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The weekly earnings premium (in dollars, not percentages) enjoyed by graduates of professional and PhD programs over graduates with just a Bachelors is now larger than the earnings premium enjoyed by BA recipients over high school graduates. In percentage terms, the graduate degrees enjoy a 45% premium over BA recipients who in turn enjoy a 65% premium over high school graduates. Of course these data mask tons of information, including benefits, training, etc.


How do you respond to good news? I suppose the answer depends on whether you are a glass half-full or glass half-empty kind of person. What if I told you that scientists have discovered a way to generate electricity and subsequently remove any and all pollution that it might create, and to do so in a manner that is at least as cost-effective as the best electricity sources today?

One would imagine this would be cause for a huge celebration, as not only would our environments become cleaner, safer and more diverse, our ability to do work would be enhanced – life would get less expensive. Of course, we are right now on the cusp of these kinds of breakthroughs, and given my experience talking to folks on environmental and economic issues, I am going to make the following prediction. If and when we do see a breakthrough in energy and pollution abatement, it will not be celebrated by the people who are most worried about those things right now. No, it won’t. Rather, expect to see a great wailing unleashed upon is stupid masses. About what? Well, now that we have come to the precipice of clean, cheap, abundant energy, then “we will be able to go on with our grossly overconsumptive and people-exploitive ways.” In other words, there are folks who will see a future of clean energy abundance as yet another threat to, …, well, it can’t be a clean planet … maybe they think it will give us greater means to shape our environments in potentially destructive ways? No, what is far more likely is that we will have put 6-feet underground yet one more charge and argument that capitalism is evil and the only way to undo that evil is to create some sort of new social model – with the alarmistas of course leading it.

You watch – even minor successes today have the, … “but” … attached to them.

And So It Begins …

It took until 4th grade for the direct indoctrination to begin.


I look forward to her learning about Mssrs. Haber and Bosch, Norman Borlaug, John Rockefeller and more.

US CO2 emissions from energy production today are no higher than they were 18 years ago. Adjusting for energy produced and GDP produced we are seeing the beginnings of a decoupling. One would hope this is viewed as good news.


Suppose World Total GDP, which now stands at apx. $70 trillion, grows at about only 2% per year (ignoring population for a moment). This means that over the next 100 years, GDP will double approximately three times (use the rule of 69.3!). If you think total growth will be 3%, not at all unlikely, it will double four times over this period. Therefore, by 2115, total world GDP may be something like $560 trillion in real 2015 dollars. That’s a lot.

Demographers disagree on what world population would be by then, but I’ve seen estimates that it can peak at 9 billion by midcentury, or take longer to peak and hit 11 billion by the end of the century. Take the conservative 11 billion number. If that is the case, then average World GDP per capita in 2115 might be expected to be something like $51,000 – which means that the typical person around the world would enjoy a living standard similar what a current American enjoys (and note too that this clearly is an understatement, because that person in 2115 would get to consume $51,000 worth of 2115 stuff, and not the old-fashioned stuff we “suffer” with here in 2015).

Now, one point we’ve made in the past is worth remembering as we go through this exercise. It’s that we probably can’t get massive economically costly global warming unless global output grows a great deal. However, if global output grows a great deal, then dealing with even very serious problems 100 years out when world output is creeping up on a quadrillion dollars (inflation adjusted folks, that is equivalent to having quadrillion dollars today) is really not going to be a big deal (cue the threats to burn down my house and flood my backyard …).

I will post a paper shortly about the models and estimates dealing with the expected economic costs of global warming, but for now I wanted to simply summarize one of the main “known” results. That if the globe warms by 2.5 degrees centigrade over the next 100 years (i.e. an additional 1.7 degrees above what we’ve gotten already), then GDP 100 years from now is going to be smaller than it otherwise would have been.

How much smaller?

Somewhere between 1% and 2%. Let’s focus on the 2%.

What has been the REAL growth rate of the world economy, by year, in recent history?

world gdp

This is an average growth rate of 3.66% for the last 15 years. Check out the per capita estimates too. What does this result mean? It means that if we get the global warming we expect, and we do not make major advances to do anything about it, then the TOTAL GDP in the year 2115 would be 2% smaller than it would have otherwise been.

How much is that? Well, I could scare you and report something like, “If the world doesn’t act strongly now, global warming can cost $11.2 trillion by the end of the century.” That sounds scary. But put that in perspective.

  • Instead of total world GDP being $560 trillion in 2115, it would “only” be $548.8 trillion in 2115.
  • In per capita terms, instead of the typical income of a world citizen being $51,000, it would be $49,891.
  • The expected losses due to global warming are equivalent to the world economy sacrificing a total of 8 months of economic growth over the next 1,200 months (i.e. growth at zero percent for those 8 months). As a comparison in 2009, the world economy did not only not grow, but it shrunk. For 12 months. By 0.7%.

As we’ve argued before, the distribution of benefits (yes) and costs of global warming will be uneven, and the majority of costs are expected to fall on poor countries and/or those located in the tropics. Of course, it is those very countries that would stand to see their resilience to global warming increase most rapidly as incomes grow. Further, making this point does not mean “do nothing”, it merely gives a sense for the expected/known damages.

