Wednesday, December 28, 2016

Post-Election Predictions

Trigger warning: some of the below predicts that "Trump will be bad differently than you expect" or "Trump will be bad in some ways that we prefer not to acknowledge Obama was bad."

A little late to market here, but I wanted to get some predictions of what the Trump presidency might bring before the end of the year.
  1. The market for individual health insurance will sputter over the next two years.  [Of course, that was true to some degree no matter who won the election.  Insurance companies largely have not been able to turn a profit on the Obamacare exchanges, and the expiration of the reinsurance and risk corridor programs was always going to lead to a larger price hike in 2017.]
  2. Trump will deport fewer people in his first term than President Obama did in his first.
  3. Fewer Americans will be targeted and assassinated by drone strike under Trump's first term than under Obama's.
  4. The media will continue to focus on Trump's personality and antics, but there will be even more focus on the personality and antics of Trump advisers. 
  5. There will be a recession in the next four years.  [If we avoid a recession in the next four years, then the 2009 - 2020 expansion would be the longest expansion of the post-war era.  My current guess is a strong dollar triggers financial distress among foreign issuers of dollar-denominated corporate debt, but who knows for sure?]
  6. The Fed will lose some independence.  [Consider this: the FOMC has already raised the target rate as many times since Trump was elected as it did for the entire eight-year period of November 2008 to November 2016.  Obviously that's a spurious correlation, but you try coming up with an equally simple statement rebutting the notion the Fed may be playing favorites.  I'm pessimistic here because the easy evidence will lend itself to Trump supporters' biases.]
  7. No one will say that the Fed has lost some independence.  [Instead, the Fed will sacrifice a little this time around to this president to sidestep outright politicization.  We'll widen our confidence intervals for rate changes with a bias towards undershooting.  Rates will go up, but they will come in on the low end of the newly widened expected ranges.   Herculean efforts will be made to justify the undershooting as really quite intellectually sound, and not at all affected by Trumpian bluster.  A few people will note we've seen this movie before.]

Sunday, December 11, 2016

Climate Skepticism


Mexico City is far from Mumbai: 15,644 km separate the two.

Alternatively put: Mexico City lies 15,595 km to west and 50 km to the north of Mumbai. Mexico City is far from Mumbai.

Both statements show Mumbai is, in fact, far from Mexico City.  However, the west/north breakdown seems a bit unnecessary, no?

Now consider this from David Romer, the Herman Royer Professor of Political Economy at UC Berkeley:
Nordhaus (2008) concludes that a reasonable estimate is that the overall welfare effect as of 2100 is likely to be slightly negative--the equivalent of a reduction in GDP of 2 to 3 percent.  This corresponds to a reduction in average annual growth of only about 0.003 percentage points.  Not surprisingly, Nordhaus finds that drastic measures to combat global warming, such as policies that would largely halt further warming by cutting emissions of greenhouse gasses to less than half their 1990 levels, would be much more harmful than simply doing nothing.
Of course, it is possible that this reading of the scientific evidence or this effort to estimate welfare effects is far from the mark.  It is also possible that considering horizons longer than the 50 to 100 years usually examined in such studies would change the conclusions substantially.  But the fact remains that most economists who have studied environmental issues seriously, even ones whose initial positions were sympathetic to environmental concerns, have concluded that the likely impact of environmental problems on growth is at most moderate.
Professor Romer also happens to be the husband and frequent co-author of President Obama's first Chair of the Council of Economic Advisers, Christina Romer.  He is not a person lacking intelligence or good progressive influences.  And yet.

Now consider:
Healthy debate is the lifeblood of American democracy, and global warming has inspired one of the major policy debates of our time. That debate is far from settled. Scientists continue to disagree about the degree and extent of global warming and its connection to the actions of mankind. That debate should be encouraged — in classrooms, public forums, and the halls of Congress.
That is from Scott Pruitt, President-elect Trump's nominee to head the EPA.  Because of this position, he has been called a climate change skeptic and denier by the New York Times, WaPo, and CNN.  Scientific American, to their credit, only opted to quote a Democratic opponent's hypothetical in their headline ("A candidate who doesn't believe in science would be 'a very dangerous person to pick'") and kept a pretty honest assessment a few paragraphs down ("Pruitt focuses on the legality of climate regulations, rather than questioning climate science").

Personally, I am generally for policies to combat global warming, though this stems more from risk averse instincts rather than informed opinion.  I especially like these policies when they are coupled with broader green goals of cutting unhealthy pollutants and preserving natural habitats.  However, climate science and economic forecasting are both hard.  I find it entirely reasonable (i.e., consistent with an honest interpretation of the partial information available) to think that there is uncertainty regarding the magnitude of effects when changing inputs (like CO2 emissions) in a chaotic system (like global climate).  I also find it entirely reasonable to dispute how much, if any, economic resources should be sunk into cutting emissions.  Who am I to dismiss outright someone much more informed like David Romer?

I'm not sympathetic to skepticism to the Pruitt's bit that the anthropogenic roots of climate change are still in doubt.  I don't much care that there may be the rogue scientist or three arguing something other than industrialization's role is in doubt.  However, this to me is like pointing out Mexico City sits on a latitude fifty miles north of Mumbai.  It's a trivial point in the assessment that Mexico City is very far from Mumbai.  Similarly, there is debate left to be had on the absolute magnitude and economic consequences of climate change.  Dismissing anyone who says otherwise outright as a denialist is not likely to get us far.