The minimum wage is nearly dead

The federal government has just set the record for the longest period of time without an increase in the minimum wage to keep up with inflation. The minimum wage has now been ignored for over a decade and Kevin Drum says that our political leadership has effectively killed the federal minimum wage through willful neglect.

Today, thanks to their unwillingness to support an increase, well under one percent of workers earn the federal minimum wage, which makes it effectively meaningless.

It is actually much worse than that. Well under half of one percent of American workers earned the minimum wage in 2017. And lots of American workers earn less than the minimum wage. In fact, more than twice as many workers earned less than the minimum as earned the minimum wage in 2017.

Kevin Drum also produced the best kind of data for examining the real value of the minimum wage which is to calculate it as a percent of the median income.

This view… shows that the federal minimum didn’t really peak in the 60s and then decline. In reality, it’s been slowly declining ever since we started collecting income statistics in the 50s. Back then, a full year of minimum-wage work earned you about 40 percent of the median. Today that’s down to 20 percent, and on current trends the minimum wage will decline to its lowest point in history by next year.

The federal minimum wage is nearly irrelevant, so it is amazing that it generates so much opposition from business lobbies who have succeeded at convincing the public that economists are worried about it being too high when in reality, five times more economists want to raise it than oppose raising it.

And it isn’t just the minimum wage that is nearly dead. Overtime pay is also dying. Nick Hanour says, “the overtime threshold, which used to cover 65 percent of workers, today covers only 7 percent” of workers.

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Posted in Inequality, Labor, Public Finance

Is reading the most efficient way to consume information?

There are bad incentives for journalists to appeal to the irrational knee-jerk emotions  and unfortunately what sells is negativity in news particularly in TV news which prioritizes emotional interviews and vivid images of disasters over less sensationalist issues that are more important but don’t suck viewers in with reptilian-brain emotions.  The best way to avoid this kind of media bias is to pick your media and that usually means never turning on the TV news because:

1.Video and audio information is harder to organize efficiently. 

It is harder to carefully organize information in video/audio than in print.  The printed word (with graphics) is the best medium for creators to carefully organize ideas into a logical structure whereas video/audio is best for rapidly throwing ideas together in an entertaining and persuasive way as demonstrated by the plethora of cheaply-produced call-in talk shows and interview programs throughout the media.  When video producers want well-organized information, they almost always begin by writing it out on paper on a story-board and/or a detailed script which is later read for recording.  The audience would usually be better informed if we could just read the scripts.  It is simply too easy to produce a stream of words in audio/video and that ease makes the word choice and organization less careful.  The difficulty of putting words and images on a page forces the author to think carefully and precisely about what is being communicated.  For the same reason, students learn more by taking notes by hand on paper over typing on a computer.  Because it is faster and easier to type, students aren’t as careful about what they write and don’t need to think as much about the topic.  Handwriting averages about 22 words per minute at best whereas typing is about 33 wpm.

We don’t talk as clearly as we write. As John Green said, “The problem with actual human speech is that it does not take place in the form of sentences.” Real-life speech is full of:

Repetition. Repetition.
Stu-stut-stuttering, slllurrring, lithping, or mumbrbl…
Collecting yourself, sorry, no, correcting yourself.
Whatsitcalled, um… disfluencies, you know, placeholders while you think.
And, like, being all, like, incorrigible with their use of “like.”
Some sentence when the grammar ain’t no good….
Repetition.
Going off on tangents which aren’t relevant to the plot. Like platypi. Or falafels
Awkward silences and spaces where people… note .
Repetition.
Verbal Ticsdesu.
Sneezing, coughing and *cough* *cough*, ahem, and so on…
Just letting sentences kinda…
Pauses or, y’know, interjections — right? — to make sure that the person understands. Get it?
Saying the wrong word by accident, and hoping nobody else involved in the constipation will notice…
Oh, and sentence fragments. Obviously.

(Another benefit of text, discussed below in #3, is that you can more easily skim/skip over bad writing like the above quote and don’t need to spend much time on it if you don’t want to.)

Only text can be organized into lists and outlines and paragraphs that gives the creator more power to organize it in a way that is more meaningful than would be possible with pure audio/video.

2. Video/audio information appeals more to irrational emotions and eye-candy

Authors (and producers) have more incentives to prioritize style over substance in video because it is much easier to elicit emotion using video and that brings in (and keeps) viewers.  The words ‘bloody murder’ elicit much less emotion than a bloody photo of a murder victim. That photo, in turn, elicits much less emotion than a video of a girl getting shot with the sound of sobbing and the death rattle of breathing her last breath. 

