Thursday, November 13, 2014

Reaching My Limit With Peak Oil Theory Predictions

Back in elementary school, I was taught that oil was a nonrenewable resource, and because of that, we should use our resources wisely. Nothing wrong about that unto itself. It's when you learn more nuanced arguments about the issue later down the road, such as peak oil theory. Just to clarify, this is not a question of "when will we run out of oil?" M. King Hubbert's theory, which dates back to 1956, states that oil will hit a certain flow rate maximum, after which, its production will lull into a decline (see below).

Looking at US oil production, it did hit a peak at 1970, after which, it went on the decline. Then a funny thing happened. In 2009, the number of barrels produced per annum started going up again, and we have seen an upward trend ever since. What caused the detour from the bell curve?

In a word: technology. Peak oil theory can be likened to drinking beer. For proponents of the theory, "the glass starts full and ends empty, and the faster you drink it, the quicker it's gone." Innovations in extraction technology have given us such an advantage that we have been able to increase our production over the past few years, which means the metaphorical glass of beer can be refilled. Even better, in its 2014 International Energy Outlook, the U.S. Energy Information Administration finds that petroleum production will be increasing for the foreseeable future (Table A4), and the International Energy Agency finds that oil production will start plateauing in 2040.

For argument's sake, let's say that the simplistic theory is true, even though the International Energy Agency is not on board with the theory. What then? Should we care? After all, oil prices are going to increase, and that is because there is only so much oil, which means that the world supply will eventually shrink. Taxes, environmental policies, geopolitical strife, corruption, and mismanagement of resources can all affect oil supply, which is all the more reason we need to diversify our energy portfolio so we can minimize risk if and when this situation arises. Diversification is simply a good investment strategy. Even so, it doesn't bother me because one of four things will happen: we'll try harder in finding additional reserves, we'll learn to live with less, we'll develop technologies that will entail less oil consumption [per capita], or we'll find energy substitutes for oil, the latter of which would help in making alternative energy more affordable. There's no reason to freak out, even in the short-to-medium-term. Yes, we want to use our resources wisely, but we shouldn't swap alarmism for what technology and innovation can mitigate or even eliminate.

Monday, November 10, 2014

Obmacare's Mandate of Pre-Existing Condition Coverage Doesn't Fix Health Care

Prior to the enactment of the majority of Obamacare provisions on January 1, 2014, there were certain insurance policies that would not cover expenses due to pre-existing conditions. For the purpose of this discussion, a pre-existing condition is a health condition that existed prior to the writing and signing of a contract. Whether the pre-existing condition was covered after a period of time or never, proponents of Obamacare used this "common-sense policy" to as part of the plan to gain sympathy and pass the bill. At first glance, it might seem heartless and cruel to use the pre-existing condition rule to prevent millions of innocent people access to health care. In this scenario, it would at best end up being prohibitively expensive to buy insurance if you are branded with a pre-existing insurance. But is that what's going on here? Why would such a rule exist in the first place? And does this prohibition help the health care system or make it worse?

If I had to summarize the reason for excluding based on pre-existing condition in the first place, I would summarize it in two words: adverse selection. For an insurance agents to most accurately figure out what your monthly premium should be, they need to assess for factors such as age, gender, tobacco usage, geographic location, family history, marital status, profession, and as much as it kills some people, one's current health, without which, why not just set up arbitrary pricing that makes no sense when developing a risk pool? Without allowing underwriters to do their job, all you do is shift the costs to the young and/or healthy, which unsurprisingly has caused health care premiums to greatly increase since Obamacare has been enacted into law. It's equally unsurprising that there is a youth enrollment problem with Obamacare because if Obamacare guarantees coverage of pre-existing conditions, why should healthy people purchase insurance prior to becoming sick, G-d forbid? You know that Obamacare is a raw deal for young and/or healthy people when you have to coerce them to take it with the individual mandate.

