Saturday, June 21, 2008

Episodes in creative quotation

Reading Naomi Klein's most recent screed in The Nation, I didn't have particularly high expectations. Her book sucked, conflating a ludicrously jumbled series of villains (apparently Milton Friedman and corrupt government spending belong to the same network of global evil). Her politics are motivated more by confused anti-establishment moodiness than by any understanding of the facts. Even so, the approach of her anti-Obama broadside was a little jarring:
"For Furman, however, it's Wal-Mart's critics who are the real threat: the 'efforts to get Wal-Mart to raise its wages and benefits" are creating 'collateral damage' that is 'way too enormous and damaging to working people and the economy more broadly for me to sit by idly and sing 'Kum-Ba-Ya' in the interests of progressive harmony.'"
I instantly recognized these quotations: they're from a 2006 Slate dialogue between Barbara Ehrenreich and Jason Furman, which happens to be the best thing Slate has ever published. In a back-and-forth lasting less than a week, Furman systematically annihilated Ehrenreich, whose folksy argumentation proved no match for a smart economist who knew the facts.

Now let's look at the context of the remarks Klein quotes:
So, you want to go further to pressure Wal-Mart to raise wages and benefits, to make it a better company? If that's all it was about, count me in. But the principal methods are preventing the spread of Wal-Mart's benefits to new communities (like my hometown, New York City), living wages at $15 an hour, retail-specific minimum wage rules like Chicago's and Maryland's pay-for-play that target a single company that already provides decent health benefits.

The collateral damage from these efforts to get Wal-Mart to raise its wages and benefits is way too enormous and damaging to working people and the economy more broadly for me to sit by idly and sing "Kum-Ba-Ya" in the interests of progressive harmony. Not to mention the collateral damage to rational thought from many of the arguments made by the anti-Wal-Mart community, including the arguments I noted in my last post that undermine food stamps and the progressive taxation.
This is a critical point: what exactly do Wal-Mart critics want? If their goal is to pressure Wal-Mart to cough up some of its profits and increase wages, that's fine. I think it's unlikely that they will get anywhere with this agenda, since Wal-Mart is motivated by profit and thus inclined to pay the bare minimum necessary to attract and retain a qualified workforce, but I wish them well.

Most of the time, however, the actual effect of the campaign against Wal-Mart is to promote awful policies like the one in Chicago, whose effect on low-income consumers is clearly negative. The "collateral damage to rational thought" Furman mentions is very real, as advocacy organizations like Wal-Mart Watch decry a critical progressive program like Medicaid as "corporate welfare."

Of course, if you just read Naomi Klein, all you would know is that Furman opposes the "efforts to get Wal-Mart to raise its wages and benefits," apparently because he is part of the evil, capitalist Chicago boy conspiracy that is busy pillaging the world. She's rather clever about it: she replaces "these" in Furman's writing, where he discusses "these efforts" to pressure Wal-Mart, with an outside-the-quotation "the." This makes Furman appear to oppose higher wages in general, obviating the need to provide any supporting context. Ripping "collateral damage" out of Furman's sentence without including the rest of his argument is a particularly low blow. If The Nation's readers could see that Furman was defending key government-funded programs against mendacious rhetoric, they might understand that he's far from the right-wing caricature that Klein tries to paint. Of course, she can't allow that, so she has to carefully splice sentences in a way that gives her readers an incomplete and downright misleading impression of Furman's views.

Naomi Klein is a particularly dangerous creature: an anti-progressive progressive. She seems to think that she's fighting for low-income people, but she is so intellectually lazy that her advocacy is counterproductive.

Friday, June 20, 2008

Subsidizing new energy technology

Several outspoken progressive bloggers have adopted an extremely market-driven view of energy policy: price carbon and then get the hell out of the way. Prominent proponents include Ryan Avent and Matt Yglesias.

As a market-oriented liberal, I have a great deal of sympathy for this argument. It mixes a progressive goal, stopping climate change, with a rigorous, economic take on the best way to achieve it. I'm upset by those who think that bashing Wal-Mart and free trade is necessarily "progressive," and thus I'm heartened to see prominent figures in the left half of the blogosphere express such market-friendly sentiments.

Unfortunately, they're wrong.

