more American people than the pro-fossil-fuel side of the debate, the fossil fuel industry has a LOT more money to spend and so far they have consistently been winning as a result.

Fossil-fuel industry supporters like former Senator Rick Santorum like to claim that climate science is corrupt because, “a lot of these [climate] scientists are driven by the money that they receive.” My reply is to ask, “Is there more money in climate change or climate denialism?” It is a good idea to follow the money and see where it leads. Given the trillions of dollars that the fossil fuel industry has at stake and the fact that this extremely wealthy industry forms a very concentrated interest group, why can’t they afford to pay a tiny fraction of a percent of that money to climate scientists to change the scientific consensus? The fact is that they do hire climate scientists and one of the reason that so many PhD geologists tend to be climate skeptics is that the fossil fuel industry is the dominant private sector employer of geologists, so this scientific community already has close ties with fossil fuel companies.

I work in economics and I have seen private money pour into economic debates. Wealthy interest groups hire lots of economists to research issues at think tanks and interest groups pay grants to academic researchers at universities to direct their research in particular directions. Similarly, industry money tries to corrupt the public health research in order to promote the sale of sugar or tobacco or patented drugs. If you track the vast amount of money that the fossil fuel industry spends on influence, they give a lot directly to politicians and they give a lot to PR efforts in schools and the media and lobbying, but very little money on actual climate science research. This is why I never believed there is a scientific case to be made that global warming isn’t happening. If you follow the influence money, the king of all industries completely capitulated in the scientific debate decades ago.

They do pay a few individual climate scientists, but mostly as part of their PR effort to help create the impression in the media that there are “two sides” to the scientific debate. They hardly pay any climate scientists to do any actual research on the climate (although they do pay scientists to critique and criticize other scientists’ work) nor to establish academic conferences of climate skeptics nor academic journals for alternative views of climate science. This is odd to me as an economist because it doesn’t take much money to establish these sorts of scientific institutions and there are lots of them in economics to support widely divergent perspectives about how the economy works. In climate science, there only seems to be schools, institutes, journals, academic societies and conferences dominated by scientists who say climate change is real and who simply disagree about how bad they think it will be. On the other side there are individual scientists but they have not bothered to join together to create any of the organizational infrastructure that is necessary to succeed in an intellectual marketplace. It is as if the fossil fuel industry knows the evidence in support of climate change is so overwhelming that they have given up any attempt to fool the scientists they have not already bought. But it is easier to fool the general public and the politicians have the real power so they are more cost effective to buy than scientists.

The main goal seems to be to produce enough doubts about climate change among the public so that the public is willing to ignore the open bribery of politicians to block action.

One way they manipulate the American media is by paying for loud advocates to advance the narrative that there are “two sides” to the climate science that argue about whether it is real.  The news shows oblige by showing doubters along with consensus scientists as if that is the main issue.  In reality, the median view among climate scientists is that it is absolutely happening, but there are a wide variety of estimates about how bad it will get.  I have met a lot more climate scientists who think global warming will result in hundreds of millions of human deaths than who doubt whether it is happening, but you almost never see the news present the climate debate as one about whether it will merely diminish global GDP or whether it will cause the earth to become uninhabitable.  This is closer to the real center of the debate among actual climate scientists, but the public almost never hears about this, the real center of climate science debate.

A lobbying case study

In 2018 there were several small ballot initiatives that would have hurt Big Carbon companies a little bit and they all lost except one.  That one passed because it was relatively trivial and it was supported by another long-established state industry lobby that wanted to protect the salmon industry rather than to protect the global climate.

If you follow the influence money you immediately see that it simply isn’t a fair fight. The Washington State ballot initiative was the by far most expensive ballot initiative of any sort in Washington history and probably the most expensive climate change fight  in American history. Here are the top donors who opposed it:

They are all fossil fuel companies and all of them are based outside of Washington State except for one. The Washington State tax would have had a trivial effect on most of them since only a small amount of their business is done in Washington State, but they were willing to invest millions of dollars nonetheless.

Below are the top donors on the other side, in favor of the Washington State carbon tax. Which group of donors do you trust more?

These proponents of the carbon tax were mostly Washington residents plus a few out-of-state environmentalists.

The fossil fuel industry blanketed Washington’s media with propaganda about how devastating a carbon tax would be and scared voters into rejecting the initiative. This kind of propaganda effort is sometimes compared with the disinformation campaign that the tobacco industry used to do to try to convince Americans that tobacco is healthy and cast doubt on the scientists who were coming to the consensus that it causes cancer and other illnesses. The fossil fuel industry has thousands of times more revenues available (or perhaps tens of thousands of times more money) than the tobacco industry and whereas the tobacco industry has remained extremely profitable even after they lost the PR effort over the science of the harms of tobacco, for the fossil fuel industry, this issue is an existential battle. They will be utterly destroyed if they lose.

Mancur Olson’s theory of political economy

In Mancur Olson’s theory of political economy, a minority group like oil producers can conspire to rob resources from the majority of the people even in a democracy.  For example suppose there is a country with 10,000,000 people and a special interest group of 1,000 oil-corporation owners.  If the oil owners can conspire to get a subsidy worth $5 on average from each person in the country, it will be worth $50,000,000 in total and if the oil owners divide it up equally, they will each get $50,000.  So the oil owners have more financial incentive ($50,000) to lobby politicians in favor of the subsidy than the other voters will have to oppose it ($5 each).

The rational voter won’t care about the oil-industry subsidy because it only costs $5 per voter and literally hundreds of other issues are more important to each individual like healthcare, tax rates, unemployment insurance, abortion, policing, racial issues, gender issues, foreign policy, etc.   But for the oil owners, the subsidy is probably their number one issue because probably none of the above issues are worth $50,000 per year.

