FRIDAY GRAPH: A CLIMATE-CHANGE DOOMSAYER BET

 Don Boudreaux masterfully continues the Julian Simon tradition in his WSJ article “More Weather Deaths? Wanna Bet?”, according to Mark Perry in his blog Carpe Diem:

Writing recently in the Washington Post, environmental guru Bill McKibben asserted that the number and severity of recent weather events, such as the tornado in Joplin,Mo., are too great not to be the result of fossil-fuel induced climate change. He suggested that governments’ failure to reduce emissions of greenhouse gases will result in more violent weather and weather-related deaths in the future. And pointing to the tragedy in Joplin, Mr McKibben summarily dismissed the idea that, if climate change really is occurring, human beings can successfully adapt to it.

“There’s one problem with this global-warming chicken little-ism”, Perry writes.  “It has little to do with reality. National Weather Service data on weather-related fatalities since 1940 show that the risks of Americans being killed by violent weather have fallen significantly over the past 70 years.”

Perry notes that:

The annual number of deaths caused by tornadoes, floods and hurricanes, naturally, varies. For example, the number of persons killed by these weather events in 1972 was 703 while the number killed in 1988 was 72. But amid this variance is a clear trend: the number of weather-related fatalities, especially since 1980, has dropped dramatically.

For the 30-year span of 1980-2009, the average annual number of Americans killed by tornadoes, floods and hurricanes was 194 – fully one-third fewer deaths each year than during the 1940-1979 period. The average annual number of deaths for the years 1980-2009 falls even further, to 160 from 194, if we exclude the deaths attributed to Hurricane Katrina, most of which were caused by a levee that breached on the day after the storm struck land

This decline in the absolute number of deaths caused by tornadoes, floods and hurricanes is even more impressive considering that the population of the United States more than doubled over these years – to 308 million in 2010 from 132 million in 1940.

 

 This is Don Boudreaux’s bet:

“So confident am I that the number of deaths from violent storms will continue to decline that I challenge Mr. McKibben – or Al Gore, Paul Krugman, or any other climate-change doomsayer – to put his wealth where his words are. I’ll bet $10,000 that the average annual number of Americans killed by tornadoes, floods and hurricanes will fall over the next 20 years. Specifically, I’ll bet that the average annual number of Americans killed by these violent weather events from 2011 through 2030 will be lower than it was from 1991 through 2010.

“If environmentalists really are convinced that climate change inevitably makes life on Earth more lethal, this bet for them is a no-brainer. They can position themselves to earn a cool 10 grand while demonstrating to a still-skeptical American public the seriousness of their convictions. But if no one accepts my bet, what would that fact say about how seriously Americans should treat climate-change doomsaying? Do I have any takers?”

 

 

How economics saved Christmas

 I noticed Cactus Kate blogged recently – albeit in a most flattering way – that I suffer random bouts of ‘Kiwiblogitis’ (an urge to over-quote other people’s work).

I take her point on overzealous cutting and pasting, but I make no apologies for sharing other people’s work that I admire – or indeed sharing and commenting on work I disagree with. That was a significant reason for starting this blog.

So, in the spirit of Christmas sharing, I will copy and paste an entire article: a poem by Art Carden that first appeared on Forbes.com (hat tip: Café Hayek).

Below is: ‘How Economics Saved Christmas’.

Season’s greetings!

How Economics Saved Christmas

From Wikipedia

 

 Every Who down in Whoville liked Christmas a lot.

But the Grinch, who lived just north of Whoville, DID NOT.

He stood and he hated the Whos and their noise

He hated the shrieks of the Who girls and boys

For fifty-three years he’d put up with it now—

He had to stop Christmas from coming, somehow.

He asked and he questioned the whole thing’s legality

Then his eyes brightened: he screamed “externality!”

He reached for his textbooks; he knew what to do

He’d fight them with ideas from A.C. Pigou

This idea has merit, he thought in the frost

A tax that was equal to external cost

At the margin, would give all the Who girls and boys

An incentive to stop all their screaming and noise

Failing that, an injunction to make them all cease

And they’d have to pay him to have their Roast Beast.

Low costs of transacting meant that if the Whos

Were the high-value users and wanted to use

All the rights to have feasts and the rights to sing songs

Then they’d have to buy them, to right their Who wrongs

They’d buy a noise easement, if they wished to sing

Until then, the Grinch could stop the whole thing.

On Christmas Eve Night, the Grinch went to town

He stole all the presents, he took their wreaths down

He stole their Who Hash, everything for their feast!