Not entirely wrong, of course. Pricing carbon should indeed be the centerpiece of any strategy to confront climate change, and government efforts to promote "environmentally friendly" technologies are often special interest boondoggles. (Think corn ethanol, clean coal, and hydrogen.) But there is an essential public component to developing alternative energy technology that we cannot ignore, and even the supposed wonders of carbon pricing cannot circumvent it.

To see why, consider that the price of residential solar electricity from photovoltaics averages almost 40 cents per kilowatt hour. We have reason to think that these prices will be falling dramatically in the near future, but at the moment they are far above standard residential electricity, which generally costs somewhere between 7 and 15 cents. Even an outlandish $100 a ton price on carbon, raising the price of coal power by 10 cents per kilowatt hour, would not make photovoltaics competitive at today's price levels.

Now imagine the situation several decades ago. Back then, solar cells were so outlandishly expensive that electricity from the sun was an impossible luxury. The power they produced cost hundreds of cents per kilowatt hour, and a only few small niches (e.g, isolated scientific instruments requiring a power source) provided any hope of a market. Even if we had implemented a crippling carbon price, solar electricity would not have been viable for many years.

How, then, did it get even close to viability? The natural niche markets were too insignificant to make much of a difference, but subsidies, direct research funding, and scattered, clunky "renewable energy mandates" provided the support that kept the industry developing. Over time, the price of solar power fell exponentially, until we reached the point we're at today, where solar electricity is the most promising component of a low-carbon energy future.

This would not have happened if 30 years ago we put a stiff price on carbon, eliminated our patchwork of alternative energy mandates, subsidies, and direct funding, and declared the job done. Solar electricity is unlike almost any other infant industry in the world: it has close to zero natural market until it reaches difficult cost thresholds.

Imagine if this was the case for computers. What if individuals, businesses and governments hadn't been willing to pay anything for computing power until it reached the level (and price) it's at today? Without any support in their earliest stages, computers simply wouldn't have developed. Keep in mind that even when computers were insanely expensive by today's standards -- millions of times less power per dollar -- they were still snapped up by industrial buyers, who apparently found them useful.

There is no analogous process of development for alternative energy, no demand curve that gently slopes downward and nurtures even the most expensive new technologies. The transitions are sudden and devastating. At 40 cents per kilowatt hour, solar power is a costly curiosity; at 5 cents per kilowatt hour, it is a spectacularly useful innovation. Without government intervention, as clumsy and piecemeal as it is, we would not have developed solar energy that is on the brink of competitiveness.

You might ask: why is this necessary? Why can't efficient markets make a massive investment in alternative energy, when the potential returns are so vast? As I've mentioned before, there is a compelling economic explanation: spillovers from research and development. Even with some degree of intellectual property protection, the benefits from research by one firm naturally "spill over" to the entire industry. If company A succeeds using a particular chemical compound in its product, companies B, C, and D will start trying similar compounds for themselves. If A's attempt fails, then B, C and D will have reason to suspect that its technique isn't practical. When Company C pioneers a particular method of efficient manufacturing, A, B, and D will rush to follow suit. Since each firm gains only a fraction of the returns from its research, the true economic gain from research isn't matched by the private benefit. Firms are profit-maximizing organizations that seek to increase their bottom lines, and thus this disparity between public and private benefit produces a systemic underinvestment in research.

In theory, this underinvestment adversely affects all kinds of research. It is particularly devastating, however, when a technology may not be viable for several decades, and when there aren't any clear intermediate technologies that can support the industry in the meantime. As we've discussed, alternative energy is the ultimate example of this dilemma: it may ultimately be the best option, but until it comes close to passing certain cost thresholds, it's dead in the water. And "coming close to cost thresholds" won't always happen spontaneously...

How to address this? Well, providing subsidies that make alternative energy practical in a few favorable markets is one solution. In capital-intensive cases like solar power, directly subsidizing the capital costs is an easy and controllable way to boost the industry. Direct funding for basic research is also a good idea, and even "portfolio standards" that mandate solar and wind power as a small part of the energy mix aren't necessarily as bad as they seem (although they're certainly not optimal policymaking).