It is far easier to suck in viewers with sexy images than with words describing sexy images and more appealing yet when sexy images are moving.  This is why advertisers much prefer images and videos over words. They are trying to distract people from their primary thoughts and then persuade rather than inform.

As Stephen Pinker wrote in The Guardian:

Plane crashes always make the news, but car crashes, which kill far more people, almost never do. Not surprisingly, many people have a fear of flying, but almost no one has a fear of driving. People rank tornadoes (which kill about 50 Americans a year) as a more common cause of death than asthma (which kills more than 4,000 Americans a year), presumably because tornadoes make for better television.

The data scientist Kalev Leetaru applied a technique called sentiment mining to every article published in the New York Times between 1945 and 2005, and to an archive of translated articles and broadcasts from 130 countries between 1979 and 2010. Sentiment mining assesses the emotional tone of a text by tallying the number and contexts of words with positive and negative connotations, like good, nice, terrible, and horrific….  

News outlets [around] the world… became gloomier and gloomier from the late 1970s to the present day. The consequences of negative news are themselves negative. Far from being better informed, heavy newswatchers can become miscalibrated. They worry more about crime, even when rates are falling, and sometimes they part company with reality altogether: a 2016 poll found that a large majority of Americans follow news about Isis closely, and 77% agreed that “Islamic militants operating in Syria and Iraq pose a serious threat to the existence or survival of the United States,” a belief that is nothing short of delusional.

Consumers of negative news, not surprisingly, become glum: a recent literature review cited “misperception of risk, anxiety, lower mood levels, learned helplessness, contempt and hostility towards others, desensitization, and in some cases, … complete avoidance of the news.” And they become fatalistic, saying things like “Why should I vote? It’s not gonna help,” or “I could donate money, but there’s just gonna be another kid who’s starving next week.”

This is a much bigger problem with TV news than with print news, but the lines are blurring with traditional print organizations like the New York Times adding video and more flashy content to compete with more sensational outlets.

3. Video/audio is linear and passive by nature. 

Reading is the most actively engaging way to get information because you can easily choose what to read and what to skip and what to re-read (called “regression” by scholars) and pause and think about what you have just learned.  None of that happens with TV or radio news which is simply served to a passive audience who only chooses whether to tune in or out and cannot be engaged in actively deciding what information is important.  Almost every reader only selects less than 10% of any major newspaper because readers actively select what stories are important to them and skip the rest, but you cannot do that with TV or radio news.  All you can do is passively listen to whatever news is on regardless of what it is and the newscasters know that they keep eyeballs with sensationalism, not substance so they focus on sensationalism.  Print is completely different.  There is still way too much sensationalism in printed news, but there is less and most importantly, it is much easier to skip the crap because the printed word is the best medium for active, non-linear information gathering.  Hyperlinks make reading even more non-linear and engaging.

One reason why audio/video is tends to be so repetitive is that the listener cannot easily “regress” and repeat an important part. So good producers insert more repetitiveness to emphasize important points, but even the best producer cannot know what needs to be repeated for any particular person and it is harder to skim over repetition in audio/video when it is merely redundant for a listener.

It is harder to search audio/video for keywords (unless it is converted to text) and it cannot be as easily skimmed through to skip irrelevant parts and look for the most important.

4. Video and audio are bad for communicating the reliability of information

With video & audio, there is no easy way to cite sources and so sources are neglected.  It is harder to go back and correct mistakes in video/audio than in print.  This makes information in video and audio less reliable than in print. Just the ability to use quotation marks in text makes it much easier to attribute work to other people. In fact, videographers often resort to displaying a video of a text in order to visually cite a source, and that demonstrates the power of writing.

5. Video/audio is a slower way to gather verbal content

Most college-educated people read much faster than people talk. We are all speed readers in a sense. Americans speak at less than 150 words per minute, but most people think at at least twice that fast. There are varying estimates of just how fast people can think ranging from 400 wpm to 4000 wpm. It is a difficult research question and part of the variance in estimates studying different kinds of internal speech, but everyone agrees that people think much faster than they speak.

Part of the overwhelming evidence for the fact that people think faster than they speak is that normal, college-educated readers comfortably read almost twice as fast as they speak. So even normal readers are speed-readers compared with how they communicate out loud. For example, Medium.com says they assume their average readers read at 275 wpm (or 260 wpm). I averaged their estimated reading speed for nine essays and they really averaged 241 wpm although I didn’t include time for appreciating pictures and Medium.com adds 12 seconds for just the first picture alone. That is still speed-reading compared with speaking.

Despite some wild claims, the best speed readers probably don’t read faster than about 600 wpm with reasonable retention. Anything faster than that is just skimming, but one of the great features of reading is that sometimes you just want to skim and other times you want to slow down and focus more. That is very difficult to do with any other medium.