Concentrated interest groups have additional advantage when you consider the transactions costs of organizing people together into a political coalition.  Any organization of people requires resources for group communications (newsletters and mailings), pooling finances (fundraising and accounting for donations), and management (prioritizing activities and accounting for expenditures).  Suppose it costs $10 per person to coordinate an interest group.  That would make it impossible for the diffuse group of ordinary citizens to finance an interest-group lobby (because $10>$5) whereas the oil owners would still have $49,990 left to gain after paying for the transactions costs of managing their political coalition.  

In addition, there is a learning curve for any political organization and enormous fixed costs in establishing and growing organizations. Any new industry is going to have a harder time organizing a coalition than an old, established industry that has been slowly investing in organizational capacity building and social capital within the group over many decades.

This gives the oil industry in the US another advantage over the new clean-energy industries.  The oil industry first began in 1859 in America and the US was the world’s leading producer for most of history since then (although sometimes dropping as far as third place behind Saudi Arabia or Russia between the mid 1970s and the present).  The US oil companies developed economies of scale and technologies that enabled them to become the biggest oil multinational corporations producing oil around the world in other countries too.  And American thirst for oil was even more extreme that our prodigious domestic production and American was the world’s biggest oil importer for most of the years between the mid 1970s and the present too.  

This history means that oil companies in the US have more money than oil companies in all other nations and a longer history of working together as an industry and this has made the oil special interest group more politically formidable in the US than in any other democracy.  This is why the US is the only democracy that joins with autocratic petrostates like Saudi Arabia and Russia to oppose international agreements that would reduce carbon emissions like the Paris Climate Accord which even the petrostates eventually joined and the US is the only government that has not.

Politicians need votes but they also need money (especially in the American political system), so if there is an issue that the majority of voters don’t know or don’t care about and a small minority of voters cares so much about that they will vote solely based on this issue and more importantly, they will donate thousands of dollars to politicians, then the rational politician will quietly support a subsidy that takes money from the majority of people and transfers it to a wealthy minority.

The three keys for this to work are first, that the minority has to be wealthy enough to be able to effectively bribe politicians. Wealthier people are always more powerful in any political system.  Secondly, the wealthy minority has to appeal to the apathy, ignorance, and/or affinity of the majority group.  For the fossil fuel industry, they cannot rely on apathy in regards to the issue of climate change so they have to spend a lot of money on PR to keep enough of the majority ignorant or fearful of any efforts to slow down the growth of burning carbon to help the politicians they bribe resist the popular will. Thirdly, there cannot be another wealthy interest group that can fight back with equal power.

All of these features have worked well for the fossil fuel industry in America although they have to spend a lot of money on PR to manufacture consent among enough of the electorate to keep burning.  In nations with bigger fossil fuel industries, they have more money and more political power to shape public opinion. Pew’s research below shows that in countries with bigger fossil fuel industries, concern about global warming is lower.

Although most Americans are worried about climate change, the level of concern is lower than  in all but a few nations such as China.  One reason the US public is less concerned about climate change than most nations is undoubtedly the enormous economic power of the fossil fuel industry in the US which has more resources than in other democracies (and a longer history) for manufacturing consent.

Is Mancur Olson’s theory of conspiracies just like other conspiracy theories?

Short answer: no.

Most conspiracy theories are ridiculous because they are unsupported by evidence and theory both.  For example, the conspiracy theory that climate scientists are part of a hoax paid for by the Chinese would require evidence that the Chinese are actually paying climate scientists around the world and some theory for why the Chinese would have a motive to do so.  The more common conspiracy theory that climate scientists can make a lot of money by fabricating evidence for global warming, also mentioned above, lacks evidence that scientists are fabricating evidence and lacks evidence that researchers get paid more money for research showing that global warming is real than the tiny fraction of researchers get paid who produce research showing that it is false.  It also falls short even in theory because there isn’t any organized wealthy interest group that would have the motive to pay scientists for biased research promoting the idea that global warming exists whereas there IS an enormously wealthy interest group with a clear motive to finance their opposition.

Scientists can certainly get things wrong, but that is usually due to intellectual fads rather than to organized conspiracy.  A conspiracy is different.  In theory, a conspiracy requires a motive and a means in order to work.  In evidence, we should require more extraordinary evidence to accept extraordinary claims.  For example, there isn’t any motive for the NASA rank-and-file to conspire to fake the moon landing (a conspiracy that my son’s science teacher was teaching his class in Bluffton Middle School this week) nor for scientists to fake evidence that the world is flat.  Plus, we trust their expertise for the operation of GPS and the global air-traffic control system, so why wouldn’t we trust them about the shape of the earth?  Another reason to require extraordinary evidence is when there are claims that large numbers of people are involved in a conspiracy over a long period of time.

The more people are allegedly involved in a conspiracy and the more time there is, the greater the chance of someone leaking about the conspiracy, particularly if there isn’t anyone with a big vested interest in providing a big incentive to keep everyone quiet.  This is another factor against the alleged conspiracy of climate scientists.  There are probably tens of thousands of climate scientists around the world and the scientific consensus about global warming began to develop at least a half century ago.  It would take a miracle to keep all those people quiet.

In contrast, it is easy to see the fossil fuel industry’s conspiracy to fight action about climate change if you simply follow the money.  There is vast amounts of influence money they are spending that is in the public record.  There is also plenty of dark money in politics that we cannot easily trace, but we don’t have to just rely on guesses about how much dark money they are using to conspire against climate science because some kinds of political spending must be recorded in the public record and even just that amount is already enormous.

There is also money being contributed by environmentalists in favor of taking action on climate change, but it is a pittance in comparison with what the fossil fuel industry spends and they don’t have as much self-interest in hiding dark-money expenditures because most environmentalists like to take credit for donating to environmental causes publicly.  Environmental causes have popular support that is bipartisan at the grass-roots level which engenders openness and that openness makes it different from a conspiracy which tries to avoid publicity by definition.

