Wednesday, December 23, 2009

What to do about jobs in the US here and now

As millions of people suffer from unemployment, it amazes me how reluctant so many "experts" in the US are to think out of the box. People doing "creative" thinking about jobs in the US still mainly assume that $1 of government funds buys x jobs, if it's spending, and y jobs, if it's a tax cut, period. Why don't we have the sense to ask what KINDS of activities generate much higher x and y? In Japan, by contrast,

( people have carefully tabulated the initial economic stimulus (prior to multiplier effects) versus government expenditure by type of activity. The "three pillars of eco-friendly..." activity was well designed to generate three times the stimulus as ordinary government spending or tax breaks for the same deficit effect. The multiplier effects would also be better than they are for "cash for caulkers" and the like, because the stimulus is all focused on sectors (automobile, construction, steel) where spending generates employment rather than inflation or imports, much more than random spending would achieve. If we really cared about jobs here and now, we would put almost all our new jobs effort into our own version of the "three pillars program" -- perhaps paid for by a gasoline tax, whose effect on US jobs would be far less. One pillar should be: $3000 per car "cash for independence" , for buyers of qualified cars to stay in effect until quarterly data show US car sales back above the rate of 13 million per year; a "qualified car" should be defined as qualified for a credit under section 30B of the IRS code as amended by the proposal at

It's important to note that mpg as such is not the best measure of PROGRESS towards the goal of OECD becoming independent of OPEC. In technical terms, a "U" function is not a "J" function; as another example of this principle, the rational market price of oil is not just the marginal cost, because there is a "Hotelling rent" term reflecting the reality that the oil market is not a static system. Like the Japanese, we would also be wise to fund the two other pillars (incentives to encourage purchase of eco-friendly new buildings and appliances).

But -- this is not an endorsement of other aspects of the Japan stimulus package.


Further details: the distinction between U and J is very fundamental in dynamic systems theory, in "ADP" and

in the field of intelligent systems. For some tutorials and citations, see

Perhaps I will someday post the Japanese web site as amended to include some English translation,