Another piece of evidence that people think twice as fast as they speak is that normal people can easily understand speech that is sped up by double or more. Again, the limiting factor that has prevented people from understanding rapid speech has been the difficulty of human physiology to produce it. Auctioneers with training will speak at 300 wpm, but they mostly say repetitive words because otherwise their intonation and consonants would be too slurred to understand. But computers can speed up normal speaking and preserve all the consonants and vowel sounds.

digitally accelerated speech is more intelligible than the natural speech of a person talking rapidly. ”When you try to speak faster and faster, speech gets very blurred,” Ms. Janse said. The distinctions fade, she said, whereas digitally accelerated speech uniformly preserves all the crucial intonations and inflections.

Unfortunately, only about 5% of audiobook users have ever tried listening at a faster speed because it feels unnatural at first. But with only a few hours of practice, anyone can get high comprehension from speech that is double-speed and it is worth experimenting with what speed feels best. After a short while, normal speed speech begins to feel uncomfortably slow. So if you listen to audiobooks or podcasts, you can get some of the efficiency of reading by using a good digital player that can speed up the speech. Some players claim to have better algorithms for speeding up audio, but I have found them all to work amazingly well. Digitally audio always sounds clear and has about the same intonation as the actual person rather than sounding like a chipmunk like with the old analog speed-up technologies.

The fact that people think at least twice as fast as they speak (in wpm) is why it is so crucial to practice presentations out loud if you want to know how long your presentation will take. Most neophyte presenters practice in their heads because it feels awkward to say everything out loud, partly because it feels too slow and inefficient. But then when they actually have to give the real presentation and say everything out loud, they don’t have nearly enough time to finish because everything takes twice as long as when they practiced it because the speed of thought is at least twice as fast as the speed of the tongue. That is one reason why formal presenters have a tendency to speak unnaturally fast.

Although audio has its advantages, overall reading is still the most efficient and productive way to get verbal information if you don’t need your eyes for something else like keeping the car on the road.

What is video best for?

As mentioned above, video is best for appealing to the lizard brain and getting people’s attention. Video helps people feel more connected to one another. It is also the best, obviously, for showing motion, but unless you are doing a how-to video that shows the complex motions for taking apart something, motion usually isn’t necessary for communication and can be a distraction. That is why recipes are usually communicated in print rather than in video format even though they are one of the most common how-to instructions.

Posted in Culture, Personal (not econ)

What immigration crisis?

The Pew Research Center reports data that unauthorized immigrants in the US are at the lowest level in a decade of gradual declines.

Meanwhile, more and more Americans are favoring more legal immigration, so Americans aren’t suddenly becoming more nativist.  

Illegal border crossings as measured by apprehensions have dramatically fallen from their peak in the late 1990s and lower than they have been in nearly a half century (which was only shortly after America first started to restrict the freedom of people’s movement across our southern border). 

That reduction in apprehensions is happening despite much higher numbers of border patrol agents (about three times more agents), so it is unlikely that the US border patrol is just getting a lot worse at catching immigrants.

One reason apprehensions on the Mexico border is falling is that the biggest growth in unauthorized immigrants are not coming overland because they are coming from Asia, Africa, the Caribbean, South America, and other places rather than Mexico. 

Undocumented immigrants are increasingly entering legally by air and by sea and simply overstaying their visas.

Even deportations peaked in 2013 under President Obama and have been considerably lower ever since (in the data so far).

So why does the media say we are in the middle of an immigration crisis? Because the president says it is a crisis and the media prints it like it is a fact:

Throughout this election season — and ever since he declared his presidential candidacy — President Donald Trump has been calling illegal immigration a “crisis.” “I would like to provide an update to the American people regarding the crisis on our southern border,” the president said in his Thursday speech on the subject, “and crisis it is.”

All of Trump’s blathering about an immigration crisis on the southern border has also created a lot of publicity about immigration in Central America and perhaps in the spirit of all-publicity-is-good-publicity, the news of a border crisis is acting as an advertisement for would-be immigrants who have suddenly started going to the US border in recent months in record numbers (although still WAY below the overall peak in the 1990s).  

Even though Trump has attracted a lot of news coverage this year for being cruel to children by separating them from their families, the number of children coming has also dramatically increased.  

It is almost like the media exposure about families immigrating with children is giving more families from Honduras the idea that they could try immigrating. 

And in contrast with the previous immigration wave from Latin America which was predominately illegal, the new immigration wave is trying to do it legally.  This is a sharp increase in the number that are applying for asylum:

So if there is an immigration crisis, it didn’t start until after Trump started producing vast amounts of free ‘advertisement’ about immigration to America in the news media.  How else would poor campesinos learn about the caravans of immigrants that they can join to help them get to the US border and apply for refugee status with their children.  