Financial markets believe the scientists

Even if you believe the tens of thousands of climate scientists worldwide are conspiring to produce fake science, there are financial markets that track the climate and those markets make predictions that are very close to what the climate models are predicting and if you think you can do better you can make money betting against them.  Since 1999, the Chicago Board of Trade has operated a market for utility companies to help them hedge their risks of an unusually hot summer (high electricity demand for air-conditioning) or an unusually cold winter (high demand for energy for heating).  This futures market essentially allows speculators to bet on what the average temperatures in America will be in the future.  It turns out that the financial markets’ predictions (green line) are extremely close to what the climate scientists predict (blue lines show two common models) which do a good job of predicting the actual weather (red and pink lines show two different measures).

According to a recent paper, the markets and the climate scientists have been in close agreement and they have both done a pretty good job predicting rising temperatures in America.


For more about the economics of climate change or the political economy of the biggest global environmental success in human history, click on the links.

Posted in Globalization & International

The Barr Report isn’t at all like the Mueller Report which isn’t at all like the Starr Report

The Starr Report was the 445-page culmination of the so-called Whitewater investigation–a wide-ranging investigation of President Bill Clinton. It was immediately released in full to Congress and then released to the public two days later revealing the details of years of investigations.  Most consequentially, it documented an improper sexual affair between Bill Clinton and Monica Lewinsky which Starr’s team had begun leaking to the press several months earlier. That affair led to Clinton’s impeachment and although Clinton soon emerged from the political crisis unscathed, it ruined Lewinsky’s life and almost caused her to commit suicide.

This is completely different from the Mueller Report which nobody has seen outside of Trump’s inner circle.

Imagine if the Starr Report had been provided only to President Clinton’s Attorney General, Janet Reno, who then read it privately and published a 4-page letter based on her private reading stating her conclusion that President Clinton committed no crimes.

Orin Kerr

Monica Lewinsky emphatically agreed, tweeting “If. Fu*king. Only.”

Megan Garber recently wrote about scams in America in The Atlantic and claimed that Donald Trump’s loud drumbeat of declarations that the Mueller Report amounted to a “Total EXONERATION” is a scam.  Attorney General William Barr’s four-page interpretation of the Mueller Report clearly quotes Mueller saying he is NOT exonerating Trump. Furthermore Garber thinks that Barr is helping Trump scam the public. The fact that Barr has been delaying release of anything more than his 4-page interpretation AND that he wants to spend weeks or months redacting anything he eventually decides to release does suggest that he might be scamming us.

He obviously cannot release sensitive information to the general public, but Congress has security clearance and Congress ordered the Mueller investigation in the first place, but the Trump Administration does not even want to release it to Congress.
Anonymous members of the Mueller investigation have said that the Mueller Report included multiple short summaries that were ready for release to Congress. Those summaries would also be relatively easy to release to the public. Instead of releasing any of that, Barr has only released 101 words out of the hundreds of pages in the report.  This suggests that he might be part of the Trump Administration’s efforts to hide something.

But the Republicans in the House didn’t think so initially. They took Trump at his word when he repeatedly said that the report is a “Total EXONERATION” and they immediately voted to have the report released.

The House of Representatives, in mid-March, voted 420–0 to release the report—a display of bipartisanship that itself typically exists, these days, merely in imagine if terms. On Tuesday, however, Trump described the ongoing calls to share the document as a “disgrace” and a “waste of time.”

That vote was a remarkable display of political unity. It is rare that every single representative in the House can unanimously agree about anything, much less something so politically dramatic and potentially explosive. I think it demonstrates the two completely separate tribal epistemologies of Democrats and Republicans. Although the vote was held shortly before the the Mueller investigation concluded, you could also see the same sort of tribal epistemology when the Barr report was issued. Partisan Democrats were crushed and shocked that Mueller didn’t bring down the President and they wanted the Mueller Report released because they were sure that we were being scammed. Their expectations had always been unrealistic, but that was their partisan dream.

Partisan Republicans were initially elated by the Barr report because they saw it as an exoneration. They had considered the investigation to be a partisan witch hunt and if even a witch hunt had not at all damaged the president at its conclusion, then he must really be untouchable and we might as well release the full report. The House vote took place in that emotional context. Since then, they have become more cautious. Trump has subsequently said that the report should not be released, and loyal House Republicans have been less and less enthusiastic about its release compared with Democrats.  Now that the bill is at the Senate, Republicans have blocked it five times so far.

Republicans were happy that the investigation had concluded so much faster than previous investigations without indicting the president and they wanted the Mueller report released because Trump said it completely exonerated him and they tend to believe Trump.

(Note that this infographic was created only about half way through the Mueller investigation into the Russia scandal and there were many more indictments in the second half. It was by far the most productive investigation of a president in terms of criminal indictments per year.)

But Democrats shouldn’t raise their hopes too much. The investigation was initiated by Republicans in the Senate who hired a life-long Republican to lead it (Mueller) and it was supervised by a staunch Republican appointee of Donald Trump (Rosenstein). These Republicans were quite concerned about Trump’s behavior towards Russia, but they wanted to limit the investigation to that issue and the investigation was very narrowly focused on that issue in comparison with past investigations like the Starr investigation.  They were right to investigate Trump’s bizarre behavior towards Russia and his public admission that he was trying to obstruct the investigations of his top managers by getting rid of Comey, but Trump does a lot of unconventional things and anyone with such an erratic record is going to raise suspicions even if they are completely innocent of criminal intent.

After Trump unexpectedly won the election, congressional Republicans, particularly those who refused to endorse Trump during the campaign and several of whom proclaimed him unfit for office, could and should have joined Democrats in insisting that he set up his financial affairs in some kind of remotely acceptable way.

But they chose not to. They made no demands of Trump, and then they made no effort to force transparency onto any of it. From the campaign through the transition until today, corporations, wealthy individuals, and foreign governments have had multiple channels by which they can secretly funnel cash to the president and his family, and congressional Republicans have said nothing and done nothing about it.

