Sunday, May 30, 2004

The Day After Tomorrow Part II: The Counter Intuitive Logic of Resource Economics

If you read my last post, you know that I’m a big fan of Bill Nye (the Science Guy) who appeared on CNN a few days ago to tell the viewing public about The Day After Tomorrow—the film that depicts the world ending a few days thanks to global warming—and how there is no way the events portrayed would happen so quickly.

But Bill said something that didn’t ring true, though it’s one of those things that “just seems right” to most people but doesn’t actually work that way. Bill is deeply concerned about the state of the planet and the speed in which we are using our natural resources. So, he advised us to stave off disaster by using fewer of them—Bill apparently rides his bike everywhere to save on gasoline.

While this seems like the perfect solution to combat global warming, because of the way the economy works it is far from being true. Using fewer fossil fuels drives down their price and creates less incentive for creating cheaper, renewable substitutes. Our economy is large and free enough to sustain legions of entrepreneurs to offer new options when the old ways become too expensive. During the California energy crisis a few years ago, the price of oil skyrocketed and the renewable energy industry boomed as firms invested in solar panels and wind energy. Riding your bike to save money or get exercise is one thing (because these are internal benefits that are the natural response of market activity); riding it to save the environment is another (because it is in pursuit of an external benefit that cannot be measured and, therefore, actually hinders the creation of a solution to the greenhouse problem).

Using more gasoline to get off of it doesn’t make sense to a lot of people but over the course of human history, when one resource gets too expensive, we find substitutes for it. Metals, for example, are always cited as something we will run out and then we’ll be screwed, even though more and more building materials are made from plastics. There’s no reason to think that gasoline is any different. And because we have every reason to believe that we will be richer and more knowledgeable in the future than we are today, we can depend on the fact that our new energy source will be much cleaner than gasoline. Our wealth will allow us to express the new knowledge in new inventions. So let’s not succumb to scare tactics that emphasize short term effects, like riding bikes. Let’s have the courage to look at the big picture and resist the temptation to trade in our car for a ten speed.

The Day After Tomorrow, Part I: Leave the Science to the Scientists

This past Friday The Day After Tomorrow premiered: a happy-go-lucky romp about the end of the world that overwhelms in thanks to global warming. If you turned on the news at all on Friday, you would have the pleasure of hearing the mainstream media talk endlessly about the validity of the film’s claims: the devastation of the world will not only occur because of our own doing but it will happen in a weekend. While I was watching the “coverage,” the following question kept bouncing around in my mind:

Is there really so little going on in the world that precious time can be spent talking about if a claim in a big budget disaster film is valid?

This remains me of the endless discussions about genetic engineering that cropped up right after Jurassic Park opened. Of course it’s not possible, it’s fantasy: it’s a movie. As a testament to that, CNN brought on my favorite TV personality scientist—Bill Nye (the Science Guy)—who spent most of his air time explaining the complicated processes of the weather phenomena depicted in the film and all the hostess could ask is “But Bill, could this happen in a few days?” to which Bill finally and flatly answered, “No.” After Bill left, CNN continued to discuss the movie’s political ramifications as if there’s no difference between disaster happening over a lifetime (as Bill said was the fastest speed it could happen) and two days.

A lot of this silliness is nested in the public: if we see it in a movie, there’s legitimate reason to believe it can happen. There’s a lot of money and time wasted exploring ideas that some one saw in a movie. There’s a lot of panic that ensues because people take entertainment too literally (War of the Worlds, anyone?) Let’s leave the science to the scientists.

Thursday, May 27, 2004

Golf Courses Dispel Doomsayers' Warnings

It’s “common knowledge” that the world is overcrowded. As children and as adults, we are told over and over that the world has “too many people,” but that statement is meaningless. What is too many people?

For decades, fears ranged that China didn’t have the capacity for its billion plus. There was enough land for farms or buildings. Doomsayers make that claim to this day even while China claims the world’s largest golf course.

That’s right, China’s Mission Hill recently became the world’s largest golf course, containing some 180 holes. Founder David Chu invested some $400 million in the complex since its founding in 1993.

Doomsayers often claim that golf courses are a waste of space because they take up so much room, so little of which is used at any given time. But if golf courses are truly a “waste of space” then why does China now fashion over 170 of them?

In fact, those one billion plus are a boon, not a burden. With so many minds at work, it’s clear that whatever land problem that may or may not have existed in China haves been subsided. If that wasn’t true, Chu would have invested in a few dozen apartment buildings.

Monday, May 24, 2004

Who Are They to Say What's Excessive?

Richard Grasso, former head of the New York Stock Exchange, is suing the organization for being forced to resign. Sen. John Edwards called his pay package of $140 million in deferred compensation and retirement benefits “excessive,” according to the CNN website. Business leaders called his salary inappropriate for someone in his financial position of power, especially since it’s a non-profit organization.

As usual, critics are playing pretend in two ways. Grasso was head of the stock exchange for 36 years and the exchange isn’t exactly a typical (if there is such a thing) non-profit organization. They are not desperate for cash, as what most people imagine non-profits to be. The NYSE can most certainly afford to pay Grasso the sum and after three and a half decades, who’s to say that he doesn’t deserve it? Only those who work for the NYSE have the appropriate local knowledge to best ascertain his performance. No one else is in a position to criticize.

As for his position in power, I fail to understand how his large salary should affect his credibility. Now if he was investing that money in the stock market, that may be cause for concern or inquiry but as simply a salary, how does that translate into possible corruption? What’s important is what he does with it and, in that case, the size of the salary shouldn’t matter.

Sunday, May 23, 2004

Re: Coercive Recycling

I am not sure that we can easily state that such a law significantly changes the job market.

Obviously, the key variable in understanding the problem here is price sensitivity. It would be interesting to see if there is a noticeable difference in the purchase of plastic bottles in Iowa. If the drop in demand for cans is made up for in the demand for bottles, then what we have essentially done is made a system of wealth transfer from can producers to bottle producers (though I would venture to suggest that they might be the same firms).

While Iowa can claim a 2% raise in recycling (though I might suggest that other factors might have been relevant, such as the rise of a recycling culture), what happens to the people who never claim their money? As David points out, on the aggregate, this is a significant portion of income that is not being spent elsewhere. The rest is obvious.

The Curse of Coercive Recycling

It’s the summer again and for me that means it’s time for me to engage in my Diet Coke shopping ritual.

Luckily for me, the local grocery store was having a sale on 24 packs, cutting a dollar off the normal price. So I grabbed three and headed for the check out lane only to pay $1.20 extra for each pack.

I should mention I live in Iowa and in 1978, Iowa enacted legislation requiring consumers to pay the deposit on cans when they purchase them. The idea is that five cents a can isn’t enough incentive to get people to return their used aluminum for recycling. But if the government took that money away first, people would be more willing to get it back.

Supporters of the law claim that an additional 2% of all cans bought in the state are returned because of the law, hence the law is a good thing. What supporters don’t understand that is recycling isn’t an act of pure good and coercing people to do it isn’t akin to the acts of Robin Hood (who also has his own problems).

By increasing the price of pop and beer, it harms the plants, truckers and grocery stores that sell the product. It’s also five cents a can that the consumer doesn’t get to buy on other things. Over the course of the summer, I drink probably 15 dozens cans of Diet Coke; the law costs me an extra nine dollars over the season. And that’s just me. While I’ll admit the aggregate number probably isn’t huge, the 2% increase in returned cans isn’t huge either.

So here’s the choice: do we prefer fewer cans in the dump or more jobs in the market? If you say fewer cans, try telling that to the bottler who just lost his job.