Copenhagen -- the morning after

Mice learn from their mistakes -- but do humans? The follow on
from Copenhagen will be an interesting test case, with ramifications far beyond
In the animal kingdom on earth, humans have a unique ability to say to
themselves "the operation was a success but the patient died." I see
a WHOLE lot of that kind of thinking, in various disguises, in the wake
of Copenhagen. Lots of people who are firm in their convictions that THEY at least
did the right thing, whatever the outcome may have been. But someone
once said: "By their fruits you will know them." Our best hope for gaining from this experience would
be if ALL the major players thought twice about what THEY THEMSELVES could have done better.
Can we remove the beam form our own eye? Are any of us really justified in feeling we did the right thing, after this outcome?
I can imagine Senator Inhofe raising his hand, saying he got exactly what he wanted.
(Putting the kabosh on the whole thing.) But he certainly can't take all or even most of the credit
for the outcome. And does he really believe that the WHOLE reality we now face -- with
serious but unpredictable EPA regulation required by court order, wth a hodgepodge of state regulations, and
an ever less predictable international situation -- is the best outcome we could get here?
Again, even for him, is it not a case where the operation was a success but the patient is dying?
According to the Financial Times yesterday, the head of Shell Oil was very upset at the outcome
in Copenhagen, and very very vocal about that. Shell and BP were supporters of the US
Climate Action Partnership program, which is basically a bit too far to the left for my tastes --
but, like them, I agree it is a great tragedy that the world is basically doing nothing coherent to discourage CO2
emissions as such, and that the failures in Copenhagen and in Washington have left all kinds
of confusion in their wake which get in the way of actions on oil dependency (a far more urgent
threat to the world economy) and investments in electric power and other sectors (important to jobs,
among other things).
Not only Shell and BP, but heads of the largest electric utilities have testified over and over again
that we need some resolution and some action on this issue.
But: did they not all shoot themselves in the foot, to cause this situation?
There are two main problems here -- the problem in the US Senate, and the problem in the
international negotiations. Even the most optimistic gameplan of the international Bali team
required that the US Senate pass a cap-and-trade law before an international treaty could be signed;
thus the Senate side requires analysis first.
Shell and BP SAID that they wanted this certainty here, and some action on a problem they
agree is real... (and maintaining EU-US trade and cooperatoin is also of some importance to them)...
so why the API ads every night telling people to "oppose the tax"? Why do people hear only
one voice from the oil industry? That voice, direct to the voters, had a chilling effect on any
more efficient and more rational response to this issue.
Likewise -- why the threat from the the electric distribution companies that they get their hundreds of billions
of dollars sent direct to pay them off, as part of the deal, or else they run the same kind of ads?
If anyone thinks that that kind of gigantic payoff scheme doesn't lose them a few votes from folks
who remember their principles at least a little... what can one say? There are times when I wonder whether
Exelon is really a member of EEI.
Why is industry channeling so much money to certain integrated campaign funds which turn around
and demand total adherence to extreme ideological positions, positions which are a major source of
the big mess here? (Lack of bipartisan evolution of more moderate ideas on climate is not
ONLY the fault of the Democratic leadership here.)
Roughly speaking, I see four clusters of ideas floating around in the Senate.
There is the ideological right, which holds that it's best to just say no in the purest, most extreme terms --
even if that means nothing rational gets passed at all, and we're stuck with the hodgepodges.
There is the position... I can't help saying Defenders of the Integrity of the Caps (DICs).
That's a lot more precise than the term "ideological left," because it is 'way off to portray
the Natural Resources Defense Council (NRDC) as being to the left of Friends of the Earth (FOE).
There is the highly rational moderate Democratic position, exemplified by Senator Cantwell,
who has (says the press) recently introduced an alternative cap and trade bill, about one twentieth the length
of the Kerry-Boxer or the Waxman bills. I haven't checked to see whether she included a narrow
price collar, as FOE has righly recommended. I haven't checked to see whether her way of sending dividend checks back to ordinary households would include the kind of statistical formula that would exactly compensate for
different impacts on energy bills. (That's easy for people who know algorithms, but not everyone does up there.)
I haven't checked to see whether it would order the executive branch to compute border adjustment taxes
as exactly as possible to maintain a level playing field with producers in natoins with none or much lower
fees for CO2 emissions. I would go to http:/ to check right now, if that were still within the scope of my job... But in any case, the Cantwell bill is certainly a much more promising start than Kerry-Boxer, and these
three crucial features would not require 100 pages to add. None of them is a crass payoff, like most of the
free allowances in the older bills; they are all principled ways to maintain some equity and predictability here.
Our best hope to move forward, in my view, would be more support for that kind of moderate position,
from both sides of the aisle, with industry pushing hard to call off their most extreme dogs in both parties.
If I were the President, instead of trying for a rerun of the health care political mess under less advantageous
conditions, I'd be working hard from all sides to try to create advantageous conditions for this best case realistic outcome. I would hope that the unpleasant experience of Copenhagen would help him realize that just going along with an unrealistic game plan does not lead to the best achievable outcome in the end. And I'd certainly
be thinking a whole lot about Senator Baucus... who is not entirely a stranger to Senator Cantwell.
But I'd work hard to keep it balanced, to open the door to principled mainstream Republicans like Murkowski
and Lugar early in the game.
In my view, a rational Republican response would actually be more rational and better than the Cantwell
bill -- in its own right. But the Cantwell bill would be easier to pass (passing a bill IS the only
alternative to all kinds of awful stuff, which I learned more about in my last month up there),
and it would make it easier to ratify a new and better treaty down the pike, if we ever get that far.
What is the rational Republican response? If I were working for a Republican office on the Hill
(as I actually was for a few months at the start of 2009), I would now look to Senator Murkowski as the Great White
Hope. Or else find someone else willing to make similar points.
Murkowski has said many rational things in hearings. She also introduced an amendment to try to eliminate EPA's authority to regulate greenhouse gas emissions from stationary sources. That amendment failed -- as I would
have expected -- because it was too far to the right; it would have required 51 senators -- including many Democrats --
to take a position which would be rightly seen as opposing greenhouse gas control in general.
But what about the alternative here: ??
This kind of amendment -- like Murkowski's original amendment -- ought to be
a clear step up for any principled Republican in the Senate (given that not
a one of them would vote for Kerry-Boxer). If any Republican wanted to maximize the probability of no federal
discouragement of CO2 emission whatsoever, this bill would give him that. In a way, it is an agreement to
a kind of FAIR COMPETITION -- a Congressional vote on just how high the user fee should be allowed to go,
as an alternative to a murky and less honorable process. And it would be guaranteed to be simpler than Cantwell in any case. I do hope there would be at least ten principled Democrats who would be willing to vote for it too,
since it provides a more efficient market-based discouragement of CO2 than even the Cantwell bill.
But of course, the question is: WHEN? If a Cantwell type bill got to the Senate floor, and did not pass,
that would be the right time for a bipartisan group to put this forward as an alternagtive either to nothing or to even more time spent on this issue (with even more confusion and uncertainty and delay).
In actuality -- neither a Cantwell type resolution or a Murkowski type resolution
will ever be possible in the real world if the groundwork is not well prepared
for them.
AFTER one or the other passes, the best hope for international carbon discouragement
would be a straight US-China treaty, negotiated bilaterally, with provisions to
let others sign on when and as they choose, and pro visions intended to encourage
others to join -- to a REASONAble degree. It would be a simple carbon price to
replace the existing law, and nullify border adjustments between the signatories.
Big parties in Copenhagen DON'T WORK. As predicted.
But must run. Maybe it's premature to say too much right now about realistic
treaty efforts.
Best of luck to us all,