What they did have a problem with is the Russia policy Trump outlined during the campaign. And because of that policy dispute, congressional Republicans were willing to support an investigation into the Russia matter — in the form of a bipartisan Senate Intelligence Committee report and then later in an FBI probe that became a special counsel inquiry. This was in part to create leverage to try to force Trump into hewing to a more orthodox policy course. Republican Russia hawks have not been 100 percent successful in this regard, but the United States did not pull out of NATO, recognize Russian annexation of Crimea, cut off aid to Ukraine, greenlight an invasion of Estonia, or any of a dozen other things Trump has hinted from time to time that he favors.

Other avenues of investigation into allegations that Trump is a sexual predator or a fraud or a tax cheat or an all-around crook were of less interest to Republicans, so they were not pursued. Trump opponents would convince themselves from time to time that Mueller was pursuing them, but as best we can tell, that’s not the case.

…There was, of course, ample precedent for this in the form of Ken Starr’s wildly unethical investigation during the Bill Clinton years that was originally supposed to be about the Whitewater land deal in Arkansas. Starr never came close to showing that Clinton did anything wrong related to that deal. But his office — staffed with partisan Republican hotshots like Brett Kavanaugh — became an all-purpose clearinghouse for Clinton investigations. They looked into everything under the sun. They leaked information, selectively, to the press and to Congress. Their aim was to bring down Clinton by any means within the law, not to produce a thorough report about a land deal.

In theory, the Russia investigation could have been pursued this way. And, in fact, an inquiry of this sort would have made a lot more sense than Starr leaping from a land deal to a sexual harassment case to an exploitative affair with an intern. To really understand Trump’s “links” to Russia, you need to understand his finances. To get a full picture of his finances, you need to take a thorough look at every shady deal he’s involved with. And once you’re doing that, you might uncover Foreign Corrupt Practices Act violations, money laundering violations, tax violations, and who knows what else. Trump has never been a particularly scrupulous businessman. A wide-ranging investigation could reveal any number of bad acts.

Mueller seems to have scrupulously avoided broadening his investigation beyond the narrow question of whether Trump was secretly compromised by Russian agents and although Mueller couldn’t avoid discovering related Trump-world corruption such as the evidence that led to Michael Cohen’s indictment, Mueller avoided getting involved in other issues and he handed off that kind of evidence to the ordinary bureaucracy of the criminal justice system. So Democrats still shouldn’t get their hopes up. The Mueller Report is undoubtedly embarrassing or Barr would have released more than 101 words, but even if he releases a lot more, say 100 times more of the report–that would still only be 20 pages of the report (if it is typed single-spaced) and it probably won’t be significantly more embarrassing than the scandals Michael Cohen revealed.

Most Trump supporters haven’t cared about Trump’s scandals so far.  So more scandals won’t change much of anything.  Trump’s base is blindly loyal.  As Trump himself said, “The polls, they say I have the most loyal people. Did you ever see that? Where I could stand in the middle of Fifth Avenue and shoot somebody and I wouldn’t lose any voters, okay? It’s like incredible.”

Posted in Pence2018

Economics of global warming

Economists are not trained in climate science, so there is no reason to ask one of us about how much carbon dioxide will warm the planet, but economics is an important part of climate policy–this is our collective response to the threat of global warming.  There are at least three important areas where economists have contributed to the debate about what to do about the threat of global warming that most climate scientists are predicting.

  1. Examining the economic damage of higher temperatures.
  2. Modelling how to trade off present costs versus future benefits such as a costly investment in carbon abatement now versus its future benefits in terms of the healthier, more productive world people will enjoy later.
  3. Explaining the political economy of why special interest groups, like Big Oil, are able to prevent popular actions to fight global warming, particularly in the three biggest oil producing nations: the United States, Russia, and Saudi Arabia.

This post will examine the first two of these areas. The third area, political economy, will be examined in a later post.

1. The Economic damage of higher temperatures.

The tropics have noticeably different weather from the temperate zone because in the temperate zone, the sun never climbs up to be straight up in the sky in the summer. The summer is warmer not because the earth is farther from the sun (as many people erroneously believe) but because the sun shines on the land more directly when it is closer to vertical in the sky and that is why the topics are hotter than the temperate zone. Because excessive heat has been bad for productivity, the topics are noticeably poorer than the temperate zone. The richest part of South America, Africa, and Australia are in their southern parts in the temperate zone. Africa has a second rich region which is the temperate Mediterranean coastal nations. The richest part of India is the temperate north and the richest part of East Asia are the temperate zones of China, Japan, and Korea.

Landlocked areas are also cursed because they are blocked from trade, so central Asia is poor due to being cut off from trade by sea and central Africa and the landlocked middle of South America are doubly cursed by tropical heat and being cut off from trade. Sachs, Mellinger, and Gallop wrote a popular essay for Scientific American about this research that is one of my all-time favorite essays in economics.

There are some exceptions in the tropics where landlocked regions are more productive than coastal regions such as the mountainous plateaus of Mexico and Central America, the Andes, the mountains of Indonesia, and the mountainous region around the Great Lakes of Africa. The reason again is temperate climate. Every thousand feet of elevation reduces temperatures by 3.3 to 5.4 degrees Fahrenheit depending on the humidity.

Higher temperatures reduce both agricultural productivity and human productivity. They increase disease burden because there is an entire class of deadly tropical diseases and parasites like malaria and dengue fever that are easy to eradicate outside of the tropics. Of course, excessively cold temperatures are bad too, but excessive heat is worse. Here are some studies:

The optimal average temperature for total national income (GDP) is about 55 degrees Fahrenheit.