There wasn’t an immigration crisis before Trump created oneLike most economists, I generally think that immigrants make America stronger, but if Trump really wanted to reduce the number of illegal immigrants in America, there is a sure-fire, inexpensive method to achieve his supposed goal.  The fact that he doesn’t use this method means that he is either stupid or corrupt.  

Posted in Globalization & International, Labor

If you pay them, they will come.

Most immigrants to the United States come because of higher wages. If you look at any two countries in the world, the net migration almost always flows from low-wage nations to high wage nations because the biggest draw for migrants is economic given the enormous gaps in wages between nations around the world. So the crime of illegal immigration is basically caused by American employers who illegally hire undocumented immigrants. If they had no prospect of jobs, very few would come and most would have to leave.

Some crimes like theft and murder involve victims who help law enforcement fight back. Other crimes like illegal drugs and illegal immigration are victimless and that makes them much harder to combat because none of the participants report the crime and law enforcement is on its own to try to find the crimes. Illegal drugs and illegal immigration are also part of a market system that can be explained with supply and demand which gives policymakers two separate mechanisms for reducing them. We can either reduce the supply or reduce the demand. Reducing the supply of illegal drugs doesn’t work very well because it typically has the perverse effect of increasing the price of drugs which increases the total revenues of the drug markets because of inelastic demand. So efforts to reduce demand are more effective at reducing the drug market than efforts to reduce supply by an equivalent amount. Whereas a reduction in supply will reduce the quantity, but increase the price, a reduction in demand will reduce both the price and the quantity.

Immigration can also be reduced by reducing the supply or the demand. Present enforcement focuses almost exclusively on reducing the supply of immigrants by building a border wall, 20,000 border guards, and raids of workplaces to jail and deport illegal workers. It would be much more efficient to reduce immigration by reducing the demand for immigrants rather than the supply, but for a different reason. This is because the demanders (employers) are easy to find and have money that can be taken away.

Whereas the US government currently spends nearly $40 billion dollars on border enforcement, and imprisoning and deporting undocumented workers, if the government started fining the employers instead, the anti-immigration program could make a profit and it would be more effective because most undocumented workers would self-deport.

Rather than spending billions of dollars jailing and flying undocumented immigrants home, the government could raise billions of dollars in fines by penalizing employers.  Whereas there are 8 million illegal workers in America, there are a lot fewer illegal employers because a relatively small number of big businesses hire many of them including, “24 percent of all workers in farming, fishing and forestry and 15 percent of those employed in construction”.  It is a lot easier to find the illegal employers than to round up all the illegal employees because the employers own property and have stable addresses whereas the employees are forced to live in the shadows.

Currently, most employers know that they are employing illegal immigrants even though they don’t care to find out because it doesn’t matter. “In 2014, the probability that one of the nation’s 6 million employers would be investigated for violating immigration laws was 0.03%” and even fewer actually faced any meaningful penalty. Some years, more Americans are struck by lightning than the number of employers who are penalized for illegally hiring undocumented workers.  Wayne Cornelius again:

The reasons for weak workplace enforcement are widely recognized. For starters, Congress deliberately included a gaping loophole in the Immigration Reform and Control Act, making it extremely difficult to prosecute employers that break the law. The loophole has remained since 1986 because it is politically advantageous.

There has never been much public or congressional appetite for a harsh crackdown on employers, especially the small businesses that depend most heavily on workers in the U.S. illegally. They are pillars of their communities and campaign contributors…

President-elect Trump has called for full implementation of an electronic employment eligibility verification system called E-Verify. Established as a pilot program by immigration authorities in 1996, E-Verify crosschecks basic information provided by job applicants with federal databases. Employer participation is voluntary, and only about 8% of businesses are enrolled… E-Verify, however, is no panacea. …as long as penalties are weak, requiring employers to use E-Verify will not significantly reduce violations.

Will Congress approve crippling fines or even prison sentences for business owners who ignore E-Verify rules? Will lawmakers direct the Justice Department to make these scofflaws a top priority? Unless and until that happens, many employers will continue to view hiring those in the U.S. illegally as a low-risk, high-reward crime.

