A tax on Russian oil would be paid mostly by Russia and would not greatly raise the price of oil. I often assign a question like this to my Econ 101 students. Ricardo Hausmann runs through the argument:
At first sight, imposing a tax on a good must increase its price, making energy even more expensive for Western consumers. Right? Wrong! At issue is something called tax incidence analysis, which is taught in basic microeconomics courses. A tax on a good, such as Russian oil, will affect both supply and demand, changing the good’s price. How much the price changes, and who bears the cost of the tax, depends on how sensitive both supply and demand are to the tax, or what economists call elasticity. The more elastic the demand, the more the producer bears the cost of the tax because consumers have more options. The more inelastic the supply, the more the producer – again – bears the tax, because it has fewer options.
Fortunately, this is precisely the situation the West now confronts. Demand for Russian oil is highly elastic, because consumers do not really care if the oil they use comes from Russia, the Gulf, or somewhere else. They are unwilling to pay more for Russian oil if other oil with similar properties is available. Hence, the price of Russian oil after tax is pinned down by the market price of all other oil.
At the same time, the supply of Russian oil is very inelastic, meaning that large changes in the price to the producer do not induce changes in supply. Here, the numbers are staggering. According to the Russian energy group Rosneft’s financial statements for 2021, the firm’s upstream operating costs are $2.70 per barrel. Likewise, Rystad Energy, a business-intelligence company, estimates the total variable cost of production of Russian oil (excluding taxes and capital costs) at $5.67 per barrel. Put differently, even if the oil price fell to $6 per barrel (it’s above $100 now), it would still be in Rosneft’s interest to keep pumping: Supply is truly inelastic in the short run.
…In other words, given very high demand elasticity and very low short-term supply elasticity, a tax on Russian oil would be paid essentially by Russia. Instead of being costly for the world, imposing such a tax would actually be profitable.
Addendum: Many people in the comments aren’t getting this so let me note that there is a big difference between taxing oil and taxing Russian oil, it’s only for the latter good that demand is relatively elastic.
Formative experiences shape behavior for decades. We document a striking feature about those who came of driving age during the oil crises of the 1970s—they drive less in the year 2000. The effect is not specific to these cohorts; price variation over time and across states indicates that gasoline price changes between ages 15–18 generally shift later-life travel behavior. Effects are not explained by recessions, income, or costly skill acquisition and are inconsistent with recency bias, mental plasticity, and standard habit-formation models. Instead, they likely reflect formation of preferences for driving or persistent changes in its perceived cost.
That is from a newly published paper (AEA gate) by Christopher Severen and Arthur A. van Benthem.
1. Alan Bollard, Economists at War: How a Handful of Economists Helped Win and Lose the World Wars. A useful book on a much underrated topic. Keynes, Kantorovich, and Leontief receive the most attention, though the book also covers of Takahashi Korekiyo of Japan. My main complaint is the absence of Thomas Schelling.
2. Elizabeth Wilson, Playing with Fire: The Story of Maria Yudina, Pianist in Stalin’s Russia. She converted from Judaism to Orthodox Christianity, and her career spanned from the 1920s through 1970. She was at times out of favor, other times Stalin’s favorite pianist. Called a “holy fool” by many, this is an excellent biography that brings its subject to life. And her playing was full of depth, albeit with often creaky sound..
3. Ian Barnes, Restless Empire: A Historical Atlas of Russia. One of the very most useful books for understanding Russian history — about half of this one is maps! Changing maps over the ages. These are the maps that Putin looks at, you should too. A high quality book in all regards.
4. Sarah Weinman, Scoundrel: How a Convicted Murderer Persuaded the Women Who Loved Him, the Conservative Establishment, and the Courts to Set Him Free. The murderer is Edgar Smith and the conservative is William F. Buckley — how could anyone have been fooled by these remorseless criminals? A good look at what had been becoming a forgotten episode. A tale of self-deception to the nth degree.
5. Caroline Elkins, Legacy of Violence: A History of the British Empire. Yes, the empire truly was based in unacceptable levels of violence, and at its very core. This excellent book is the very best demonstration of those propositions. Historically thorough, and covers more than just a few cases.
There is a new reissue, with a new and good introduction, of Orlando Patterson, The Sociology of Slavery: Black Society in Jamaica, 1655-1838.
Ben Westhoff, Little Brother: Love, Tragedy, and my Search for the Truth is a very good narrative by a very good author.
Jeevan Vasagar, Lion City: Singapore and the Invention of Modern Asia is a decent first book to read on Singapore, although mostly it was interior to my current knowledge set.
That is the topic of my latest Bloomberg column, here is one bit:
The next time you are attending a formal presentation at a conference, ask yourself these questions: Is this better than all of those Zoom calls I am turning down? Is this better than the next best YouTube clip I might be watching? For most people, the answers are obvious. Conference organizers need to be willing to pull the trigger and usher the presentation into a gentle retirement.
Charismatic presentations still can be important to motivate a sales force or to build the unity of a crowd. But informational presentations are obsolete.
Earlier in my career, I went to presentations not to listen, but rather to meet the other people interested in the topic. That made sense at the time, but these days information technology provides superior alternatives. For instance, I have been to conferences that have “speed dating” sessions (without the date part, to be clear, and with vaccine and testing requirements) where you meet many people for say two minutes and then move on to the next meeting. This should become a more regular practice. Conference organizers also can create “speed dating pools” where everyone interested in a particular topic area has a chance to meet.
Another marvelous practice prompted by the pandemic that should be continued and indeed extended at all conferences: outside sessions, especially with group discussions.
Recommended, there is more at the link. What other ideas do you have?
