Cap and Trade vs a Carbon Tax...

Gregory Mankiw had a great article in the New York Times this weekend on Climate Change and the proposed Cap and Trade program that is making its way through congress -- you can read it yourself, here.

Whether you are a believer in global warming or not (and the commission knows that some of you are not convinced), this article does a good job of highlighting the differences in the Cap and Trade program that President Obama campaigned on, and the one proposed by Congress.

Basic economics teaches us that if we want to actively reduce the carbon emitted as part of economic activity a Carbon Tax would be the most effective way to do so. Even those who do not believe in global warming would agree. The higher cost of releasing carbon as a byproduct of production would drive increasing efficiency and the search for new methods of production that did not reduce carbon. At the same time, prices for those products would increase. The revenue from the Carbon tax would be used to offset these higher prices through tax reductions.

Despite the fact that it would be the most efficient, a Carbon Tax is not politically viable. That leaves Cap and Trade. What Mr. Mankiw points out so effectively in his piece is that the Cap and Trade legislation is substantially less efficient than that proposed by President Obama when he was running.

The numbers involved are not trivial. From Congressional Budget Office estimates, one can calculate that if all the allowances were auctioned, the government could raise $989 billion in proceeds over 10 years. But in the bill as written, the auction proceeds are only $276 billion.

The issue is by lowering the proceeds to $276 billion -- that reduces the possible taxes to be offset -- which will mean higher prices in the rest of the economy.

As Mr. Mankiw explains:

The hard question is whether, on net, such a policy is good or bad. Here you can find policy wonks on both sides. To those who view climate change as an impending catastrophe and the distorting effects of the tax system as a mere annoyance, an imperfect bill is better than none at all. To those not fully convinced of the enormity of global warming but deeply worried about the adverse effects of high current and prospective tax rates, the bill is a step in the wrong direction.

The Commission feels that if we are going to try and do something about global warming, we should do it in the most efficient way possible. Unfortunately, Congress is hardly the place to go for efficiency...

Counting Brothels in Japan...

Apparently the Bank of Japan is now counting brothels in an attempt to measure the service sector more accurately. This is important as Japan shifts from a manufacturing and export economy to one that is more service based.

Don't just take the Commission's word on it -- read the Bloomberg article yourself, here.

In a related note, the bank is apparently not having much trouble hiring service-sector auditors...

Managing Risk

There is a great guest post on the Freakonomics blog today about the need to manage risk.

Here is the link: http://freakonomics.blogs.nytimes.com/2009/08/04/scaling-the-heights-of-corporate-greed-chafkin-and-lo-on-risk/

The Authors of the post (Jeremiah H. Chafkin and Andrew W. Lo) base their post on the Laurence Gonzales book Deep Survival -- the story of 4 mountain climbers who died while climbing back down Mt. Hood in Oregon after reaching the summit.

The climbers' error was in focusing on reaching the summit of the mountain -- supposedly an "easy" mountain to climb -- and not remembering the need to pay as strict attention to the way down. Lo and Chafkin take the Gonzales premise (that the climbers' mental model of this "beginners" mountain did not match the reality of that day) and point out the similarity in thinking about the economy prior to the current downturn.

In their words:

The remarkably consistent performance of the U.S. residential real-estate market over the decade from 1996 to 2006 may have had the same effect, leading many experienced businessmen to conclude that such growth was likely to continue indefinitely. And despite all the protections that were available to these captains of industry — analytics that showed large potential losses in the event of a downturn in housing prices, leverage constraints imposed by regulatory capital requirements, and warning signs from the hedge-fund industry in 2005 and 2006 — they charged ahead anyway, with the single-mindedness of a well-funded expedition hell-bent on conquering a mountain. Their mental models apparently did not match reality either.

The authors point to modern science that shows that decision-making is not always fully rational and fully informed and question the need to build professional skepticism into senior management -- a Chief Risk Officer.

It is definitely worth reading...

Comic Con...

From the beginning, the 108Warren Commission was intended to cover pop culture just as thoroughly as it does economics and politics. Until now though, the commission members have been woefully uninspired.

To remedy that, the Commission is welcoming a new member this week. He brings a broad appreciation for pop culture and a fairly biting wit. Below is his first post -- a very tame discussion of his visit to Comic-con in San Diego...

Comic-Con can be an exercise in sensory overload and sleep deprivation that takes a week or so afterwards to let sink in. While you are in the middle of it, Comic-Con is a whirlwind of A-list celebrities promoting their new projects, booths selling everything from video games to Thor's hammer, and tons of people dressed as their favorite super hero or Star Wars character. Basically it's 4 days of geek nirvana in sunny San Diego.