Requiring and enforcing E-Verify would be much more cost effective than building a wall or spending billions on jailing illegal workers and flying them back to their countries of origin, but penalizing illegal employers is never popular because:

  1. The biggest illegal employers are rich corporations that have the money to influence politicians and the media to make it look like they are the victims of illegal employees rather than the ones who profit from hiring them. They want more immigration because they want cheaper employees and they don’t care about ineffective border walls as long as it diverts attention from sanctions on illegal employers. The business lobby loves immigrants and is happy to have ineffective enforcement. When ICE raids a workplace and rounds up illegal workers, it may hurt profits for a few days, but illegal employers know that there is always more where the first group came from. Sorta like in The Field of Dreams, if you pay them, they will come.
  2. Employers can vote and illegal immigrants cannot. This inherently means they are disenfranchised.
  3. Businesspeople are much more popular in America than immigrants. It is impossible to organize a political movement around punishing a super popular group of people. You might as well say that you want to punish puppies for pooping where we walk. Sure, we don’t like the poop, but puppies are popular and nobody is going to go along with a law that penalizes them if there is any other plausible way to address the problem.
  4. There is an active lobby for demonizing immigrants to justify our expensive supply-side immigration system. Tens of thousands of ICE employees and border enforcement unions profit and private prison corporations made about $650 million in 2017 alone. This costly system is extremely profitable because, “it costs $149.58 taxpayer dollars to detain one person for one day in a privately-run immigrant prisons, as opposed to $98.27 in a municipal-run immigrant jail.”

Because of those political impediments, even the very idea of fining employers for hiring illegal immigrants is quite new.  It took over two centuries before American legislators first made it illegal to hire illegal workers. The first fines were imposed in 1989.

Peter Brownell found that increased fines on employers reduced the wages that they paid illegal employees because it reduced the demand for them even though very few of the millions of illegal employers were ever fined. The Obama Administration used fines on employers more than any other Administration.

And that may be one reason why illegal immigration reversed direction and fell during the Obama years.

Although the Trump Administration said it would be tough on illegal employers, according to USA Today, it has reverted back to the older practice of arresting undocumented employees while letting employers take a pass:

It isn’t surprising that Trump prefers to revert to highly theatrical but ineffective supply-side immigration penalties because the Trump organization has a long history of illegally hiring undocumented immigrants and doesn’t even bother to use e-verify to try to screen them out.

Like most (62%!) of Americans, I have positive feelings towards immigrants.

The main economic argument against immigration is that it tends to increase inequality in America, but there is empirical disagreement about whether it has actually hurt any native-born Americans or whether it only brought in low-skilled newcomers who increase inequality not by lowering the wages of low-skilled Americans, but because the low-skilled immigrant population earns very low incomes.

immigration of unskilled workers boosts inequality. This works through two different channels.

One is that, separately from any impact on the labor market, in the short term immigration (regardless of the skill level of the immigrants) means there are fewer capital goods per person, which makes them more valuable to own and boosts the income of capital owners. That mostly means rich people (who own lots of stock) and, to a lesser, extent middle-class people (who generally own houses) and not at all poor people (who generally have debt, not assets). In the long run, this should theoretically even out as a result of new investment, but that could take a while.

The other, even more powerful mechanism is that when a poor person lives in a poor country, that person’s poverty is “off the books” in terms of American income statistics. When he moves to the United States, he goes on the books, and inequality goes up. Annual income per capita in Haiti, for example, is about $400 a year. If an average Haitian family of four moves to the United States, and ends up with one adult working full time at the federal minimum wage of $7.25, the family’s income will jump from $1,600 to $15,080, which would be a phenomenal increase. But the family would be very poor by American standards, and their presence in the country would cause measured inequality to go up.

Your mileage may vary as to whether it makes sense to worry about an increase in inequality that doesn’t make anyone worse off. Kaus himself wrote a pretty good book arguing that worrying about inequality per se is a bad idea, and I take these considerations about immigration to be an example of the reason why.

As a college-educated person, immigration is undoubtedly increases my real income by lowering the costs of goods and services that I buy, so like most educated people, I don’t have much reason not to be welcoming of more immigrants, but if we are going to spend resources on reducing illegal workers, we should at least start by doing the most efficient thing and start fining illegal employers. Anyone who claims that they want to reduce immigration, but doesn’t focus on illegal employers first simply shouldn’t be taken seriously.

Posted in Globalization & International, Labor

Capital in the 21st century

Thomas Piketty’s blockbuster bestselling economics 816-page brick is about capital which he defines broadly as all sorts of wealth. Wealth is anything that earns money for its owner and it is extremely unequally distributed. The richest 1% own almost half of the total world’s wealth. Piketty’s book is often summed up in three characters:

r>g

This is the idea that the growth of wealth (r) is bigger than the total growth of the economy (g). A much simpler way of explaining this is the income of wealthy people grows faster than the income of workers because if you don’t get money from living off of the earnings of your wealth, the only other option is to work.