1. “According to a Pew Research Center analysis of Census Bureau data, women younger than 30, on average, earn at least as much as or more than men in D.C., New York, Los Angeles and 19 other major metro areas…” Link here.
2. Everyone is offended: “G.I. Jane hairstylist Enzo Angileri doesn’t get why Jada Pinkett Smith rolled her eyes at Chris Rock’s G.I. Jane 2 joke at the Oscars.” (Daily Mail)
3. In the very best studies, Ivermectin always flunks — yet again. Time to give up the ghost on this one…there is really nothing there, and people’s lives are at stake. When stuff works, it works in studies like this.
6. “The University of Florida has dropped Karl Marx’s name from a library study room in the wake of Russia’s invasion of Ukraine, Orlando Weekly reported.” ??? And I guess Marx’s anti-Semitism — or how about his um…”Marxism” — wasn’t a good enough reason for cancelling him? Link here.
“I mean, everybody is frustrated about how slow things are,” said Walter Koroshetz, the director of the National Institute of Neurological Disorders and Stroke and a co-chair of the initiative, in an interview with STAT. He added, however, that while starting enrollment “took way too much time,” the NIH stood up the study “much faster than we’ve done anything else before,” pointing out the agency’s usual pace can be even slower.
Here is the full story, via a loyal MR reader. So far they have brought in just three percent of the patients they plan to recruit. Why oh why is our public health establishment failing us?
We investigate the wage return to studying economics by leveraging a policy that prevented students with low introductory grades from declaring a major. Students who barely met the grade point average threshold to major in economics earned $22,000 (46 percent) higher annual early-career wages than they would have with their second-choice majors. Access to the economics major shifts students’ preferences toward business/finance careers, and about half of the wage return is explained by economics majors working in higher-paying industries. The causal return to majoring in economics is very similar to observational earnings differences in nationally representative data.
That is from a newly published paper by Zachary Bleemer and Aashish Mehta.
3. Who is Putin’s immediate successor? And is he a nice guy?
I posted earlier on a NYC program where idling cars can be reported to earn a share of the fine. Tapei has just started a similar program to earn a share of the fine assessed on people who don’t pick up their dog’s poop.
As before the virtue of efficiency in the prosecution of the laws depends on the quality of the law.
Ticket sales for Chris Rock’s comedy shows have reportedly spiked since Sunday night.
Live event ticketing site TickPick sold more tickets to see Chris Rock overnight than it had in the past month combined, according to a tweet from the company Monday.
Rock is set to perform standup at Boston’s Wilbur Theater on Wednesday. On March 18, the cheapest tickets were sold for $46, but had increased to $411 by Monday, according to TickPick’s public relations representative Kyle Zorn.
Here is the full story. Now solve for the next one!
Today I will focus on the losers, with another post to follow on those who have gained status. Here goes:
2. Those who argued that the Russia misinformation machine was swinging major outcomes such as Western elections. Said misinformation machine just doesn’t seem that good!
2b. Those who argued the UFO footage was possibly of a Russian military craft.
4. The anti-nuclear power crowd, and much of ESG more generally. Too much posturing, too few practical solutions and now the whole thing bites.
5. China, with India in contention but working somewhat to remedy the damage.
6. President Obama, for mocking Romney’s concern over Russia, in one of their debates.
7. People who spent most of their time debating The Woke, on either side of the issue.
8. Commentators and political scientists who saw the initial conflict as primarily about the eastward expansion of NATO. Putin’s war aims have shown this to be false (while to be clear Putin does also hate the eastern expansion of NATO). Desire to obliterate and absorb the nation of Ukraine far predates the history of NATO.
9. People who said “the next war will all be about cyber.” There is probably more cyberconflict going on than we are aware of, but still…
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— Leopold Aschenbrenner (@leopoldasch) March 29, 2022
2. “The first lunar dust collected by Neil Armstrong from the Apollo 11 mission in 1969 is headed to auction, with an estimated value of between US$800,000 and US$1.2 million.” Link here.
4. Ezra Klein and Larry Summers (NYT).
5. New and relatively rigorous study of social media and well-being. Small negative effects, highly dependent on age, somewhat dependent on gender. Evidence consistent with causality running in both directions. This is not a zero negative effect, stronger than usual for girls 12-14, and for men 26-29, but overall not consistent with the doomsaying accounts. Here is NYT coverage. Note this from the NYT: ““There’s been absolutely hundreds of these studies, almost all showing pretty small effects,” said Jeff Hancock, a behavioral psychologist at Stanford University who has conducted a meta-analysis of 226 such studies.”
The data are taken from ecology and evolution papers:
Self-citation data suggest that authors give funnier titles to papers they consider less important. After correction for this confound, papers with funny titles have significantly higher citation rates, suggesting that humour recruits readers. We also examined associations between citation rates and several other features of titles. Inclusion of acronyms and taxonomic names was associated with lower citation rates, while assertive-statement phrasing and presence of colons, question marks, and political regions were associated with somewhat higher citation rates. Title length had no effect on citation. Our results suggest that scientists can use creativity with titles without having their work condemned to obscurity.
In California, three years into the era of legalization under the Proposition 64 ballot initiative, data indicate that only about one-quarter of weed sold and consumed in the state is legally licensed and that the remaining three-quarters is produced outside legal market channels.
And from a later chapter:
And that is why some people say, and we consider it plausible, that the so-called legalization of weed in some North American markets has illegalized more weed than it legalized.
That is from the new and excellent Can Legal Weed Win?: The Blunt Realities of Cannabis Economics, by Robin Goldstein and Daniel Sumner.