Sunday, April 20, 2008

A Carbon Tax...Thing

Okay, I apologize for the absence of any content here. I've been involved with things like writing final exams. Aside from that the news has been pretty boring - US biofuel policy is (among other things) driving up food prices, we still don't know how to fix this credit crunch (can we stop calling it a crisis? It's been ongoing for eight months.), etc.

Anyway, here's a dumb thought about climate policy. It's dumb because while it might sound good to some, it's completely impossible to implement effectively. Not that that particularly matters to a lot of people who make policy decisions, judging by their track record. So, the idea.

Basically, it boils down to taxing differences in intensity between companies in the same industry. Suppose we have a bunch of oil sands plays, one of which produces output less efficiently (in terms of greenhouse impact) than the rest. So we're talking intensity.

The idea would be to tax producers who fail to meet the 'best practice' standards (I've devolved to using bureaucratic jargon) of their peers. So in the prior example, all of the oil companies who lag behind the industry leader get hit with a carbon tax proportional to the lag in intensity.

One could of course utilize the worldwide 'best practice' standard instead of the national standard, but that detracts from the political appeal, I think. Let's make up some numbers here for clarification.

SunCana produces 100 units of output, emitting 6000 tons of GHG-equivalent. Remember, there are other gases besides CO2 which have different impacts, and causing a shift from CO2 to, say, NO2 emission is not a worthy goal. So their intensity is 60tons/unit.

EnCor produces 150 units of output, emitting 8000 tons of GHG-equivalent. Their intensity is thus 40 tons/unit. So SunCana has a 50% worse emissions intensity than EnCor. Apply an appropriate scaling factor (possibly nonlinear, possibly a function of many things) to convert this percentage to tax per ton. Suppose we choose 40, implying SunCana gets hit with a $20/ton (20=.5*40) tax on its output.

Okay, that's a disgustingly large tax if you think about it simply - $1200 per unit of SunCana output - but I think the point is clear. Alternatively, think of 'a unit of output' as 'a thousand barrels of oil', which implies $1.2/barrel. You can choose whatever nonlinearities or adjustments you want to try and minimize competitive disadvantage or whatever.

It's still impossible to implement. What firms count as in the same industry? Does the government have full information about their emissions? Is it costless to design such a very complicated system? There's no particular message here, I simply enjoyed thinking about this.

Thursday, April 10, 2008

International Hijinks

So, some coincidences to comment on.

The sale of a satellite technology firm to a US company was blocked by government under the Investment Canada Act, the first time the law has been so invoked - and the law is 23 years old. I won't pretend to understand the business of getting one's hands on high-quality satellite shots, but I imagine there's a market of some kind for this thing.

My gut says there's no reason to block the sale, but what may be a factor is option demand - if we ever really need a lot of satellite services, so might a lot of other countries, and the services will probably not be rationed in a marketplace, but rather under the law of the jurisdiction where the owner/operator is located. The government could understandably see blocking the transaction a cheaper and safer way of ensuring emergency supplies than the alternatives.

In the long-term, of course, you can't legislate the existence of these types of companies, you have to provide a reason for them to set up shop in your own turf.

In similar news, New Zealand blocked the partial buyout of the Auckland airport. This makes somewhat less sense to me. Presumably, regardless of much Canada might want the airport, the CPP (the national pension plan, the buying agent) wouldn't be able to relocate it from Auckland to Ontario. Perhaps my Kiwi readers would care to comment on this?

Third, the American SEC chose Australia instead of Canada with whom to establish if not free trade in securities, at least demilitarized trade. The loss of this benefit is strictly of our own making - since every province and territory has an independent set of securities regulations, integration with the US would have been a hellish logistical problem. Coordinating with the national Australian standards will be much easier.

Of course, Rodrik would have you believe that international flows of capital are a bad thing, so we should celebrate our loss. I don't buy it.

Wednesday, April 9, 2008

Bad Editorials, II

I had a post along these lines awhile ago, but I can't track it down. Anyway, this made today's Globe. I'd like to have a word with their copy editors.
Then, on April 1, in a wave of defiance, truck drivers began taking the strongest form of action they can take – inaction. Faced with $4/gallon diesel fuel, they slowed down, shut down and started honking.
They want the government to release its fuel reserves. They want an investigation into oil company profits and government subsidies of the oil companies.
But at least we have one shining example of defiance of the face of economic assault. There comes a point, sooner or later, when you stop scrambling around on all fours finally stand up.