For fun, you might want to consider two thoughts:

  • How would this analysis change if we made more aggressive assumptions about the peaking of population and the likely rate of economic growth as future technologies come online (e.g. automatic transportation, massive expansion in sharing economy, denser-cheaper fuels, development of 3D printing, nonotechnology, advances in medicine, etc)?
  • How does this cost rank among other known and unknown costs? Well, to take one well-known example, the annual economic cost of implementing and complying with federal government regulations alone is thought to be in excess of 2% of GDP … per year … every year. The known losses in economic activity due to the poor structuring of our tax code likely exceeds $1 trillion in lost economic activity … per year … every year. Or how about the impact of not permitting transgenic crops to be grown in Africa? Or the lack of energy development in Africa? Or the impact of poor financial institutions on growth in Africa (e.g. financial repression)? Feel free to toss in your favorites.

What is most striking is that what is written up here should be completely independent of what you think of climate science and the possibility of future warming. This merely takes what the “consensus” is telling us about likely rates of warming and physical impacts of that warming and applies what we know from economics to evaluate it. In other words, if you were serious about discussing global warming and dealing with the problem, there should not be a high correlation between what your belief is about the science (i.e. more skeptical or more alarmist) and your acceptance of the forgoing information. However, I suspect that the reaction to the above would split along “party lines” here too, which is utterly depressing. So call me a name if you wish, but I simply cannot see that global warming poses any particular problem for humanity, especially since we seem to not only tolerate, but support actively, far more serious burdens to our lives on a daily basis today, when we are considerably poorer than we will be way out into the future. And yes, I understand that there is a small chance of a really, bad thing happening. That’s for another post for another day – but the gist is to treat that like any other existential risk we face, like death from total nuclear war, AI gone mad, massive viral outbreaks, etc.





In my inbox, a few items of interest:

  1. The race of your Teaching Assistant matters for your subsequent class performance. Note that my courses select undergraduate TAs prior to the semester beginning. I wonder where administrators would go with this information – recommending more racial sorting? Yikes?
  2. There has always been a very close relationship between the banking system and the political system. Start not only with the early efforts (successful) by the “Crown” to take over private mints throughout history, but more important the establishment of the Bank of England. In this new paper, we see a neat historical example of how when the early US moved to a chartering/discretionary approval of bank entry, the process wasn’t exactly, “democratic” … though you might say it was “Democratic.” Nothing new under the sun.
  3. Among the formerly uninsured who are newly insured under ObamaCare, we think that there is some individual skin in the game under the standard plans offered. How have they been affected? Results seem to to suggest that the “skin in the game” will increase for everyone, but with the “richest formerly uninsured” seeming to be worse off while the “poorest previously uninsured” better off.
  4. This was a really interesting paper estimating optimal propensities to lend by banks and optimal propensities to borrow by customers when banks have cheaper access to funds and when customers have their credit limits expanded. One of many interesting findings: “We find substantial heterogeneity, with a $1 increase in credit limits raising total unsecured borrowing after 12 months by 59 cents for consumers with the lowest FICO scores (≤ 660) while having no effect on consumers with the highest FICO scores (>740).  We use the same credit limit regression discontinuities toestimate banks’ marginal propensity to lend (MPL) out of a decrease in their cost of funds.” That is, people with good credit do not seem to borrow more when they have more access to credit. This seems consistent with a model of credit constraints on various future investment behaviors (such as attending college).
  5. In this week’s episode of, “We Don’t Know Nuthin'” … “This suggests that one should be cautious in using the results from any particular model to inform policy decisions.”

Have a productive week!

Friday Ponderance

I was once asked by a student whether I knew of any paper that demonstrated that fracking was safe.

Of course, no such paper exists, nor can it exist in theory. How might one demonstrate that there is a complete absence of risk of doing anything?

Or to put the question quite another way, and I wished I were clever enough to ask it initially, “Do you know of any paper that demonstrated that water is safe?” What about ____? I suspect that the answer would have been, “well, water is different.” It’s not.

In this week’s research, top choices include:

  1. Caroline Hoxby and George Bulman address the question of whether federal tax deductions for college tuition payments promote college attendance. In their words:

    Although many eligible households take nearly the maximum deduction allowed, we find no evidence that it affects attending college (at all), attending full- versus part-time, attending four- versus two-year college, the resources experienced in college, the amount paid for college, or student loans.

  2. Risk and energy price shocks correlate with global productivity slowdowns. I have an idea – let’s play Climate Casino.
  3. Ted Nordhaus does not believe we need to fear the machines, yet. Is that a good thing or a bad thing?
  4. Are some holidays harmful to your health?