He swiped their Who Pudding!  He swiped their Roast Beast!

He looked at his sled loaded up with Who snacks

‘Twas quite an efficient Pigovian tax!

Then late in the night, when he got to Mount Crumpit

For he’d taken the load, and he threatened to dump it

The Whos, with one voice crying out in the night

Screamed “bring back our stuff!  You haven’t the right!

“We know that we’re noisy all through Christmas Day,

But if you don’t like it, it’s you who should pay!

“For we were here first, and homesteaded the rights

To sing, to make noise, and to hang Christmas lights

“The costs of our Christmas joy helped you to save!

They were fully reflected in the price of your cave!”

“We’ll all be good neighbors, and we’ll be polite

“But you’ve done us wrong on this Christmas Eve Night!”

The Grinch was crestfallen, he knew he had lost

For he was the source of the “external” cost

He’d come to the nuisance, and yes, he was wrong

He’d now have to live with their noise and their songs

He realized that day, though, that they could be friends

His heart grew three sizes (you know how this ends)

The Whos asked the Grinch to join them in their feast

And he—he, the Grinch—carved the Roast Beast.

The holiday season brings specials galore

They teach us that Christmas can’t come from a store

Reflect, as you watch them, as day turns to night

On good economics, and property rights

Foreign investment in land

Labour have created quite a stir with their u-turn on foreign investment in land (remember 650,000ha of land was sold overseas under their stewardship), and other moves away from past policies, including some of those espoused by the last Labour government.

We always need to be aware of the tendency of political parties to adopt policies that may gain votes but are not in the overall public interest. The excerpt below from an unrelated letter to the New York Times at Café Hayek makes this point:

Public-choice scholars, such as my (now-retired) George Mason University colleagues James Buchanan and Gordon Tullock, have long argued that politicians’ vision never extends beyond the next election.  The consequence of this political myopia is that, contrary to popular myth, government is not uniquely concerned with the future; instead, politicians too frequently sacrifice the public’s long-run welfare in exchange for the cheap and irresponsible thrill of immediate victory at the polls.

Foreign investment in land is a highly emotive issue in New Zealand, but one that is often not properly understood. It recurs every few years. The last time was 2003: the Sunday-Star Times carried articles headlined ‘New Zealand for sale’, and ‘Land ownership strikes a nerve’. The government of the day introduced tighter rules for sales of ‘iconic’ land.

I wrote an article about this in the ODT a couple of weeks ago. The key points were:

• New Zealand has a freely floating currency.  A foreigner wanting to acquire a New Zealand asset has to buy New Zealand dollars.  The New Zealand dollar seller will be paid in foreign currency, which will logically be used to acquire some other overseas asset (maybe a farm).  The country’s net asset position is unchanged.
• For a given balance of payments position, more restrictive rules on purchases by foreigners of some class of asset (say land) will automatically mean greater foreign ownership of some other assets (eg businesses).  Are there sound grounds for biasing overseas investment in this way?
• The factual position is that farmland sales approved since 2005 amount to 0.6% of total farmland and foreign investment in agriculture is just 1.6% of total foreign investment.
• The benefits of foreign investment are several fold. It augments the supply of domestic capital available for investment and often brings with it managerial expertise, technology and links to markets.  Foreign investors employ New Zealanders and pay taxes. 
• It is not as though New Zealand has a particularly liberal foreign investment regime.  The OECD has noted that New Zealand’s restrictions are above member country averages in most sectors.  Screening requirements in New Zealand are some of the highest among OECD countries. 
• It has been argued that other countries restrict foreign ownership of land, but many, including Germany, France, the United Kingdom, Portugal, the Netherlands and Belgium, have no restrictions at all – they treat foreigners on the same basis as nationals. 
• You can’t physically take land away, nor can you force any owner to sell to foreigners. The notion that ‘once land is gone it’s gone’ is incorrect. For example Carter Holt Harvey, with forest land interests, was majority owned by US company International Paper.  Then Graeme Hart bought it back (and has purchased land in many other countries). 
• New Zealand is investing in agriculture abroad.  Fonterra and individual dairy farmers are investing in farms in China, India, Brazil and other countries.  New Zealand Farming Systems owned farms in Uruguay (now being onsold to Singaporean interests). Should other countries ban such New Zealand investment? 
• If foreign investors are excluded, farmers wishing to sell may see their assets significantly devalued.  As prime minister John Key has noted, this could push some highly indebted dairy farmers into negative equity positions. 
• Obviously there is a case for ensuring appropriate public access to places such as beaches, but this is a matter for regulation, not ownership.