Another study found that the optimal average temperature for per capita income within the USA is about 58 degrees Fahrenheit:

The optimal average growing-season temperature for corn productivity is about 80 degrees Fahrenheit:

The optimal average temperature for math student productivity is about 70 degrees Fahrenheit. Air conditioners have had a dramatic effect at raising productivity in warm states like Arizona and Florida.

Profanity is minimized at about 72 degrees Fahrenheit.

Colder is almost always better for preventing rape!

Fortunately, the invention of the air conditioner has revolutionized society and made people much better at dealing with hot weather as the following graph shows. Before 1959, temperatures over 89 degrees Fahrenheit in America caused deaths to spike as the red line shows below. Since then, the spread of air conditioners and improved medical care has dramatically reduced the mortality rate during hot summers as demonstrated by the yellow line.

Here I have just looked at research into the effects of different temperatures in the past, and we can see that higher temperatures are costly even across the normal variation that the world has previously experienced.  The conclusions of this body of research is that a hotter planet would be less productive overall even though there is a possible exception that a warmer planet might be fine for arctic regions like Canada, Russia, and Scandinavia. But there are lots of other enormous costs like worse storms, rising sea levels, higher food costs, and air pollution that will even hurt the arctic regions.  Even a small amount of global warming will make more of the tropics uninhabitable and it will make most of the Unites States more like the tropics.  If global warming gets as bad as the more pessimistic half of climate scientists think, most of the globe could become nearly uninhabitable.  I hope Canada, Russia, and Scandinavia are getting ready to welcome a lot of immigrants!

Below is a map showing the countries that one study estimates might possibly gain if there is moderate global warming (in blue) versus the nations that will almost certainly lose (in shades of pink).

econ impact of climate.PNG

That is simply based on the historical response of economic output to temperature and using projections from non-pessimistic climate scientists of a modest increase in temperature.  This is an extrapolation of how rising temperatures would affect the world’s income.  If the more pessimistic climate scientists are right, then we could ALL lose in a big way.  It is a gamble.

2. How to trade off present costs versus future benefits.

Neil DeGrasse Tyson thinks that global warming is merely a scientific issue. He wrote that the “earth needs… a one-line constitution: All policy should be based on the weight of evidence.”

Global warming policy has to begin with weighing the evidence that it is happening, but after we see that it is happening, we still have to make economic judgments about weighing the costs and benefits of doing something about it.  One of the biggest issues with it is that most of the costs are going to have to be borne in the present whereas most of the benefits will be garnered across the eternal future of the planet.

Economists have spent lots of time thinking about how to trade off costs now versus benefits later. This is just the same question for every investment because an investment always costs money in the present and the hope is that it will be worth it because it will generate future profits that will more than pay for the present cost. How much future profits an investor should demand is determined by the discount rate using the net present value formula.

The most important part of this kind of investment analysis is determining the appropriate discount rate.  The discount rate is the percent of the future that one just doesn’t count at all. For example, suppose you know that you will be fined $100 in ten years. How much do you value that future cost right now? One way of answering that question is to think about how much you would pay today in order to eliminate the future cost.

If you would pay $95 today to avoid the $100 cost in ten years, then your discount rate is VERY low because you value the future more than most people. If you would only pay one cent today to avoid $100 in ten years, then you don’t count most of the future value relative to today.

If this is the maximum you would be willing to pay now to avoid a $100 cost in ten years…

…Then this is your annualized discount rate. =The percent (per year) that you don’t count future costs and benefits.

1 cent

150%

$7

30%

$16

20%

$40

10%

$50

7%

$75

3%

$85

1.4%

$95

0.5%

$99

0.1%

This esoteric question about discounting rates is the crucial issue that makes the biggest difference in the economic cost benefit analysis of whether or not it is prudent to pay money now to reduce the future costs of global warming. Most economists think the discount rate we should use in these calculations should be between about 1% and about 3% and 75% of expert economists think it should be below 2%. President Obama took little action against global warming partly because he used Bill Nordhaus’ preferred discount rate of 3% which means that he thinks we should care about the future over 33% less than most economists. Nordhaus is a bit of an outlier in having a higher discount rate than most economists, but he is considered an expert in the field and won the 2018 Nobel Prize largely for his work on it.

Trump’s administration eliminated the problem of global warming from official US cost-benefit analysis by simply raising the discount rate to 7% which means that we simply don’t care about most people who will be alive after fifty years in the future. The graph below shows how much difference the choice of discount rates makes.

In 50 years, today’s college students will be about 70. The above graph means that:

  • Stern values your future life as 50% less valuable than lives today. (That is what the red line means.)
  • Obama values your future life as 72% less valuable than lives today. (That is what the purple line means.
  • Trump values your future life as 97% less valuable than lives today. (That is what the green line means.

The graph below shows what difference the discount makes for what climate policy we should use. If we use Stern’s discount rate of 1%, then it would be prudent to take dramatic action now to reduce greenhouse gas emissions. If we use Nordhaus’ number, then we should take modest action. If we use Trump’s number, then burn, baby, burn!

Posted in Globalization & International

Affirmative action for the rich

There are several ways that rich kids buy advantages for college.

First is years of expensive high-quality education that begins in exclusive private preschools that cost more than full tuition at most private colleges. Then add in expensive summer camps that cost more than a year of in-state university tuition (without financial aid) and the various other educational enrichment opportunities like the Semester At Sea cruise ship programs that circle the world’s oceans teaching students about the history, culture, and geography of the world by letting them experience it first hand at ports of call.  The average kid really does learn a lot more  in America’s best schools than in our average schools, so this makes a big difference.

Second is being a big college donor because most colleges lower admissions standards for the children of big donors. This isn’t as bad as it sounds because at least the money could in theory be used to lower the costs for low-income students. In practice, elite schools have very few students from families earning below the median income because their talk they don’t really care about economic justice, but at least this kind of corruption of the admissions process is relatively transparent (since everyone knows who gave money and that their kids get perks) and the money does help other students.