American Enterprise Institute scholar Mark Perry puts it quite succinctly as to why not allowing for pre-existing conditions makes no sense. "You call State Farm the day after your car has been in a major accident, and inquire about getting a quote for car insurance, hoping that your extensive 'pre-existing body work' will be covered?" Although Perry uses three other types of insurance as examples, the point remains: If pre-existing conditions aren't covered by other forms insurance, why should health care? Factoring pre-existing conditions into account while determining insurance premiums isn't discriminating against the sick. It's simply the way risk assessment works for insurance.  

Those who pushed for Obamacare wanted to use scary numbers to make you think that so many people would have been denied health care coverage. Former Health and Human Services Secretary (HHS) Kathleen Sebelius went as far as reporting that 129 million would be deprived of health care if we didn't do something about pre-existing conditions. Although that claim can be construed as "technically true" when looking at the raw data (although if you look at the Government Accountability Office report, the number of those considered with pre-existing conditions range from 36 million to 122 million), using that claim is as emotionally charged as it is egregious because it didn't take into account other factors, such as the number of individuals that were actually getting denied coverage because of pre-existing conditions. This is more true when considering that government safety nets such as Medicare, Medicaid, and even employer-based health insurance exist. These data count diseases like asthma, hypertension, back issues, diabetes--all health issues that can theoretically, but practically speaking would not really have been put into play. The vast majority of Americans are covered either by government insurance or employer-based health insurance, the latter of which is covered by regulations for its conditionality to allow for the so-called tax break.

Plus, if this were the case, why hadn't millions upon millions been denied coverage prior to Obamacare based on their "pre-existing condition?" You'd think we would have noticed all these people without health insurance by now, but alas, that's not the case. One in eight individuals applying for health insurance could have potentially been denied health insurance based on pre-existing conditions. Considering that only about 27 million directly purchased health insurance when this was a hullabaloo in 2009 (Census, Table C-1), we're talking 3.4 million people. 3.4 million people is a far cry from 129 million, don't you think? Plus, if pre-existing conditions coverage were that big of an issue, why was it that the peak coverage for Obamacare's Pre-Existing Condition Insurance Plan was only 115,000 individuals prior to the prohibition of such exclusions? I guess the demand for such insurance was not nearly as large as the scare-mongerers wanted us to believe.

Not only was there no real concern for this to affect millions of Americans, but it doesn't get at the heart of the problem, which is twofold: 1) Why is health insurance for the vast majority of Americans tied to one's job? 2) Why bother assessing risk when the federal government has made a de facto promise to cover any losses in the short-term?

Even if leaving 3.4 million individuals "in the dark" is unacceptable, it still does not address the major issues caused by employer-sponsored health insurance, one of which is notably that the importability of health care. The problem with employer-sponsored health insurance is that being covered is very much contingent upon you staying at your current job. If you lose your job or decide to quit, then you have to find another way to be insured, which not only creates headache of having to find and acquire new health insurance, but also triggers the pre-existing condition status. If I currently had a health insurance program I liked and were able to take that insurance with me once I left my current employer, any change in my health status wouldn't translate into anything pre-existing because I would already be covered.

Repealing the tax breaks given employer-sponsored health insurance would be the most sound policy reform to limit pre-existing conditions. The issue is that we would have to contend with the complex system of subsidies and regulations that have created this pain. Until we can untangle this mess, we need to come up with some shorter-term solutions in the interim. One is to have state-funded, high-risk insurance pools. Another is to have "continuous coverage" protection coverage for those in transition between insurance brokers, which at least comes with portability that is required in a functioning marketplace. If you're going to allow for protections in employer-based health insurance, you can allow for those same protections for individual health care until the government can do something to actually reform the system. Or how about the Cato Institute's suggestion of health-status insurance?

Mandating coverage of pre-existing conditions is pretty much like any other price control: a lack of a feedback loop between producers and consumers is a disaster. Until people in people in power realize that a freer health care market, and not more government regulation, is the solution, we're just going to continue to have the same, intertwined, convoluted problems with health care prices skyrocketing in comparison to other developing countries, which I can tell you hardly makes America's health care the envy of the world.

Friday, November 7, 2014

Should the Department of Housing & Urban Development Fight Homelessness?