So a simpler equation for explaining Piketty’s main thesis would be

r>(wage growth)

There are a few times in history when Piketty’s simple equation was reversed and the incomes of people who work for a living grew faster than the income of the leisure class, but they aren’t particularly pleasant. The first well-documented event was the black plague when wages rose about 50% and rents (r) fell in Europe leading to a dramatic shift in political power away from the landed aristocracy to the laborers of Western Europe (although there is an alternative story about how the wage-rent ratio influenced political power).

In any case, Kelsey Piper gives some anecdotal evidence that reinforces Piketty’s broader statistics.

Last week, a bump in Microsoft’s stock prices pushed Bill Gates’s net worth above $100 billion… It’s a mind-boggling amount of money. What makes it more mind-boggling is that Gates says he’s working to give away nearly all of it.

Bill and Melinda Gates have given away more than $45 billion through the Bill and Melinda Gates Foundation, which primarily works to combat global poverty. Their work has saved millions of lives. At the same time, the Gateses themselves have just kept getting wealthier.

… In December, writing for Inside Philanthropy, David Callahan looked at the numbers and pointed out that across the board, the wealthiest people in the world are sitting on $4 trillion, and accumulating money much faster than they give it away.

“[Bill] Gates was worth $54 billion in 2010, the year the Giving Pledge debuted; he’s worth $97 billion today. [Warren] Buffett’s wealth has also nearly doubled, to $90 billion, despite annual transfers of Berkshire Hathaway stock to the Gates Foundation and the four foundations controlled by his three children,” Callahan wrote.

Most of the wealthiest people in the world are accumulating money much faster than they give it away because they don’t give away much money, so it is easy to accumulate more and more wealth given the low-low taxes on capital income and numerous tricks to hide it from even those low tax rates in tax havens abroad. The top tax rate on income from owning capital (rent, interest, dividends, etc.) is taxed at a top rate that is about half the top rate we tax income from working.

The data makes it look like the super-rich donate a lot of their money to philanthropy, but that is an average which is heavily skewed by super-donors like the Gateses and Warren Buffet who have given away many billions. To balance them out, there are a lot of super-rich who give away next to nothing.

wealthyphilanthropy

And unlike the Gateses who really do try to make the world a better place for the non-rich, a lot of what the world’s wealthiest people focus their philanthropy on are their own hobbies like art, opera, museums, and their elite alma maters. A lot of the super rich give most of their money to politicians who will help make the super rich even richer. So a lot of what the rich consider “philanthropy” isn’t really very philanthropic at all.

Posted in Inequality

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.

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 picture is so grey, it is shocking that it is a true-color photo!  It is hard to tell there was any color in the world because the pollution made everything look black and white, but there is a red stoplight barely visible through the haze in the middle of the road. 

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 currently 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.

Although there is a surprisingly large minority of Americans who distrust science and believe (like Donald Trump) that climate change is a conspiracy, at least a slight majority of Americans have always trusted the scientific consensus. 

Republicans are unfairly stereotyped as not caring about global warming and it is true that most Republican national political leaders 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.

The fact that American political party elites have become 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 often happens with social issues like abortion, but business lobbies tend to want allies with both sides of the political spectrum so they can have influence regardless of which party wins an election.

The American partisan divide over fossil fuels is a fairly recent phenomenon.  Chris Hayes wrote about how the Republican Party had top leaders speaking out about fighting climate change from the 1980s through John McCain’s 2008 presidential campaign.

…During the 1988 vice-presidential debate, Dan Quayle argued that “the greenhouse effect is an important environmental issue. It’s important for us to get the data in, to see what alternatives we have to the fossil fuels…. We need to get on with it, and in a George Bush administration, you can bet that we will.”
That wasn’t quite the case, but in 1989, Newt Gingrich was one of twenty-five Republican co-sponsors of the Global Warming Prevention Act, which held that “the Earth’s atmosphere is being changed at an unprecedented rate by pollutants resulting from human activities, inefficient and wasteful fossil fuel use, and the effects of rapid population growth in many regions” and that “increasing the nation’s and world’s reliance on ecologically sustainable solar and renewable resources…is a significant long-term solution to reducing fossil-generated carbon dioxide and other pollutants.” In 1990, President George H.W. Bush said at an IPCC event, “We all know that human activities are changing the atmosphere in unexpected and in unprecedented ways.”
While his son did little to curb carbon emissions when he took his turn at the presidency, he did at least give it lip service. Speaking ahead of the 2005 G8 Summit, George W. Bush said, “It’s now recognized that the surface of the earth is warmer, and that an increase in greenhouse gases caused by humans is contributing to the problem.” As part of the 2007 Energy Independence and Security Act, he signed into law minimum efficiency requirements to begin to phase out the use of incandescent bulbs in 2012. (A law that would, in the Obama era, become a top [Tea Party] target, as the Tea Party rallied to support the incandescent bulb as if it were a constitutionally enshrined right.)
And in 2008, somewhat miraculously, John McCain’s platform featured support for a cap-and-trade bill that would have effectively put a price on carbon. But even by that year, you could already feel a seismic shift in the rhetoric. I sat in the Xcel Energy Center in St. Paul in 2008 and watched Sarah Palin lead thousands of people in a thunderous chant of “Drill, baby, drill!”
After Obama’s election, things moved quickly: McCain dropped support for his own legislation to regulate carbon pollution. In 2010, Bob Inglis, a conservative congressman from South Carolina, was soundly defeated by a Tea Party challenger in the Republican primary, due chiefly to Inglis’s refusal to deny the science on climate change. A year later, Gingrich called his appearance alongside Nancy Pelosi in a 2008 ad urging action on climate change the “dumbest single thing I’ve done in years,” recanting his acceptance of the science and embracing denialism. He was not alone—in fact, outright denialism is now more or less the official Republican line. In 2011, and again in January of this year, Republicans on the House Energy and Commerce Committee voted to block the EPA from regulating carbon emissions and against amendments that would acknowledge that climate change is, in fact, happening.