The current government has a stated goal of catching Australia. Imposing tighter restrictions for non-economic reasons is not going to advance that goal. Let’s hope the debate focuses on the public’s long-run welfare and is not driven by anti-foreigner sentiment.

It is prosperity that creates spending

Over at Café Hayek Russ Roberts has a post ‘Does spending create prosperity?’ which begins:

Does spending create prosperity? It’s a weird idea when you think about it. Spending is consumption. Consumption uses stuff up. How could it create prosperity? If anything, the causation is reversed – it is prosperity that creates spending.

I’ve often wondered why this basic concept, boiled down to the marrow here by Roberts, is so difficult for some people (and governments) to grasp. The idea that government spending generates prosperity has long been exposed for the Keynesian fallacy that it is.

IMF figures show that central government expenditure in New Zealand is 34.6% of GDP – which is enormous when you compare it to top performers like Hong Kong (17.5%) and Singapore (22.4%). The people of both those countries receive quality public goods and services – and have lower taxes and higher wages.

Roberts uses a neat analogy to describe US stimulus package policy later in his post:

Think of having a lot of wet wood and trying to get it going by lighting newspaper as kindling. There’s a fire for a while, while the newspaper is burning. But once the newspaper is consumed, the wood hasn’t caught. Even burning a lot more newspaper (bigger stimulus package) isn’t going to get the wood dry enough to catch fire.

The same applies to government spending in New Zealand. The role of the government should be to provide a framework that allows the economy to prosper. Cutting government spending is a sure way to heat up a damp economy.

Cutting government spending will generate higher growth. Growth generates prosperity. Prosperity creates spending: a roaring fire using dry wood without wasting stacks of paper getting it going.

For more on this topic read an article I wrote last year titled Faith in Government Spending is Misplaced.

Markets at work – by Top Gear

In buying a new brake calliper for his Porsche James May of Top Gear fame provides amusing but compelling evidence of markets at work (hat tip: Café Hayek). Here’s an excerpt: 

That something as complex as a car can be owned by ordinary people is, I think, one of the greatest achievements of humanity”

I love this stuff.

Working to limits and fits liberates the manufacturing process. Instead of one fitter having to make sets of rods and holes work together, a man in Shanghai can make all the rods while a bloke in Botswana drills all the holes, in the certain knowledge that any two will work together. This is the bed-rock of mass production as far as machines are concerned, if not chicken and mushroom pies.

It’s a pretty simple idea, but it took a long time to sort out. The origins of limits and fits are assigned to the clock-making and gunsmithing businesses, and you can see why they’d be interested, because both these things were required in huge numbers and would break readily – the hammers on guns would shear, and the pallets in the escapements of clockwork mechanisms would wear out.

Prior to the culture of interchangeability, a new hammer for your revolver would have to be made to fit, usually with a bit of filing. The mass-produced hammer would go straight on. Job done.

The earliest cars were made like flintlock pistols, and were machines with no true commonality, even if they looked the same. Each part had to be made to fit by a, well, ‘fitter’, who would remove bits of metal like the man in our original rod-and-hole example. These cars were hideously expensive to buy and hideously expensive to maintain.

It reminded me an article I wrote on productivity titled The Lever of Riches a couple of years ago for the ODT. Here’s an excerpt:

Improving worker training and knowledge, having better technology or more capital to work with, making best use of natural resources and inventing new ways to do things increase productivity. Henry Ford’s development of the assembly line in 1913 is a popular example of a spectacular productivity leap: it reduced the number of hours required to make a car from 17 to one and a half, dramatically cutting the cost of production and making the car affordable.

Ford’s invention effectively pushed his workers up the ‘hierarchy of human talent’. With the creation of machines and tools that can perform tasks better and cheaper than human muscle and basic brain power, people move to jobs that use other, more sophisticated human talents like creativity and people skills. At the same time, manual jobs like sewing machining, assembly line work and telephone operations shift to lower-wage countries where workers can perform them more cheaply. In this way the economy sheds ‘lower order’ jobs, and adds ‘higher order’ jobs like nurses, lawyers, chefs, recreation and hospitality workers, designers and architects, hair stylists and beauty therapists, financial advisors, tourism operators, and so on. 

Read James May’s full article here and mine here.

Donald J. Boudreaux at Café Hayek wonders if James ever read ‘I, Pencil’, a delightful essay by Leonard Read. ‘I, Pencil’ is an old favourite of mine which I highly recommend. The link above includes an introduction by Milton Friedman and an afterword by Boudreaux.