In conclusion, I'm not sure how many environmental progressives realize that even with an enormous carbon tax, solar power from photovoltaics wouldn't be competitive today, and even solar thermal would be questionable. Yes, as my incessant cheerleading demonstrates, I think that they will become competitive in the next decade or two, but this is because of a research and development trajectory financed by special government subsidies and handouts. Our alternative energy policies are scattered and often terribly clumsy, showering billions on undeserving technologies, but they still are an essential part of development.

Thursday, June 19, 2008

Bangladesh is... a big country

Any discussion of increases in sea level from disastrous climate change must inevitably involve Bangladesh: it's the lowest-lying densely populated country in the world. Yet I don't think that many people really grasp the massive population of Bangladesh, and the attendant consequences for human welfare from increased flooding.

A quick glance at the map (the only research you can expect most people to do) suggests that it's a tiny nation, insignificant in comparison to India, China, or the large developed countries of the world. This is completely wrong. Not only is Bangladesh currently one of the most populous countries on the planet, with over 150 million residents, it is projected to grow to over 250 million people by 2050. By comparison, the 1990 census found that the population of the entire United States was a bit less than 249 million.

Here comes the thought experiment: if in 1990, researchers concluded that with high probability, a massive flood would soon sweep the United States and put most of its cities underwater, and that this flood could be significantly (though not entirely) abated by lower global emissions of a certain pollutant, do you have any doubt that the nation's leaders would have demanded immediate, dramatic, and painful reductions worldwide?

Yes, the fact that the American public would have responded hysterically to such news doesn't mean that an intense reaction would be justified by a cost-benefit analysis. But my point is that in reaction to shifting the most severe damages from distant Bangladesh to the United States, we may reveal an innate unwillingness to accept the terms of a cost-benefit analysis when it works against us. This is especially true when the analysis in question rests on a crude aggregation of consumption, where a sharp drop in American GDP may be counteracted by smaller benefits worldwide.

Of course, for very this reason, a cost-benefit analysis might declare saving the circa-1990 United States worthwhile, even when it discounts the plight of similarly populated Bangladesh. After all, if you're just adding up consumption, devastating a poor country that contributes little to worldwide production has a much smaller effect than ruining the nation responsible for 25% of Earth's GDP. I very much doubt, however, that such logic strikes anyone in a poor country as morally reasonable, and I'd be pretty damn furious if someone told me that since aggregate consumption is a convenient first approximation for estimating damages, the destruction of my nation didn't merit a serious response.

Saturday, June 14, 2008

How carbon emissions will actually be reduced

Matthew Yglesias presents his take on how we can actually reduce carbon emissions:
Long story short -- futuristic electric cars? Good. Futuristic clean electricity sources and smart grids? Also good. But the killer ap is still reduced consumption. We have proven, longstanding technology that drastically reduces carbon emissions. To wit -- walking, biking, bus, trolley, light rail, metro, commuter rail, high-speed intercity rail. Unlike plug-in vehicles, there's nothing speculative about this technology -- we know that it works, it just costs money. And there's considerable reason to believe that investments in non-highway transportation infrastructure combined with a regulatory structure designed to encourage high-density development near key nodes would enhance economic growth rather than detract from it.
Not quite. There are two fundamental limiting factors in the shift to an economy with lower carbon emissions: technology and time. Yglesias is right to point out that futuristic technology will take time to research and implement, and that we have many existing technologies that could theoretically reduce our emissions right now. But he fails to grasp how long it will take for the infrastructure shifts he suggests to become a reality, and how even an unprecedented pace of change would fail to bring about substantial drops in emissions.

Right now, rail accounts for less than 1% of passenger transportation nationwide. As I've discussed, it's unlikely that intercity rail will become viable outside a few corridors anytime soon; most US cities are simply too far apart. Meanwhile, expansions in urban rail will require decades to start making a real dent in transportation. Consider my home city, Portland, which has pursued alternative transportation more aggressively than any other midsized urban area in the country. Since 1986, it has developed a model light rail system, the MAX, currently the fifth most ridden system in the nation. The net effect? The percentage of Portland-area commuters taking mass transit to work has actually fallen, from 9.8% to 7.6%. Yes, the low price of gasoline over the past few decades hasn't provided a large incentive to take the train, but low usage isn't really the issue; the MAX lines that do exist are quite popular. The real problem is that it takes a long time to create a light rail infrastructure that reaches a significant fraction of the population. Even incremental improvements demand years of planning and construction.