Hopefully America’s political party leaders will be able to return to our former consensus about the dangers of climate change again soon.

Bipartisan note:  Although the elites who control the Republican Party have recently firmly allied themselves with fossil fuel interests, liberal political party elites in democracies worldwide are always in hock to other sources of power.  For example, organized labor always favors more liberal parties and 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 only 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 so it would be easy to cut payroll taxes since revenues would be coming in from the carbon tax instead.  

A carbon tax would not hurt American consumers much because they could switch to renewable electricity and electric cars and thereby avoid most of the tax.  But the 100 big corporations that account for 71% of global carbon emissions would be hit very hard by a carbon tax because they can’t switch to solar and wind energy.  Sure they would try to pass on some of the tax in the form of higher prices to consumers, but that would amount to less than 0.8% of income for ordinary Americans at worst and the corporations would feel A LOT more pain than we would so they have a big incentive to manipulate the public and and our political system to get their way. This is the concentrated interest group problem.

A modest 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. 

Below is a photo of the heads of the big American tobacco companies swearing in before the US Congress in 1994.  Even after decades of research showing the adverse health effects of tobacco, they were still testifying under oath that the science was wrong! 

Photo of 7 tobacco company CEOs being sworn in before testifying before a U.S. House committee on April 14, 1994 that nicotine is not addictive.

The fossil fuel industry has a lot more money than the tobacco industry and if you track the vast amount of money that the fossil fuel industry spends on influence, you’ll see that 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 industry lobbies 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 many times more revenues available 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.

That is why the fossil fuel industry spends 10 to 30 times more money on lobbying than the renewable energy sector and environmental organizations combined according to research by Robert J. Brulle.

lobby

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 four 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.  Fourthly, political-influence investments must be more profitable than other kinds of investments.

Michael Munger made the point that economists assume diminishing marginal productivity of investment in engineering and at some point, the marginal productivity of investment in capital or research and development will fall below the marginal productivity of investment in political corruption. Plus, he noted that mature industries have lower marginal productivity of investment in engineering than young, growing industries.

The internet-technology sector is an example of a young, growing industry that has spent relatively little money on lobbying compared with more mature industries like the oil and gas and electric utility industries.  According to Munger’s theory, companies like Microsoft generally spend little money on the political influence game partly because they have to stay focused on spending their resources engineering better products to keep up with competitors at other tech companies and so they prioritize that kind of investment.  Oil companies have much worse prospects for increasing their productivity as oil is gradually depleted and productivity naturally drops over time, so they have more incentive to invest in political influence instead. Karam Kang studied the profitability of the oil industry’s lobbying efforts in 2007-8 and found that it was wildly profitable with average returns from lobbying expenditures estimated to be over 130%.

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.

Concentrated media power also explains much of the divide within the Republican party over climate change.  Whereas political independents and Democrats get news from relatively diverse sources, Fox News has much more power over the public (particularly over Trump voters) than any other single news source.

primarynews

Fox News is staunchly opposed to climate science and alternative energy and its dominance over 40% of Republican voters explains most of the divide in the party over the issue of global warming according to Navigator Research who found that, “non-Fox News watching Republicans are twice as likely as other Republicans to believe in human-caused climate change.”

foxpoll

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 kind of theory for why the Chinese would have a motive to do so.