Having a roof over your head is so basic of a need that it is at the bottom of Maslow's hierarchy of needs as a physiological need. Shelter is a vital part of human survival, having such stability makes us more productive members of society, and not having it makes life all the more arduous, which is why one could argue that a society shouldn't have any homelessness. Forgetting for a moment that the Nirvana fallacy is being applied here, just how prevalent is homelessness in America? According to the U.S. Department of Housing and Urban Development (HUD) and its latest report on homelessness, the number is at 578,424 individuals experiencing homelessness on a single night, which is a 11 percent decline from 2007 (HUD, p. 7). Part of the decline is attributable to the increase in permanent housing and decrease in temporary housing [see below]. And fortunately, we see a similar decline in those who are chronically homeless (HUD, Section 6), i.e., those who have been homeless for more than a year or have had at least four episodes of homelessness in the past three years. It's no surprise that HUD wants to take credit for the homelessness decline, especially with their budget cuts so they can better justify their budgetary spending. While reading this report, it made me think: "Is HUD doing a good job? Is it the federal government's place to fight homelessness, or should we think of other ways of approaching the issue?"

Before going into who should handle homelessness, I think we should try to delve into some of the common causes of homelessness because making the facile observation of "they don't have a home, and that's why they're homeless" does nothing to address the root causes. Some of the causes are personal crises, causes that are disproportionately an issue for the homeless in comparison to the general population. About a quarter of the homeless have a severe mental illness, which is well above the national average. For this segment of the population, we would need to have a discussion about providing mental health services so they can be treated. Correlated with mental illness is the idea of substance abuse, which is disproportionately high among the homeless. Veterans also make up 11 percent of homelessness, which suggests PSTD as a possible cause of homelessness. If the United States government is going to engage in unnecessary wars, the least it can do is make sure that soldiers can integrate back into civilian society before being released from active duty. It would certainly be cheaper than starting another war. Another cause has to do with throw-away teens, which are children who are kicked out or run away due to family issues. A particularly sad case of throw-away teens is with LGBT youth. When LGBT children come out to their families, not all families react kindly. There are parents who will kick out their own children, which is why 40 percent of homeless youth are LGBT (Cunningham et al., 2013), which means up to 13 percent of homeless individuals nationwide are LGBT youth. Although LGBT rights and acceptance of LGBT individuals has been vastly improving in recent years, there still needs to be work done if they're this disproportionate of the homeless population. Then there's the issue of domestic violence (see my previous analysis on government policy and domestic violence). According to the National Coalition for the Homeless, 63 percent of homeless women have experienced domestic violence.

Some of the aforementioned issues have some overlap, and the policy remedies for these more personal issues have nothing to do with housing affordability or access, which brings me to my next point: there are also some causes of homelessness that are economic in nature. Even in spite of the fact that homelessness has been on the decline since 2007, many took a great hit during the Great Recession when the housing bubble burst, especially when looking at the number of foreclosures. During the Great Recession, the unemployment rate and the quality of jobs took a hit. If we want to point to unemployment as a cause of homelessness, then we need to focus on job creation and creating an environment that encourages entrepreneurship.

Although the Great Recession is complicated and its causes are nuanced, the housing market issues were due in no small part to the federal government keeping interest rates on housing artificially low in attempts to make housing more affordable. The fact that most of subprime mortgages were either on government balance sheets or those of Fannie and Freddie, who were implicitly backed by the Department of Treasury, signals that we sure don't need the government to cause another housing fiasco. Back in 1992, Congress enacted Title XIII of the Housing and Community Development Act, which required lenders to lend out a certain percentage of loans to low-to-middle income individuals, and many of those loans ended up being subprime because the government loosened up the lending standards in the name of "housing affordability." If the government was so instrumental in causing the housing bubble, why trust the government in providing better housing access? None of the other countries' governments have this much interventionist involvement in the housing market. We don't need the government regulating the housing market. If anything, America could use some housing market de-regulation (Wallison, 2012).

