A new estimate of costs from global warming
The paper, by David J. Winter and Manuela Kiehl, is titled “Long-term Macroeconomic Effects of Shifting Temperature Anomaly Distributions.” I’ve posted a few papers showing results like “5 to 10 percent of global gdp by 2100” (try here and here), and I promised I would pass along further and different estimates. Here is the abstract:
This paper uses panel data on 201 countries from 1960 to 2019 to estimate the long-term macroeconomic effects of shifting temperature anomaly distributions. We find that rising average temperature anomalies from historical norms caused by global warming have negative, non-linear impacts on GDP growth. By additionally accounting for volatility and tail composition of the temperature anomaly distribution across a geospatial grid and across time, our approach is a methodological step towards quantifying the macroeconomic impacts of broader climate change. Projected damages are far greater than estimated in previous studies that have focussed on quantifying the macroeconomic impacts of average temperature levels only. Furthermore, in contrast to these studies which suggest that cooler countries would benefit from global warming, our damage forecasts see all countries face significant losses in productivity growth beyond optimum global warming levels of 0.3°C. Against a counterfactual scenario in which temperatures are held flat at today’s levels, 2 to 2.6°C of warming versus pre-industrial levels by 2050 has the potential to reduce projected global output by 30 to 50%. Warming in the range of 4-5°C by 2100 would lead to economic annihilation, consistent with scientific research on mass extinction thresholds and tipping points.
Now I am not sure I understand this paper correctly, but the authors don’t seem to take mitigation or adjustment into account, which would be far greater for sustained global warming than they would be for periodic, earlier temperature anomalies (Lucas critique!). And I don’t see they have any real empirical argument, from existing data, that “economic annihilation” would occur in some of their scenarios.
So I am skeptical. Nonetheless I promised you all further reports, and here is one of them. At the very least you can see what “moves” are needed to get the projected costs of global warming to go higher than are currently estimated. I would gladly consider more papers in this vein, and this is an important and underdiscussed question, at least from a rational point of view.
Via tekl.
Saturday assorted links
2. New jobs at Open Philanthropy.
3. Paul Krugman on interest rates (NYT). I am not persuaded, but there is a coherent argument here and this is currently one of the most important questions.
4. New results on surging business formation during the pandemic.
5. Lex Fridman and Mark Zuckerberg avatar chat.
The need for hospital price transparency
Greater price transparency doesn’t have to cost much money upfront, as most of what is required is attention. A critical majority of Americans — including doctors, patients, politicians, media and hospital board members — needs to insist on this outcome.
And I do mean insist. Just as, at some point, a critical mass of Americans demanded that the US end the Vietnam War. Otherwise, change is very unlikely to happen.
Some parts of the Affordable Care Act provided for transparent hospital pricing of individual services, and further regulations took effect in 2021. These were steps forward, yet the law has not turned the tide. It does not price packages of services, and it does not make it easy to compare one provider to another.
Recent research shows it is hard to even get a single consistent answer from a single provider. For instance, prices posted online and prices quoted over the telephone do not correlate very closely. For 41% of hospitals, the price difference was 50% or more. Clearly, suppliers aren’t really trying.
And:
What if there were regular news coverage of the comparative transparency and standardization of hospital prices? Or more explicit and accessible quality ratings? Or a prominent non-profit, run by medical professionals, devoted solely to making price and quality more transparent? Employers also could evaluate health insurance companies based on their performance by these criteria, much as they currently use ESG analysis. There could be an index of progress, like those national debt clocks one sometimes sees.
Is it absurd to hope that this topic might regularly trend on social media? What if there were public marches in front of hospitals (they can chant, “How much cash for a heart bypass”)? Who will be the Greta Thunberg of price transparency?
That is all from my latest Bloomberg column.
The PayPal StableCoin
PayPal customers can now transact in PayPal USD, a crypto stablecoin tied to the dollar. So which type of PayPal dollar, regular or crypto, is safer to hold? Surprisingly, the crypto dollar is backed by safer assets, gives you better rights in the event of a bankruptcy and is more transparent. The reason is not so much crypto per se as because PayPal USD is regulated differently and the US’s convoluted system of money regulation regulates similar things in different ways. J.P. Koning has the details:
[First] PayPal’s crypto dollars, which are managed by a third-party called Paxos, are 100% backed by the safest sorts of short-term collateral: U.S. Treasury-bills, reverse repo (backed by U.S. government securities), and commercial bank deposits. In finance lingo, these assets are known as cash and cash equivalents. A big reason for this conservative investment approach is that Paxos is subject to a set of strict investment limits as determined by its regulator, the New York State Department of Financial Services (NYDFS). You can read about the NYDFS’s stablecoin regulatory framework here.
By contrast, PayPal’s regular dollars, which are regulated piecemeal under each U.S. states’ own peculiar version of a money transmitter license, can almost always be legally backed by riskier assets.
…The second drawback of PayPal’s regular dollars is that the assets underlying them don’t really “belong” to customers in any strong sense of the word. They belong to PayPal.