Third is through athletics, especially elite sports like fencing, sailing, rowing, and polo. There just isn’t much competition in these kinds of sports of the rich because only rich people can afford to compete. Many if not most kids who play sports at elite schools would never have qualified academically to get in.

Fourth: Buy more time to take the SAT or ACT so that your kids can boost their scores. This is a relatively new game that began in 2003 with,

an important change to the way untimed testing is reported to the colleges. [Previously], the SAT and the ACT offered untimed testing to students with learning disabilities, provided that they had been diagnosed by a professional. However, an asterisk appeared next to untimed scores, alerting the college that the student had taken the test without a time limit. But… this asterisk was found to violate the Americans With Disabilities Act, and the testing companies dropped it. Suddenly it was possible for everyone with enough money to get a diagnosis that would grant their kid two full days—instead of four hours—to take the SAT, and the colleges would never know. Today, according to Slate, “in places like Greenwich, Conn., and certain zip codes of New York City and Los Angeles, the percentage of untimed test-taking is said to be close to 50 percent.”  Taking a test under normal time limits in one of these neighborhoods is a sucker’s game—you’ve voluntarily handicapped yourself.

That is from Caitlin Flanagan and you should read the whole thing. In areas like Washington DC where a large percentage of students taking the SAT have a “disability” they score higher than students who don’t have a disability. In most of the country, very few SAT-test takers get extra time due to disability, and in those places the kids with a disability do worse than the other kids as one might expect.

Fifth: Although the four mechanisms above already give a big unfair advantage, sometimes they still aren’t enough. The new FBI sting reveals that there is an entire industry for defrauding the admissions process further by bribing coaches to put kids on their teams, fabricating resumes full of imaginary extra-curricular activities, boosting GPA by padding transcripts with grades from online courses that the students did not actually attend, and hiring professional test takers to get any ACT score you want to pay for. Again, read Caitlin Flanagan’s article for a fascinating insider’s look at the culture that engages in this most extreme form of college admissions privilege. The parents committing these frauds are often professionals in occupations that the rest of us rely upon and have to trust such as investment brokers, doctors, accountants, lawyers, and top managers.

Posted in Labor, Public Finance

The political economy of farm policy

Below is a map of farm subsidy payments. These are the addresses where farm “welfare” checks were sent and the bigger circles show addresses that got sent up to ¼ million dollars in 2007 alone. This map comes from an Environmental Working Group project that used to have a now-defunct website with an interactive map showing the exact location where the government sent every single farm “welfare” check across the entire United States.  You could even see where my mom’s relatively small check was sent.  Yes, having grown up on a farm, I am a welfare child.

Unfortunately, they must have gotten sued by farmers because they now only show a map of the total welfare checks send in each state. Before they took down their map, I made a screenshot of their map of Manhattan Island in New York City:

No, this isn’t a map of rooftop gardens getting subsidies. This is a map of absentee landowners who live in skyscrapers and get government checks because they have invested in farmland. The government farm checks generally go to the owners of the land rather than to the farmers who actually work the land.

Last year OpenTheBooks.com produced a similar map, but they limited their data to farmland owners who got checks worth more than $100,000 from the government in 2018.  Here is their heat map of the nation’s big checks:

I hope they can keep it online without getting pressured by farm owners who want to censor this kind of information. Below is a zoom-in on the Los Angeles area. Some of these addresses got more than a half million dollars from the government in 2018. As you would expect from the fact that all these addresses are receiving government checks worth over $100,000 per year, most of these addresses are in elite, expensive places to live with median home prices well over a half million dollars.

And rich absentee landlords in New York City and Los Angeles didn’t get the biggest farm “welfare” checks. The top three biggest recipients between 1995 and 2017 were rice farmers and they spent millions of dollars in documented lobbying from 1994-2018. But what is documented is only part of it.  In addition, they undoubtedly give additional dark money contributions that cannot be tracked, and the individuals who own these farm organizations also give individual contributions directly to politicians which are hard to track so the lobbying amounts below could be just a drop in the bucket of total lobbying expenditure by the farmers involved with these organizations.

Agricultural Welfare Recipient Address Total Government “Welfare” Check Amount Documented Lobbying Expenditure
Riceland Foods Inc Stuttgart, AR $554,343,039 $538,000
Producers Rice Mill Inc * Stuttgart, AR $314,028,012 $340,000*
Farmers Rice Coop Sacramento, CA $146,174,314 $980,000

*Data only available for years 2002-2018

Adam Andrzejewski also compiled the numbers and points out that the big money is not going to small traditional family farmers:

Since 2008… the top 10 farm subsidy recipients each received an average of $18.2 million – that’s $1.8 million annually, $150,000 per month, or $35,000 a week… 12 members of Congress collected up to $637,059 in subsidy payments last year alone.

The reason America has farm subsidies is that many Americans do not know about them and the subsidies are popular among Americans who are aware of them. Americans supported subsidizing farmers by 61%-yes versus 39%-no in one recent poll and in a 2018 Politico poll only 30% of Americans wanted to reduce farm subsidies. One reason many Americans support farm subsidies is that they mistakenly think most of the money is going to salt-of-the earth, hardworking, poor farm workers. For most of human history, the average farm worker was poorer than the average non-farmers, but for the first time in history that is no longer the case in America.

Before 1997, the average farm household was always lower income than the average non-farm household, but according to the USDA, that reversed in 1997 and in the most recent years, farm households have received well over ¼ more income than non-farm households:

Plus, the median farm household is much richer in wealth than the median American too. In 2017, the median wealth of farm households was $912,000, so almost half of all farm households were millionaires. In fact, 96 percent of all farm households owned more wealth than the U.S. median household.