A more common conspiracy theory is that climate scientists can make a lot of money by fabricating evidence for global warming, but this lacks evidence that scientists are fabricating evidence and lacks evidence that researchers get paid more money for research showing that global warming is real. On the other side of the issue, there is evidence that some of the tiny fraction of climate researchers who support conclusions that are friendly to the fossil fuel interests get financial support from the fossil fuel industry.  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 from a fad.  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 and Fox news says is almost as bad as the climate science conspiracy) nor for scientists to fake evidence that the world is flat.  Plus, we trust the same people for their expertise in the operation of GPS, hurricane tracking, and the global air-traffic control system, so why wouldn’t we trust them about the shape of the earth?

If scientists discovered a vast asteroid hurtling towards Earth, the science skeptics would scream “hoax” and urge us to ignore it by claiming that asteroids don’t exist and scientists just are a big group of pranksters who just like to defraud the public for some reason.  Belief that scientists are hoaxing us about climate change is similarly dangerous.  

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 self-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 about some sort of conspiracy.

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.

It is difficult to get a man to understand something, when his salary depends upon his not understanding it.

Chris Hayes explains the existential desperation of the fossil fuel industry by comparing it with the political battle over the expropriation of slave wealth.

The leaders of slave power were fighting a movement of dispossession. The abolitionists told them that the property they owned must be forfeited, that all the wealth stored in the limbs and wombs of their property would be taken from them. Zeroed out… Today, we rightly recoil at the thought of tabulating slaves as property. It was precisely this ontological question—property or persons?—that the war was fought over. But suspend that moral revulsion for a moment and look at the numbers: Just how much money were the South’s slaves worth then? A commonly cited figure is $75 billion [in today’s money] … In order to get a true sense of how much wealth the South held in bondage, it makes far more sense to look at slavery in terms of the percentage of total economic value it represented at the time. And by that metric, it was colossal… According to calculations made by economic historian Gavin Wright, slaves represented nearly half the total wealth of the South on the eve of secession. “In 1860, slaves as property were worth more than all the banks, factories and railroads in the country put together,” civil war historian Eric Foner tells me. “Think what would happen if you liquidated the banks, factories and railroads with no compensation.” …The scientific consensus is that human civilization cannot survive in any recognizable form a temperature increase this century more than 2 degrees Celsius (3.6 degrees Fahrenheit). Given that we’ve already warmed the earth about 0.8 degrees Celsius, that means we have 1.2 degrees left—and some of that warming is already in motion. Given the relationship between carbon emissions and global average temperatures, that means we can release about 565 gigatons of carbon into the atmosphere by mid-century. Total. That’s all we get to emit if we hope to keep inhabiting the planet in a manner that resembles current conditions. Now here’s the terrifying part. The Carbon Tracker Initiative, a consortium of financial analysts and environmentalists, set out to tally the amount of carbon contained in the proven fossil fuel reserves of the world’s energy companies and major fossil fuel–producing countries. That is, the total amount of carbon we know is in the ground that we can, with present technology, extract, burn and put into the atmosphere. The number that the Carbon Tracker Initiative came up with is… 2,795 gigatons. Which means the total amount of known, proven extractable fossil fuel in the ground at this very moment is almost five times the amount we can safely burn. …the work of the climate movement is to find a way to force the powers that be, from the government of Saudi Arabia to the board and shareholders of ExxonMobil, to leave 80 percent of the carbon they have claims on in the ground. That stuff you own, that property you’re counting on and pricing into your stocks? You can’t have it. Given the fluctuations of fuel prices, it’s a bit tricky to put an exact price tag on how much money all that unexcavated carbon would be worth, but one financial analyst puts the price at somewhere in the ballpark of $20 trillion. So in order to preserve a roughly habitable planet, we somehow need to convince or coerce the world’s most profitable corporations and the nations that partner with them to walk away from $20 trillion of wealth. …It is almost always foolish to compare a modern political issue to slavery, because there’s nothing in American history that is slavery’s proper analogue. So before anyone misunderstands my point, let me be clear and state the obvious: there is absolutely no conceivable moral comparison between the enslavement of Africans and African-Americans and the burning of carbon to power our devices. …[but] when you consider the math …you must confront the fact that the climate justice movement is demanding that an existing set of political and economic interests be forced to say goodbye to trillions of dollars of wealth. It is impossible to point to any precedent other than abolition. …[We] have reason to be suspicious of the fossil fuel companies. …Globally, the industry spends $1.8 billion a day on exploration. As one longtime energy industry insider pointed out to me, fossil fuel companies are spending much more on exploring for new reserves than they are posting in profits.

And they are spending a lot of money on the political fight to preserve that investment.  The money we can track may just be the tip of the iceberg now that Citizen’s United made it even easier for corporations to influence our political system.  Dark money has been pouring in and election influence is being bought.


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 Environment, Globalization & International

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