To understand what this means, let’s say that PayPal goes bankrupt. You, a long time PayPal customer, hold $1000 worth of PayPal dollars. You might think that you are guaranteed to be made whole because there exists a corresponding set of underlying customer assets that has been specially earmarked for you and other PayPal customers. But that’s not the case. Customers are what is referred to in finance as an unsecured creditor of PayPal, which means you’d be relegated to having to fight with PayPal’s other creditors (banks, bond holders, etc) to get a piece of the pie, and that’s only after PayPal’s secured creditors – those highest in the pecking order – get first dibs. That could potentially mean getting maybe $600 or $700 instead of your original $1000.
…By contrast, the regulator of PayPal’s crypto-based dollars, the NYDFS, specifies that the reserves backing any crypto-based dollar “shall be held at these depository institutions and custodians for the benefit of the holders of the stablecoin, with appropriate titling of accounts.” To translate, the assets underlying your $1000 in PayPal USD cryptodollars are not PayPal’s assets. Nor are they Paxos’s. They are yours. No need to squabble with competing vultures for what’s left.
…The last big difference between the two types of PayPal dollars is that the crypto version offers far more transparency to customers. If you want to get current information about the assets underlying your crypto PayPal dollars, all you need to do is open up one of PayPal USD’s soon-to-be published attestation reports. Published monthly, these reports must include market values of the assets backing PayPal USD’s, both in total and broken down by asset class. These values must be recorded on two separate days each month, or 24 times per year. Furthermore, these attestation reports must be prepared by an independent auditor.
By contrast, the only way to get vetted financial information about the assets backing traditional PayPal dollars is to read its audited financial statements, which come out just once a year. For the rest of the twelve months, customers are left in the dark.
*Winnie and Nelson: Portrait of a Marriage*
Have you ever visited a bookshop and noticed that a cover caught your attention in just the right way? But then you say “Nah, I don’t want to read a book right now on that topic.” But then you crack open the book and read a short amount and the quality of the work catches your attention all the more? And then you buy the book?
I thought Jonny Steinberg’s Winnie and Nelson: Portrait of a Marriage was one of the very best books of the year, and most of all this is a book about South Africa. Here is one excerpt:
The outstanding feature of boxing in mid-century black South Africa was its wholesome and egalitarian dignity. Wholesome because it could be contrasted to the brash honor of a gangster, and the township gans of those times loomed large in people’s minds, their violence dominating the newspaper headlines every. And egalitarian because the dignity it conferred was available to everyone. Nelson understood this and he delighted in it. “In the ring,” he remarked much later, “rank, age, colour and wealth are irrelevant. When you are circling yoiur opponent, probing his strengths and weaknesses, you are not thinking about his colour or social status.”
I learned just how much it was the earlier white South African plan (highly unrealistic, of course) not to have blacks move into South African cities at all.
Here is a short bit about Nelson Mandela:
In prison, the present wasted away. Only the past and the future remained, both largely foreign to him until now. Once he found them, he worked on them ceaselessly, year upon year, threading who he had been to who he’d become once his endless confinement was over.
An excellent book on many levels, no you cannot judge a book by its cover but judging a book by its cover is underrated nonetheless.
The new warfare?
“Today, a column of tanks or a column of advancing troops can be discovered in three to five minutes and hit in another three minutes. The survivability on the move is no more than 10 minutes,” said Maj. Gen. Vadym Skibitsky, the deputy commander of Ukraine’s HUR military intelligence service. “Surprises have become very difficult to achieve.”
…And, in a potential conflict with a lesser power, America’s overall military edge may also not be as decisive as previously thought. “It’s a question of cost,” said Phillips O’Brien, a professor of strategic studies at the University of St. Andrews in Scotland. “If you can destroy an expensive, heavy system for something that costs much much less, then actually the power differential between the two countries doesn’t matter as much.”
…Western military planners are taking notice. “We have a lot of lessons to learn. One is that quantity is a quality of its own,” said Maj. Gen. Christian Freuding, the head of Ukraine operations at the German Ministry of Defense. “You need numbers, you need force numbers. In the West we have reduced our military, we have reduced our stocks. But quantity matters, mass matters.”
When it comes to tanks, in particular, the lesson of the Ukrainian war is that tank-on-tank battles have become a rarity—which means that the relative sophistication of a tank is no longer as important. Fewer than 5% of tanks destroyed since the war began had been hit by other tanks, according to Ukrainian officials, with the rest succumbing to mines, artillery, antitank missiles and drones.
Edge to the defense? Here is more from the WSJ, interesting throughout. Via Matt Y.
Friday assorted links
Ayn Rand on the Antitrust Laws
Here is Ayn Rand on the antitrust laws:
Under the Antitrust laws, a man becomes a criminal from the moment he goes into business, no matter what he does. For instance, if he charges prices which some bureaucrats judge as too high, he can be prosecuted for monopoly or for a successful “intent to monopolize”; if he charges prices lower than those of his competitors, he can be prosecuted for “unfair competition” or “restraint of trade”; and if he charges the same prices as his competitors, he can be prosecuted for “collusion” or “conspiracy.” There is only one difference in the legal treatment accorded to a criminal or to a businessman: the criminal’s rights are protected much more securely and objectively than the businessman’s.