To review: the fiction of price-gouging oil companies is exactly that. Subsidizing the oil companies is of course wholly undesirable. And the fuel reserves are a drop in the ocean.

Let's not delude ourselves that we can block up an expressway or two and magically drop the price of oil because driving coast-to-coast is a 'way of life'.

EDIT: Oh, and there was also an article promoting how great supply-side tax cuts are. Sigh.

Sunday, April 6, 2008

How to Get a Grip on 165000%?

No, I have not died of blogging.

With it looking increasingly likely that Mugabe et al won't be back in their offices, the difficult but rewarding task of trying to fix Zimbabwe will fall on someone's shoulders. One of their first priorities will be to fix the hyperinflation that's officially measured at about 165000% - unofficially, higher still.

A daunting prospect. Right now, money is halving in value each month. Unfortunately, this is a problem that's perhaps impossible to solve in the short term through simple application of monetary policy. What needs to be done is to control expectations.

That's typically referred to as 'shock therapy', the idea of jolting the economy sufficiently to do a hard reset, if you will - wipe away the past, and start a clean economic slate. The phrase comes from the successful (at least inflation-wise) Sachs-promulgated reforms in Bolivia in the mid 1980s, but I think I recall reading that he wasn't a big fan of the term. I'm looking forward to seeing how this case of hyperinflation can be stamped out - one more severe than what Sachs had to deal with.

In the relevant AER article, there's a neat little passage:
By August 1985, the US dollar and not the Bolivian peso was satisfying two of the three classic roles of money: the unit of account and the store of value (thought it was not the medium of exchange for most transactions). Prices were set either explicitly or implicitly in dollars, with transactions continuing to take place in peso notes, at prices determined by the dollar price converted at the spot exchange rate. Therefore, by stabilizing the exchange rate, domestic inflation could be made to revert immediately to the US dollar inflation rate!

Since it's a matter of fact that some combination of the US dollar and the South African rand meet these conditions once again, this hypothesis, which I think has a good deal of validity, will be tested rather rigorously. Will we see 25% inflation inside a year? Entirely possible. Inflation is one of the things macroeconomics does well.

POSTSCRIPT: Locals, take in this years John Kenneth Galbraith lecture, given by the Prime Minister of Iceland.

Friday, April 4, 2008

Labour Force Survey

I would be negligent in my proclaimed alternative title of being the Statistics Canada Review if I did not mention today's job numbers.

An positive increase, though one below trend, was observed, and thus entrants to the labour market pushed unemployment back to 6%. Gains were concentrated in the private sector, with losses coming among the self-employed. That's an interesting dynamic, and one I am at a loss to explain. Stochastic, maybe.

Closer to home, the unemployment rate fell 0.5% month-over-month - but the labour force shrunk by 1%, implying a substantial drop in employment. However, I've pretty much given up on labour force statistics to provide much insight into provincial affairs - Newfoundland is not the kind of economy that they're designed for.

POSTSCRIPT: Last day of classes as an undergrad. Rejoice. Going to Rochester in August, that decision is made with probability 1 - epsilon.

POST-POSTSCRIPT: The assortment of blogs I follow has been...lacking, recently. Suggestions appreciated on ones I can add to my aggregator.

Tuesday, April 1, 2008

Double Blind

Full disclosure: I have never been asked to provide referee services!

As I understand it, when one submits a paper for journal publication, the editor gets someone affiliated with the journal (the referee) who ideally has some expertise in the area to read it and determine whether it is of sufficient quality to publish.

I have no idea why the name and academic institution of the author is attached to the paper. Okay, sure, the internet would probably allow one to track down the author with a minimal amount of work in many cases, but I have to wonder if what got published would change at all (significantly?) were reviewers denied access to the reputation of the author.

I'd love to see an couple of controlled experiments here, but they might be difficult to arrange, and one could potentially end up with a lot of angry economists.

POSTSCRIPT: Payroll numbers. They're decent, but I suspect that some of the average wage gains are coming as lower-paid members of the profession are being kicked to the curb. Check out the utilities industry, for example.

Oh, and January's GDP numbers, which I mentioned yesterday.