Mancur Olson’s theory of political economy explains farm subsidies

American farmers not only benefit from direct government welfare checks (“subsidies”). They also benefit from government policies that restrict imports that could bring prices down. For example, according to an estimate from Iowa State University sugar quotas that limit imports of cheaper sugar from abroad may cost American consumers about $3.5B annually because the price Americans pay is often double or triple the price of sugar abroad as this graph from a Brazillian sugar lobbying organization shows

Sugar just doesn’t grow well in the US.  It grows best in tropical nations like Brazil and US sugar producers are limited to producing sugar in two ecological regions that are simply much less productive than the topics. America has sugar cane growers near the Gulf of Mexico in Florida and southern Louisiana, but this is a marginal region for sugar cane at the very northern limit of where it can survive and not as productive as it is in the tropics. Americans also grow sugar beets in the northern prairies but again, they just aren’t nearly as productive as tropical sugar cane.

The irony is that America is a democracy and American farmers are a small minority—about 1% of the US electorate. A democracy is often demonized as a “dictatorship of the majority” in which a majority can trample on the rights of minority groups like farmers. And yet American farmers have succeeded in using the democratic system to take money out of the pockets of all Americans who eat by raising prices through quotas and tariffs and they take money out of the pockets of all American taxpayers in the form of the farm subsidies that they get. How is this possible?

Mancur Olson’s theory turns the logic of democracy on its head. He argues that minority groups are better at getting subsidies than a majority in a democracy and the reason is due to the math. In the case of the sugar quota, there are about 329 million Americans who lose $3.5B because of higher prices. That is only $10.65 per person in America. When I ask my students if they are going to put up with this injustice, most of them usually say they don’t care about losing ten bucks per year. For rational American voters, many other political issues are much more important such as education policy, health policy, abortion, gun rights, unemployment, etc. Sugar import quotas is simply not a top political priority for anyone except the approximately 5,000* sugar farmers in America. Consumers can be rationally ignorant/apathetic about our sugar policy because the money is so small and we have bigger problems in our life that we need to put more focus on.

Although sugar producers do not get the full amount that consumers lose because of the deadweight losses of the quotas and the costs associated with selling import permits, but even if they only get a third of the amount consumers lose, the sugar policy is still worth $117,000 per sugar farmer on average. That kind of money is enough to make them passionate about sugar policy – more passionate than they are about other political issues like health, abortion, or gun rights. Although 10,000 sugar farmer votes isn’t enough for politicians to take much notice, it is better than the zero votes in opposition and more importantly, politicians REALLY notice the money the sugar lobby pays them.

The majority of the quota profits go to the biggest sugar farmers who can afford to spend big bucks on lobbying politicians. In particular, according to The Stigler Center, the billionaire Fanjul family gets 63 percent of the quota for imports and has 187,000 acres of sugar cane:

According to a review of state election records by the Miami Herald and the Tampa Bay Times, the sugar industry—led by United States Sugar and Florida Crystals—gave $57.8 million in direct and in-kind contributions to state and local political campaigns between 1994 and 2016.8) Florida Crystals and its affiliates contributed $12.4 million in the same period. In the current election cycle, the Fanjuls raised approximately $100,000 for the congressional campaign of retired Army Sergeant Brian Mast in Florida’s 18th District…

The Fanjul brothers also work with the rest of the sugar industry, and together they donate to politicians in big numbers: according to the Center for Responsive Politics, between 1990 and 2016, the sugar industry spent over $40 million on contributions to politicians.) … The Fanjul brothers and their extended family also make direct contributions. Since 1990, they made contributions of $5 million to a variety of causes together, including a $100,000 donation by Alfy Fanjul to the Clinton Foundation.)

The sugar barons pay very close attention to US sugar policies because the sugar quota is the most important factor in determining their profits and they are willing to invest a couple percent of those ill-gotten gains in buying political influence. The Center for Responsive Politics maintains a database of lobbying expenditures from the Senate Office of Public Records. The big sugar companies documented spending over $12 million on lobbying in 2018.

In addition to this industry money that is recorded by the Senate, there is likely to be more “dark money” contributions and political money contributed directly by some of the 10,000 individual sugar farmers to their local politicians that isn’t tracked here. For example, the Fanjul family corporation gave $2.6 million in 2016 which is included in the above graph, but individual Fanjul family members directly gave additional money that isn’t included as part of the sugar lobby. For example, Jose Fanjul gave over $100,000 of political donations in the ’09-’10 election cycles and there are many more members of the Fanjul family like Alfonso, Alexander, Andres, and Raysa. Plus there are many more sugar farmers who also give political donations as individuals that aren’t tracked as part of the sugar lobby in the graph above.

The political system favors concentrated financial interest groups (wealthy people) who can afford to give political donations over diffuse financial interests (non-wealthy people) who do not have the economies of scale to get noticed by politicians. It is hard to get Americans to care about the $12 they lose to the sugar industry, but even if you could get Americans to care about the issue, the transactions costs of organizing them into a lobbying organization would probably cost over $12 per American which is all that it would be worth to eliminate the bad sugar policies in the first place, so we are stuck.

PR is a crucial component of how Mancur’s theory works

The Economist Magazine wrote, “the fewer farm voters there are, the more important the “farm vote” has become.”  This is true, because back when farmers were 90% of the population, if they had tried to get subsidies from the other 10% they amount of the welfare check per farmer would have been worthless, but now that farmers are closer to 1% of the population, every dollar they take from everyone else is worth 99 dollars to each farmer.

So if this math gives a concentrated financial interest group more power than a diffuse interest group, what limits the power of the wealthy group in a democracy? If sugar farmers can take $3.5 billion from Americans who eat sugar, why not $300 billion? The key for special interest group success in fleecing the majority is that the minority must either:

  1. Be unnoticed by the majority of voters.

    OR

  2. Convince the majority of voters that they deserve the subsidies.

Most Americans do not know anything about sugar policy, but if the sugar lobby got too greedy and tried to get $300 billion from consumers, we would start to notice, so they have to be careful to avoid unwanted publicity. As an insurance policy, lobbying organizations such as The Sugar Alliance also do PR work to try to convince the public that sugar protection makes America strong and hard-working American sugar farmers deserve the help.