Exaggeration? Here is the FTC case against Amazon which has switched almost overnight from one theory to the diametrically opposite theory:
“It’s really hard to square the circle of the earlier theory of harm that Lina Khan enunciated with the current complaint,” said John Mayo, an economist who leads Georgetown University’s Center for Business and Public Policy. “The earlier complaint was that prices were going to be too low and therefore anticompetitive. And now the theory is they are too high and they are anticompetitive.”
More generally, the FTC under Khan seems to be a lost opportunity. There are abusive practices such as hidden pricing by hospitals that could be improved but the FTC is throwing it away on pursuing the greatest store the world has ever known. Why? I have liberal friends who quit the FTC because they wanted to work on real cases not political grandstanding.
Women in same-sex couples commute longer than women in different-sex couples
Here are the paper highlights:
Women in same-sex couples commute longer to their workplace and work more hours than women in different-sex couples.
Men in same-sex couples instead exhibit shorter commutes and work fewer hours than men in different-sex couples.
These disparities are larger among married couples with children.
Within-couple gaps in commuting time are also significantly smaller in same-sex couples.
These differences are consistent with gender-conforming social norms inducing women in different-sex couples to accept less-rewarding jobs closer to home.
That is from Sonia Oreffice and Dario Sansone, via Shruti.
Why have economically declining regions turned toward right-wing parties?
That is the first sentence of their abstract, here is the rest:
To explain this puzzling phenomenon, we develop a theory linking internal migration, localized social institutions (e.g., family and friend networks), and voters’ preferences for social insurance. We start with the observation that social ties provide insurance against adverse life events, such as job loss, and highlight two implications. First, those with strong social networks prefer lower spending on social insurance, because they have access to informal insurance that acts as a substitute for public programs. Second, social ties discourage people from moving, even when better economic opportunities are available in other regions. Combining these mechanisms, we argue that the effect of economic shocks on a region’s politics depends on the strength of social ties. Regions with dense social ties have muted migratory responses to negative shocks relative to regions with weaker ties. Further, those who remain in declining regions are more conservative than those who migrate — resulting in an electorate with lower demand for social insurance. Macro-level analysis of American election results, import shocks, and migration data provide empirical support for the theory’s predictions. An original survey corroborates the micro-level mechanisms. The results have important implications for understanding right-wing populist support in economically declining regions in the U.S. and other post-industrial countries.
That is from a new paper by William Marble and Junghyun Lim.
They are solving for the equilibrium
Canada is pushing the United States and other major economies to follow through on pledges to phase out “inefficient” fossil fuel subsidies, which have soared despite the growing threat of climate change.
Such subsidies hit records last year, according to several watchdog groups, including one that estimated that major world economies — members of the G-20 cooperation forum — surpassed $1 trillion in subsidies for the first time in 2022. That’s a fourfold increase over subsidy levels in 2010, the year after G-20 nations agreed to phase out support for fossil fuels.
Thursday assorted links
Tail risk in production networks
This paper describes the response of the economy to large shocks in a nonlinear production network. A sector’s tail centrality, measures how a large negative shock transmits to GDP – i.e. the systemic risk of the sector. Tail centrality is theoretically and empirically very different from local centrality measures such as sales share – in a benchmark case, it is measured as a sector’s average downstream closeness to final production. It also measures how large differences in sector productivity can generate cross-country income differences. The paper also uses the results to analyze the determinants of total tail risk in the economy. Increases in interconnectedness can simultaneously reduce the sensitivity of the economy to small shocks while increasing the sensitivity to large shocks. Tail risk is related to conditional granularity, where some sectors become highly influential following negative shocks.
That is a new piece by Ian Dew-Becker, via Alexander Berger.
Dynamic Graphs in Modern Principles
Achieve is the excellent course management system for our textbook, Modern Principles. With Achieve, teachers can assign videos, homework, exercises and so forth. One advantage of online education is that students can engage with interactive exercises that give them immediate feedback.
Achieve also includes an electronic version of Modern Principles and all the graphs are dynamic so students can interact directly with the textbook. Students, for example, can practice at shifting the curves and also see the data in visually appealing and meaningful ways. Here are two examples.
Contact your rep to get more information.
Procurement and infrastructure costs
From a new NBER working paper:
Infrastructure costs in the United States are high and rising. The procurement process is one potential cost driver. In this paper we conduct a survey of procurement practices across the 50 states. We survey both employees at each state department of transportation (DOT) and the road builders that win contracts to build and maintain roads. With this survey we are able to create a new dataset of procurement rules and practices across the U.S. and understand what actors on the ground think drive costs. We then assemble a new dataset of project-level infrastructure costs. We correlate the survey practices with our new, detailed data on costs. We find that two important inputs in the procurement process appear to particularly drive costs: (1) the capacity of the DOT procuring the project and (2) the lack of competition in the market for government construction contracts.
That is from Zachary Liscow, Will Nober, and Cailin Slattery. And how about these apples?:
States with (perceived) higher quality DOT employees have lower costs. A state with a neutral rating has almost 30% higher costs per mile than one htat rates the DOT employees as “moderately high quality,” all else equal.
Garett Jones, telephone!