If you want further proof that the government shouldn't be regulating the housing market, take a look at some of HUD's operations. A 2013 Government Accountability Office (GAO) report showed that issues with reporting compliance on grant funds limits, not to mention this 2010 GAO report showing how HUD doesn't do a good job complying with the federal government's fair housing law. If you think that's great, consider the Federal Housing Administration (FHA), which is a division of HUD. The GAO points out that the FHA insured $1.14B of home loans for 6,327 borrowers with a total of $77.6M in federal tax debt. This is the sort of oversight that makes me continue to wonder how the government has the clairvoyance or even capability to assess risk when HUD can't even identify borrowers who are a liability.

None of the other countries' governments have this much interventionist involvement in the housing market. We don't need the government regulating the housing market. As senior Cato Institute fellow Doug Bandow points out, there are so many lines of defense that don't even necessitate subsidizing housing. As individuals, we have the free will to act responsibly enough to "relearn how to resist substance abuse, curb wasteful expenditures and save money." If we can't handle it on our own, then we should suck it up and ask family, friends, and community to help. In the off chance that one's social network doesn't work, there are private organizations that can help. The private sector has been coming up with some innovative solutions, such as Housing First, or through the Bill and Melinda Gates Foundation and Conrad Hilton Foundation's funding of the National Alliance to End Homelessness. Even if none of these private-sector remedies do the trick, then government help should be targeted to those who truly need help, and that help should be as localized as possible. Whether looking at rent control, zoning lawsHUD's housing subsidies, or how the government mismanaged the housing industry that resulted in the Great Recession, we don't need a government-backed housing finance system (Wallison, 2012) or have the government help with housing because honestly, hasn't the federal government done enough already?

Wednesday, November 5, 2014

Parsha Vayera: Why Is Visiting the Sick Even a Mitzvah?

How many of us can honestly say that we enjoy visiting someone in a hospital? Unless someone you know just delivered a baby, I can't imagine that the number would be that high. If you're visiting someone in the hospital, it means that they are hurt and/or sick. They're not doing great, and you don't want to see someone you know in pain and suffering. And who knows what sort of germs are bacteria there are in a hospital? Visiting sick people is the antithesis of a good time. In spite of the time-consuming, emotionally taxing discomfort of visiting sick people, Jewish law still treats visiting the sick as a mitzvah. Why?

We cannot give the response of "because the Torah says so." Nowhere in the Torah does it give a commandment, explicit or otherwise, to visit the sick. Even so, Jewish tradition cites this week's Torah portion as the basis for this mitzvah:

וירא אליו הי, באלני ממרא.  והוא ישב פתח האהל כחם היום
And G-d appeared unto humbly the terebinths of Mamre, as he sat in the tent door in the heat that day. -Genesis 18:1

If you don't see how this verse connects to visiting the sick, you're not alone. By itself, it doesn't make sense, but if you look at Genesis 17, it starts to come together. Right before this verse, Abraham underwent the covenantal process of circumcision to show his faith in G-d. If undergoing such a surgical procedure at age 99 isn't showing faith in G-d, I can think of very few things that would top that. Setting that aside for a moment, the Talmud (Bava Metzia 86b) teaches that G-d visits Abraham three days later, which is what is taking place in Genesis 18:1. We have explained the "what" of the biblical verse, but have yet to touch upon the reason why.

The Talmudic sages (Sotah 14a) understood it through the lens of the biblical verse of "You shall follow after the L-rd your G-d (Deuteronomy 13:5)." The rabbis went into further questioning because how can one follow G-d if G-d metaphorically is "a consuming fire" (Deuteronomy 4:24)? The Talmudic passage in Sotah 14a concluded by saying that we are meant to emulate G-d in His ways, and then cited Genesis 18:1 by saying that because G-d appeared to Abraham, who was ill after the surgery, so should we emulate G-d and visit the sick.

The term for "visiting the sick" in Hebrew is ביקור חולים. What is interesting is the root בקר has multiple meanings, and has implications of how the Jewish law on (see here, here, herehere, and here for more details on this mitzvah). Yes, it is true that the root בקר means "visit," but it also means "criticize" or "examine" (see Leviticus 27:33). This would explain why examining what the sick person needs and providing for said needs is the first of the three primary halachic requirements of a ביקור חולים visit.  The root בקר is also found in the word בוקר, which means "morning." We are meant to provide the ailing individual with a more sunny disposition so they can have a brighter tomorrow, which is why cheering up the individual is the second prerequisite. The Talmud also says that a ביקור חולים visit relieves a sixtieth of one's suffering (Nedarim 39b; Leviticus Rabba 34). The final prerequisite of a ביקור חולים visit under Jewish law is to pray for the individual (Talmud, Berachot 12b).