I got to San Diego early Wednesday afternoon and met up with my friend Nicole. We had enough time to check into our hotel and get something to eat before heading to the convention center for preview night.

It doesn't take long to for the sensory overload part to kick in. First thing you are hit with is the overwhelming crowds, with 150,000 people a day Comic-Con can feel very claustrophobic. The crowds can make it difficult to navigate the massive exhibit hall that takes at least 2 or 3 tries to get all the way through.

On Thursday, the first real day of Comic-Con begins. We get there by about 9:00am even though the first panel that we want to see isn't until 3:00. It gives me a chance to people-watch --one of the things that I love to do at Comic-Con.

I'm constantly amazed at the huge variety of people who turn up here, especially my favorite group --the cos-players (costume-players). I admit that Halloween is my favorite holiday, and a big part of the reason is that I love costume parties, but I've never felt the urge to dress up and go out in public any other time of the year. The folks who are into cos-play, seem to come to Comic-Con to express their love of a particular character, but more importantly, with the goal of getting into as many pictures as possible. The costumes that I've seen over the years have been truly amazing, and I admire the work and detail that goes into them I just couldn't imagine walking around all day like that.

We found out that Sony Pictures would be promoting Zombieland on Thursday night with a zombie walk through the Gas lamp District a few blocks from the convention center. We went and got our zombie “makeover” and shambled the streets for about an hour with about 200 other zombies while getting many smiles and some very strange looks from the people who were eating at the many outdoor restaurants that we passed. After the walk it was dinner and drinks then back to the hotel knowing that there will be another long day tomorrow.

On Friday there were a few panels we wanted to see that were all in the same room. Now here is one of the downsides of Comic-Con, in order to see the panels, we have to get in the room early in the morning and sort of camp out there because of the huge lines that form the later it gets. Many times if you don't plan ahead and get into a room early you will never get to see the things you want to see. This also means that you are stuck sitting through things that you have no interest in so that you will have a seat for the things that you're there for. This is why the scheduling of where you are going and when is vitally important. Someone said to me that it's not about what you see at Comic-Con, but what you miss. Very true.

On Friday night Nicole decides that since we are hanging out late to meet up with friends, that she is just going to sleep out in line to get into the Lost panel on Saturday morning. I went back to the hotel, not planning on going to see Lost because it was running against a few other things that I wanted to see. That was a mistake on my part.

I get to the convention center early Saturday morning, figuring I would bring Nicole the drinks she wanted and get in line for my own panel. When I finally find a place to park, which is a daily adventure all its own, and get to the con I realize, when I see the line (probably on the order of about 15,000 people), that there is NO way that I will ever get into the panels that I want, so I stay with Nicole and see the Lost panel. Saturday was another day spent entirely in one room in order to see the things that I want to see. On the bright side, unlike Friday I actually want to see almost everything that's being shown.

After the panels, I take a walk through the exhibit hall to get some pictures and collect some of the freebies that they hand out at the booths. Once the exhibit hall closes for the day, I meet up with Nicole we get something to eat and then head to the hotel. It was a very long day and we are planning on getting back early again on Sunday to get back in line.

We get up about 5:30 Sunday morning, grab some breakfast on the way and are in line by about 7am. It's the last day of the con, and although they say it doesn't get as crowded on Sundays, it seems that somebody forgot to tell that to the crowds.

After seeing one early panel I take a last walk of the exhibit hall floor picking up a few things that I've been eyeing all week and taking some final pictures. I catch up with Nicole and a couple other friends, for one last check to see if we missed anything before calling it a con.

All in all it was another good year at Comic-Con. Although there is no way to see everything that you want to see, and you will no doubt miss the cool thing that everyone will be talking about for the rest of the week because you left 5 minutes earlier to catch something else, it's really cool for 4 days to be at the center of the pop culture universe.

Even Worse Than Taxes...

Everyone knows the old saw about Death and Taxes, but the Commission ran across a fascinating (and a bit disheartening, if you had illusions about living forever) post today at Gravity and Levity with a lot more detail on mortality.

Apparently the odds of your dying in a given year actually double every 8 years.

The author notes that:

For me, a 25-year-old American, the probability of dying during the next year is a fairly miniscule 0.03% — about 1 in 3,000. When I’m 33 it will be about 1 in 1,500, when I’m 42 it will be about 1 in 750, and so on. By the time I reach age 100 (and I do plan on it) the probability of living to 101 will only be about 50%.

Apparently this was discovered by a British actuary (Benjamin Gompertz) back in 1825, and is now called the Gompertz Law of human mortality...

What the 108Warren Commission finds fascinating is that this "Law" still holds true, even with the tremendous advances in medicine over the past 184 years -- the odds have certainly improved over that time, but they still double every 8 years.

Just something to consider as the US looks at changes to health care policy...