The effective altruism movement seems to be taking off. It is not at all hard to understand the appeal. Many of us (not me of course, I don’t care) struggle every day with the notion of trying to live a good life and as part of that life we want to have a positive impact on the world. Faced with the constant struggle of trying to evaluate just what are some of the good (best?) ways to do this, we just sort of go through a mish-mash of efforts and hope they work. Maybe we were inspired by a book (such as Room to Read) or a story from a friend about a particular place she visited. But how do we know that our efforts, large or small, are doing any good? Don’t we want to know given our limited time and resources here on Earth, whether our contributions are helping others? Furthermore, many of us know the long history of political efforts to promote development has been checkered, certainly not universally successful and in some cases it is thought that foreign aid and other development projects have actually made things worse by unleashing unintended consequences or entrenching vile dictators whose sole purpose is to extract as much as possible from his people while keeping them mired in lives of poverty.

Layer on top of this the fact that many of the world’s citizens now find themselves unconscionably wealthy by world standards, and that human well being can be improved, theoretically, very cheaply, in those places that have yet to develop, and there is a real opportunity for people to think harder about “doing good better.” In other words, people are thinking hard about the marginal benefits and marginal costs of their various forms of charitable giving. The effective altruism movement therefore is not merely a movement to encourage more people to give and to give more and to earn more to give more … but it promotes research into best giving practices, so we can be sure that we get the most poverty alleviation bang for the buck.

And as far as I can tell from a few interviews, the founder, Will MacAskill, is an admitted person of the left, and former participant in the typical college-type socialist workers meetings and such, and he seems to have fully embraced this economic way of thinking about the problem of poverty and charity. And as far as I can tell, the Effective Altruism movement seems to be supported across the political affiliation spectrum – I certainly do not get the sense that the progressive left is appalled at this sort of thing (wholly aside from the issue of whether governments should or should not also be doing this, I am talking about the movement itself).

So what now really puzzles me is why when the very same ideas and tools are applied outside of the Effective Altruism movement, not only are they ignored, they are sometimes vigorously attacked. I’ve yet to read a criticism of MacAskill on the left that accuses him and the movement of being paid lackeys for crony capitalists, or that the “economist-y” tools he is employing somehow are not appropriate or diminishes what he is doing. But good lord, if you do the exact same thing MacAskill is doing when it comes to public health triage in America, or environmental issues in America or around the world, then you are actually the devil.

Don’t believe me? Go look at what has happened to people like Bjorn Lomborg, whose book I read a decade and a half ago and really got me started thinking more seriously about environmental issues. He basically has encouraged hundreds of people to come together to evaluate some of the world’s most pressing problems, many environmental, and come up with a ranking of where we will get the most improvement for our efforts at alleviating the problems. For lack of a better description, he is broadly applying efficiency analysis to many environmental and health issues. And he has been absolutely been nailed as a pariah, lackey, etc. He was even “forced” to not accept a new faculty position in Australia because people simply didn’t like the work he was doing. Now, go look at the excellent book, “How Much Have Global Problems Cost the World” or the original idea from whence all of this grew, “The Skeptical Environmentalist” and read them without knowing about the current hatred for him and without knowing anything about him. My reading is that you’d think he was an extremely thoughtful social scientist, worried about lots of things, with a strong progressive streak that wishes to see government action working on these things. I certainly don’t think you’d get, “Man, how much did Continental Resources pay this dude to write this book!?!?”

But that’s where we are. Mr. MacAskill applies very sensible tools to the issue of global charity, the very basic tools economists use, and he combines it with an emotional message that we CAN do more to help others and that we SHOULD do more to help others, and he seems to me to be the flavor of the month. When Bjorn Lomborg, or really anyone for that matter, applies the very same tools with a slightly less strong (though still somewhat emotional) appeal to do more and to do better, he is completely scorned, an outcast, evil, and so on. This, to me, is not only disastrously inconsistent, but extremely cold-hearted to not just the people doingwork like Lomborg, but to the billions of people whose lives would be improved if folks like this were paid attention to.

I typically ask this question to my environmental economics students (not original to me):

A company chairman is told a new project will increase profits, but it will definitely cause harm to the environment.

He says, “I don’t care about harming the environment. Let’s start the new project. I just want to make as much profit as possible.”

He proceeds with the project.

QUES: Did the chairman intentionally harm the environment?

Typically, we see around 40% of the class suggest that yes indeed this person did intentionally harm the environment. We can talk about the psychology and sociology of that later, especially as compared to the number of students that typically say yes to the next question about unintended good. But my point today is a on the political-consistency side. Suppose instead we reframed the question this way:

The President of the U.S. or your local Congressperson is told a new program will increase promote job creation, but it will definitely cause harm to the environment.

She says, “I don’t care about harming the environment. Let’s initiate the program , our economy is in too much trouble not to do so.”

She proceeds with the project.

QUES: Did the politician intentionally harm the environment?

Do you think 40% of my students would still think this was intentional? Should our response in one scenario differ from the other? Remember, people think profit itself is a “dirty” word (pardon the environmental pun), so is that what is the source of the result here? But as you know, profits are a good thing, and of course there is almost no actual evidence that political programs to create sustainable jobs have actually had much success in the past, would you expect that influence the responses here? What nodes of the brain are most of us employing when answering these questions?

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