We are not meant just to physically be present in the room of the sick individual because ביקור חולים is more than a superficial "get well" visit. We are supposed to help them out in whatever way we can, which could help explain why in Mishne Torah (Laws of Mourning, 14:1), Maimonides viewed ביקור חולים as an extension of the commandment of "love your neighbor as yourself." A Jewish existence goes well beyond "what's in it for me?" It's about being able to console others when they are down on their luckביקור חולים is about emulating G-d and helping those who are truly in need, regardless of whether they are Jewish or not (Talmud, Gittin 61a; Shulchan Aruch, Yoreh De'ah, 335:1). With specific regards to ביקור חולים, it is important enough of a mitzvah where the Talmud (Nedarim 40a) both illustrates the positive difference a ביקור חולים visit makes, and subsequently compares a lack of ביקור חולים to spilling blood. Visiting the sick is one of the few mitzvahs that rewards you both in this world and the next (Talmud, Shabbat 127a).

By G-d showing an example of loving-kindness (חסד; chesed), Abraham in turn emulated G-d by showing three wayfarers hospitality, even in his less-than-ideal condition. This act of חסד illustrates why Abraham is the archetype of loving-kindness in Judaism. This sort of compassion is so essential to the Jewish psyche that not acting with חסד was so important that the Talmud (Beitzah 32b) stated that someone who is not compassionate is not a descendant of Abraham. Let's take this as an opportunity to emulate Abraham's loving-kindness by emulating G-d's loving-kindness, and may it be a blessing for us all.

Tuesday, November 4, 2014

Wisconsin's Act 10: A Model for State Budget Reform?

I was up in Wisconsin this past weekend visiting my old stomping grounds. While it was nice to see friends from "the good old days," I nevertheless got an earful from a few people about Act 10, also known as the the 2011 Wisconsin Budget Repair Bill (original text here). Why is it that over three years after passing the bill, people are still up in arms about it? Because those impacted by the legislation were public-sector employees. Not only did Act 10 go after the collective bargaining power (i.e., the collective bargaining under Act 10 was limited to wages), but it lowered wages and asked public-sector employees to contribute more to their pensions and health insurance. I remember when I was living in Wisconsin in 2011, and I can tell you that the politics on this one were downright nasty, especially with the recall election. Although I wasn't thrilled with the special interest politics behind the collective bargaining exemption for police officers and firefighters, I believed and still believe that public-sector unions need to change the way they "do business" because the fiscal insolvency of higher-than-fair market value wages and benefits will bankrupt state budgets down the road. Even with the Wisconsin Supreme Court's 5-2 ruling that Act 10 was indeed constitutional and that collective bargaining is not a right, one still has to ask: What sort of effect did Act 10 have on public-sector employees? Did Act 10 actually save the Wisconsin state government money, or was it merely a smokescreen to merely undermine Wisconsin public-sector unions while "sticking it to the working man?"

When delving into answering these questions, we have to realize that some costs and benefits are more visible than others. Even with diminishing the collective bargaining of public-sector unions, there are still ways to protect public-sector employees and (Malin, 2012). There are other costs, such as a decline in public-sector union membership and the public-sector employees receiving a reduction of 7 percent in their total pay package. That sort of economic effect is to be expected when dealing with such a budget cut. However, let's see what public-sector employees were making in comparison to their private-sector counterparts, which is exactly what the American Enterprise Institute did (Biggs and Richwine, 2012). What those over at AEI found was that pre-Act 10, the state of Wisconsin was offering a total pay package that was 29 percent higher than a private-sector equivalent (Biggs and Richwine, p. 21). Even after Act 10, AEI found that public-sector workers would still receive health benefits that are twice as valuable and pension benefits that are 4.5 times more valuable than those of the private sector, or for the typical public-sector worker, the public-sector premium is still $14,569 (p. 3). 