The Stigler Center reports that they also do PR work to try to make Americans love sugar more:

the sugar industry paid Harvard scientists in the 1960s to produce research that downplayed the connection between sugar and heart disease, and instead laid the blame on saturated fat. According to The New York Times, the documents, released by a researcher at the University of California, San Francisco, suggested that five decades of scientific research into the interconnection between nutrition and heart disease “may have been largely shaped by the sugar industry.”

The recent revelations were in line with the industry’s repeated attempts to play down the health risks involved with increased sugar consumption. In the 1970s, as scientists and media began to connect sugar with illnesses such as obesity and diabetes, the Sugar Association— an industry trade group—ran a successful PR campaign that even led the American Heart Association and the American Diabetes Association to approve sugar as part of a healthy diet.

Over the years, the industry has also invested heavily in lobbying and political contributions, using its influence with legislators to deter regulatory oversight. In 2003, for instance, when the World Health Organization recommended that people reduce the amount of sugar they consume, American sugar companies threatened to appeal to Congress to cut the WHO’s funding.

American farm subsidies also hurt poor countries

As James Meek at the Guardian points out, US farm subsidies subsidize US farm exports to the detriment of poor foreign producers. For example, many poor African nations like Benin rely upon cotton farming for most of their export earnings which they need to pay off their national debt and buy manufactured products. The US subsidies for US cotton have caused international cotton prices to drop which impoverishes Benin and then the US government gives Benin foreign aid to help them develop, but the US government could help Benin more by simply stopping subsidizing US cotton.

In 2001-02, according to calculations by Oxfam and the Washington-based Environmental Working Group, US cotton farmers received subsidies of $3.9bn – almost twice the entire GDP of Benin. In a feat that would have made a Soviet economist blush, American cotton farmers got more in subsidies that year than the total market value of their crop.

Farm protectionism is even crazier in some other rich democracies

Imagine putting nearly 1/2** of the US population into an area smaller than California and filling up most of the flat parts with the Appalachian Mountains until only about 15% of the land area is level enough for agriculture or habitation. That is what Japan is like. It is hard to be self-sufficient with so many people on so little land and the Japanese have long been somewhat reliant on food imports. During World War II, the Allied naval blockade limited imports which contributed to widespread famine in Japan which has helped motivate the Japanese people to tolerate extreme protectionism for their farmers in the name of national security. Their goal is to be somewhat self-sufficient so as to never again suffer that kind of food scarcity. As a result, Japanese consumers are stuck with some of the highest food prices in the world.

Here are some examples of food prices in Tokyo, that E. Kwan Choi collected in March 2003,

Apples, ¥298 (or $2.49) eachapples Cantaloupe, ¥5800 (or $48.33) eachcantelope Watermelon, ¥2980(or $24.83) eachwatermelon

They also sell cubic watermelons priced at from $80 up to $700:

They fit well in small Japanese refrigerators and don’t roll off of the counter!

 

*When I first wrote about this a decade ago, I found data estimating that there were 10,000 sugar farmers, but when I searched this time, I found an estimate from the Census that there were only 4,516 sugar farmers in America in 2014. I rounded up to 5,000 for simplicity above.

**The population of Japan was about half the US population when I was a kid.  Now it is closer to a third of the US population because Japan’s population is shrinking while the US continues to grow due to differences in both birthrate and immigration.

 

Posted in Globalization & International

How climate skeptics are distributed across America

The Yale School of Forestry & Environmental Studies has data about public perceptions on the facts of global warming. As of 2018, almost twice as many Americans believe global warming is caused by humans as those who disagree (57% to 32%):

Estimated % of adults who think global warming is mostly caused by human activities, 2018

Several things correlate with perceptions of global warming. One is the presence of Hispanics who are much more worried about global warming than most other cultural groups in America. Therefore, areas with a large percentage of Hispanics are more worried about global warming:

The presence of oil and gas extraction is correlated with skepticism about global warming. As Upton Sinclair said, “It is difficult to get a man to understand something, when his salary depends upon his not understanding it!” Here is an EPA map showing where oil and gas facilities are located. By and large the exploration wells (in green) are areas that are relatively skeptical about global warming.

The refineries (blue triangles) don’t seem to be correlated with public opinion, but refineries are attracted to urban areas where they can attract educated workers and these areas tend to be more worried about global warming. For example, although 70% of Americans believe that global warming is happening, and that is the majority opinion in virtually every county in the US, only 49% of Americans accurately realize that most scientists believe in global warming and they are concentrated in rural, low-education areas.

 

Estimated % of adults who think global warming is happening, 2018

 

Since 70% of all Americans believe global warming is happening you would think that they would think that most scientists agree with them and the reality is that somewhere between 95% and 99% of scientists believe it is happening (depending on the study). But a majority of Americans believes that scientists DON’T thing global warming is happening!

 

Estimated % of adults who believe most scientists think global warming is happening, 2018

 

The big outliers are the major cities and especially university towns. Most major cities ARE university towns, but some small rural cities are also the home of large universities like the University of Nebraska and the University of Kansas and Kansas State University which pop out with greater understanding in their respective states.

As this map from CityLab demonstrates, most college students attend college in big cities because that is where most people live:

The other counties that are exceptionally knowledgeable about global warming are home to university towns where that is the biggest industry in town:

To recap, one thing that is correlated with Americans being led to believe that oil and gas extraction have nothing to do with global warming and that global warming isn’t happening anyhow is…

  • The presence of local oil and gas extraction companies.

Things that are correlated with a more accurate understanding of the scientific consensus about global warming are…

  • Lots of Hispanics.
  • Urban population.
  • Local universities.
Posted in Environment

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