Sunday, October 30, 2011

Capitalist Environmentalism

People often think of companies as inherently anti-environment. This seems a bit strange, since companies would love to not pollute if it was the cheapest thing to do. After all, pollution means that you bought something and then threw it away. Cutting costs ties at least as much to environmentalism, not against it.

Consider server farms, which are black holes of energy consumption. About 1% of the world's energy goes to powering the computers and cooling them down. And half of that one percent goes to cooling. So companies like Facebook are moving their server farms to the Arctic Circle, where they can use the natural cool air to cut costs. Facebook is now building one in Lulea, Sweden.
Lulea's dry, frigid weather "definitely is a big part" of the company's decision to build there, Facebook spokesman Michael Kirkland said. Using outside air to cool servers is "absolutely beneficial not just from an environmental perspective, but also from a cost perspective."

Analysts agree. There are "overwhelming financial advantages" to building in the far north, according to Rakesh Kumar, an analyst with Gartner.

Utilizing free outside air can result in "tens of millions, if not hundreds of millions [of dollars], of savings per year" for each site, Kumar said.
Full story here.

HT: Tyler Cowen

Wednesday, October 26, 2011

On the Average Person's Economic Intelligence

Matt Yglesias posted these survey results on how best to create jobs.

This is why I put so little faith in the economic knowledge of the average voter. The third most popular idea to encourage job creation is to simply not fire people.

Friday, October 21, 2011

Know Your Own Argument

From Megan McArdle:
Similarly, a libertarian of my acquaintance recently found himself cornered at an event by a fellow complaining that government spending was far too high and needed to be cut, a proposition for which he offered in support . . . the work of Art Laffer.

"But didn't Art Laffer say that cutting tax rates would raise the amount of revenue that the government collects?"

"Well, sure," said the Lafferite.

"But then wouldn't government spending go up?"

The Lafferite, never having actually connected these two things in his head, fell mute.

Reverse Causality at the Fail Blog

HT: Fail Blog

Tuesday, October 18, 2011

Myths Are Simple

Robert Reich lists 7 myths of economics. None of them are actual myths. Actually, he's worse than that: he calls them lies. Basically the same as a myth but without the quaintness that comes with gods having sex with animals.

If you're calling something a myth (or a lie), you're saying "this is completely wrong and people who know what they're talking about know this is wrong." There should be a lot of wide-spread agreement that the proposed myth is wrong.

For example, all toxicologists agree that it's the dose--not the substance--which makes the poison. Tiny amounts of radiation won't hurt you at all. But drink too much water and you'll stomach will explode. Too much salt is bad for you, but you need a little salt to keep your body functioning.

Actual myths are simple, so simple they completely miss basic lessons of whatever disciple they pertain to. There's a mountain of evidence demonstrating why these myths are wrong. Anyone familiar with how the discipline works knows about the evidence.

Let's look at each of his proposed myths:

1. Tax cuts for the rich trickle down to everyone else. He points to how the median wage is flat over Reagan and dropped since W. Bush. Setting aside the fact that Reagan raised a lot of taxes, simply comparing median incomes doesn't account for income mobility. If you're getting wealthier as new people enter the labor market (young people, immigrants), median income might fall. (See here, unfortunately also claiming to be dispelling myths.)

2. Higher taxes on the rich would hurt the economy and slow job growth. Reich points to historical evidence of high tax rates and high growth but this is sloppy. The question is not is it possible to have high taxes with high growth but will higher taxes reduce growth? Unless Reich wants to overturn the law of supply, the answer, at least on the margin, has to be "yes."

3. Shrinking government generates more jobs. Reich points out that government is an employer. And if the goal was jobs, that would be fine. But for economists, the goal isn't jobs; the goal is efficiency. And due to knowledge and incentive problems, more government generally means less efficiency.

4. Cutting the budget deficit now is more important than boosting the economy. I am sympathetic to this view. If we were at full employment, our budget problems would probably be solved. Not only would expenses go down, revenues would increase. It is not clear how we get to boosting the economy, however, but, in general, cutting government at least makes us more efficient.

5. Medicare and Medicaid are the major drivers of budget deficits. Reich blames rising health care costs, which supports the "lie" rather than contradicts it.

6. Social Security is a Ponzi scheme. Yeah, I wouldn't call it a Ponzi scheme, as those are inherently unsustainable, but it's certainly close to it due to demographics. And if it wasn't it's still quite wasteful due to perverse incentives and the opportunity cost of investment.

7. It’s unfair that lower-income Americans don’t pay income tax. I agree with Riech here, especially given the regressive taxes (tolls, fines, sales taxes, fees, etc). But "fairness" is a normative point. How can that be a lie? Normative is about opinion!

Thursday, October 13, 2011

Where the Roads Are

A GAO report shows that for each dollar a state contributes in gasoline tax, that state gets more than a dollar in highway funding. That's pretty funny since the whole idea of the tax is a sort of user fee for the roads. Clearly, this Solyndra-style payment scheme isn't what it's cracked up to be.

Here's a chart showing how much each state gets in highway money for every dollar it sends.

Two territories stand out as getting more than $3 for every dollar they contribute. First is Alaska at $4.99 for each dollar (quite a bit more than $3, actually). What's the deal here? My guess is that there's even more space between all the spread out towns. They spend more money on roads than the average state; they have to in order to connect all its disperse pieces. Here the big winners are the rural areas.

The second is DC at an even higher $5.85(!) for each dollar they collect in taxes. My first guess is that it was the politicians making extra sure their roads are in good condition. But I've driven in DC and at that ratio, I'd expect roads which clear themselves of snow and traffic so light, you'd think you're in the country except for all the buildings. Neither are near the case.

No, what makes the most sense is that commuters fill their tanks up outside the city, where it's cheaper. Where Alaska has extra costs, DC has less revenue. Waaay less revenue. Here the big winners are the city folk who get to enjoy their roads 7 days a week even though they are being paid for by motorists who only come in during the weekdays and are gone by the evening.

So while the whole thing is muddled up and it's important not to read too much into this since all the money goes to a big federal pot anyway, it seems like the suburbs are consistently the biggest losers in this deal. They pay for rural areas which are road intensive and they pay for city streets which they use disproportionately less than the city dwellers.

Of course, the city dwellers tend not to have cars so maybe it just comes out in the wash.

HT: Yglesias