Take a look at the fiscal effect that Act 10 had on Milwaukee, Wisconsin's largest city, as a significant example. The non-partisan Public Policy Forum, which is notorious about its impartiality (Trust me on the impartiality part. I actually interviewed with them once, and they were gung-ho about it), even found in their Budget Brief for the Milwaukee Public School (MPS) System that Act 10 helped contribute to the $400M in budgetary savings through 2017 (p. 12-13). Although MPS is not out of the woods yet with its budgetary woes, MPS is starting to see some light at the end of the tunnel. You can also see this Public Policy Forum report from late 2012 that comes to the same conclusion about Act 10 with regards Milwaukee's budgetary woes. The Thomas Fordham Institute also confirms that Act 10 is helping with keeping retirement MPS' costs low (p. 11), and will save MPS $101.1M by 2020.

I can list other cities that have benefited, such as WausauNeenahNew BerlinMarshfield, but let's look at the state of Wisconsin as a whole. It turns out that the unions' concerns of economic loss were unfounded, and as the current research has shown (e.g., the Education Action Group, the Illinois Policy Institute, and the Beacon Hill Institute), Act 10 has saved Wisconsin tens of millions of dollars. Even Politifact ruled that it Act 10 saved the taxpayers $3B. Politifact's ruling did come with a caveat, mainly that Act 10 is not a strict cost-saver, but simply cost-shifting from taxpayers to public-sector employees. I disagree with that caveat because if the benefits were lavish from the get-go, it's not so much cost-shifting as it is operational efficiency and wiser spending via budget cuts.

I couldn't find any studies published to date that say that Act 10 was actually better for Wisconsin's economy, and that's because there really was no economic justification for keeping those pay packages as munificent and above fair market value like the state of Wisconsin did. We have to remember that deficits were piling up when Jim Doyle was governor of Wisconsin, and as a result, Governor Walker had to make difficult, but necessary decisions to close the budget deficit. Not only was Wisconsin able to create a budget surplus with Act 10, but it was now possible for Wisconsin to stabilize public-sector employment (Kersey, 2014, p. 7), as well as lower income taxes and property taxes. By removing much of the collective bargaining laws, the flexibility offered by school districts made it possible to hire more teachers and utilize merit-based teacher pay. If Walker had not passed Act 10, Wisconsin would have most probably made cuts either in hours, benefits, and/or jobs of public-sector employees. Act 10 has managed to control both state and municipal spending, which is the type of reform that other states should emulate before their public-sector employee benefits cause their debt to balloon to the point of no return.

Monday, November 3, 2014

Should America Demonize China's Currency Manipulation or Appreciate It?

I'm not saying China is perfect by any means. Like any other nation, it comes with its imperfections. Some nation-states come with more than others, and given China's history since Mao Zedong ascended power in 1949, China has more than its fair share of mistakes. China deserves to be called a human rights abuser because its record shows a disdain for civil liberties. Even its economic freedom record is less than stellar. But is calling China a currency manipulator a label it deserves? According to those over at the Economic Policy Institute (EPI), China has earned it. The EPI is actually baffled as to why the Department of Treasury has once again evaded calling China a currency manipulator. I'm more than a little skeptical of EPI's claim because EPI is unabashedly pro-union, and calling China a currency manipulator would add fuel to the faulty grievance of "how dare they outsource our jobs." Trying to leave politics out of this, is China a currency manipulator?

If we define currency manipulation in a broad sense by viewing the word "manipulate" in a neutral sense, then all central banks are guilty of manipulating currency because that is what monetary policy entails. You honestly think that something like quantitative easing isn't a form of manipulating currency? Let's go with the more economic definition of currency manipulation, which is a fiscal or monetary authority purchasing large amounts of foreign currency to positively affect the value of its domestic currency. With currency manipulation, a country uses its monetary policy to make its exports comparatively cheaper, which in this case, fuels China's export-growth model.

It's hard to take the "currency manipulator" claim seriously because it's not as if China is the only one doing it. Not only are there other nations doing it, but there are worse offenders than China (Gagnon, 2012). If we're going to be intellectually honest in our vehemence against currency manipulation, we should target all countries, not just China. Even if China isn't the only one, let's buy into the counterargument that it should still be stopped, and given that China's economy is growing immensely, we should particularly target China. Is China's currency manipulation so egregious that the United States government should take action?

Even if China is a currency manipulator, it cannot keep it up forever, and all the while, it's doing itself a disservice, in part because a devalued yuan is actually subsidizing the American importer, not the Chinese exporter. Plus, we get a greater value from Chinese imports than our exports we send to them (International Trade Commission, p. xv, Table ES.4). As the Richmond Federal Reserve Bank points out, there will be a point that neither having a managed floating exchange rate referenced to a currency basket, relying on the export-growth model, nor buying up mass amounts of foreign currency reserves will work in perpetuity. China's interventionist plans will eventually run out of steam, and when they do, their currency will have to strengthen. As a matter of fact, we already have seen that happen. If China were truly manipulating its currency, we would see the yuan either remain at the same exchange rate or weaken. What we have seen in the past few years is that the yuan has actually strengthened as the trade deficit has widened.

Even if you're one to argue that Chinese currency manipulation was an issue back in the early 2000's, currency manipulation is not a major issue anymore. Chinese monetary policy does not have nearly as big of an impact on American GDP growth or unemployment rate (see chart below for relationship between trade deficit and employment) as American domestic policy does. Even if you "revalued" the yuan, it's not going to "bring back American jobs,"  whatever that might mean. It's easier to blame a foreign entity for problems caused by American tax policy and regulations, including more trade protectionism that exacerbates the issue. Especially if we want to have constructive economic relations with China, we need to blame China less and focus on ways to encourage entrepreneurship and a higher savings rate. That way, China can shoot its foot all it wants while America enjoys its comparative advantage in the global marketplace.

Friday, October 31, 2014

Kicking the World's Coal Dependency Would Be Such a Rocky Journey

Environmentalists are pretty good at vilifying coal. It emits a lot of carbon. It's dangerous to mine. Coal production emits pollutants like methane. It decreases air quality and increases risk of respiratory issues. It's non-renewable. "Clean coal" is an oxymoron. Coal is continuously under fire, yet for some reason, the world can't get enough of it. What is about coal that continues to draw people in?

The Manhattan Institute just published a report entitled Not Beyond Coal: How the Global Thirst for Low-Cost Electricity Continues Driving Coal Demand (Bryce, 2014), which answers that very question. If I had to summarize coal's appeal in one word, it would have to be "scale." There is a demand for coal, and given its availability, it is the world's most commonly used source of energy (see below).

Whether we're talking about American production or global production (IEA, p. 48), coal consumption consumption is not going anywhere for a while.

If coal is projected to have the greatest growth, then environmental experts predict that coal is not going away anytime soon. Even with modest growth in wind and solar power, we don't see a growth sufficient enough to handle the energy demands or keep costs down like coal can. This is all the more important for developing nations, for whom access to a cheap, viable energy source will be vital if they want their economies to grow. According to the study, anywhere from 671 million to 1.1 billion people gained electricity from coal-fired generators (Bryce, p. 9). It should become clear as to why coal has developed a love-hate relationship. It has its environmental impacts, but it's so good at providing energy en masse. If we want cleaner energy like solar or wind power, it not only needs to be cheaper, but be able to produce enough to meet energy demands. Until that day arrives, we should make sure that all citizens of the world have as much access to energy as possible with as few distortions to the energy market as possible. Instead of implementing cap-and-trade or a carbon tax, let's pour some money into research and development to speed up the technological progress of renewable energies. The "War on Coal" is much less constructive than creating more advanced technologies to make coal a cleaner energy (Bryce, p. 10). We have seen how natural gas, a cleaner energy source, can compete in the marketplace and reduce coal's share in the world's energy portfolio. Unless renewable energy can compete in the same way, there is no sense in using government policy to quash coal and deprive individuals of cheap and accessible energy.