For the sake of argument, let's say that my pessimism is misplaced, and that passenger rail increases to 10% of all travel over the next 20 years. This is utterly unrealistic, demanding an improvement by a factor of 12, but it's still useful as an upper bound. With the existing mix of electricity generation, rail emits about 40% less CO2 per passenger mile than average passenger cars. The 9% increase in passenger rail as a proportion of travel, therefore, will mean a drop of less than 4% in CO2 emissions per passenger mile. Since transportation accounts for about a third of total CO2 emissions, we end up with a 1% decline in total emissions. And remember: this assumes an almost unfathomable increase in the prevalence of rail.

What could change this analysis? Well, it's possible that electricity generation will become significantly less CO2 heavy, but 100% carbon-free electricity (quite unlikely) will only enlarge our calculated decline in emissions to 4%. Intercity rail could displace some air flight, but emissions per passenger mile from air travel aren't too different from those of passenger cars, and our figures barely budge. However you slice the numbers, even an unprecedented rise in rail transit will make very little difference.

In fact, the benefits are probably even slimmer. Since the average passenger car lasts less than a decade, the automobile fleet can change far more rapidly than infrastructure does. With the skyrocketing price of oil, it's quite plausible that in 20 years, the majority of cars purchased will have the mileage of a Toyota Prius. And the CO2 emissions per passenger mile of rail travel are actually higher than those of a Prius.

Significant changes to the character of a city, like the denser development Yglesias endorses, proceed even more slowly. It's possible that in 40 or 50 years, we'll have cities noticeably denser than the ones we have now. But this will only start to make a difference after many of the "futuristic" technologies that he downplays are in force. Combine this with the fact that transportation only accounts for about one third of carbon emissions, and it's clear that denser cities will not play a large role in confronting global warming anytime soon.

And buses? Trolley buses using overhead electricity emit less CO2 than cars per passenger mile, but motor buses (on average) actually emit more. Unfortunately, rapid expansion is much more plausible for motor bus service, where it appears to be environmentally counterproductive. I do think that electric buses may play an increased role over the next few decades (more than rail); as with trains, however, the emergence of more fuel-efficient cars will cut into and even eliminate electric buses' CO2 advantage.

How will we really reduce emissions? In the near term, I think it'll be through a combination of conservation and more fuel-efficient vehicles. These don't require slow, long-term changes in infrastructure. People can drive less, organize carpools or relocate closer to work almost immediately, as evinced by the sudden 4.3% year-over-year decrease in miles driven this March. New motor vehicles rapidly slide in and out of usage, making it easy for improvements in technology to saturate the market in just a decade or two. More energy-efficient air-conditioners, refrigerators, and light bulbs will also become commonplace more quickly than we can change our electricity generation mix, or radically alter the infrastructure in our cities.

Within 15 to 25 years, I think that the necessary shift in electricity generation will start to become a reality. Solar electricity has grown exponentially, and we're seeing promising developments in PV cells and thermal generation, but its current role is so small that even relatively dramatic expansion won't start making a difference for at least a decade or two.

In 30 to 50 years, solar will become dominant in electricity production. Relative to other emissions-free sources, its cost decline is easily the most compelling; if anything, nuclear is becoming more expensive. Why? Solar power is essentially a high-tech manufacturing problem, while the main cost of nuclear power is the massive construction expense. In our economy, high-tech manufacturing of all kinds is rapidly becoming cheaper and more advanced, while construction costs are relatively static. Although both kinds of power are capital-intensive, the capital costs are heading in very different directions.

By this point, plug-in hybrids (or even fully electric vehicles) should also be almost universal. The economics of solar power will steadily become more favorable, and at $400 a barrel -- or whatever ungodly price oil achieves within several decades -- consumption of gasoline will become harder and harder to sustain. Petroleum usage may be mostly limited to areas where no clear alternative is available, like jet fuel.

All in all, it's likely that we will be able to make a sizable dent in our carbon output in the next 50 years. As I hope I've made clear, however, the vast majority of this decrease is going to come from technological improvements, not any radical change in our urban or transportation infrastructure. While it might seem that "existing" technologies are quicker to implement, fundamental lifestyle and infrastructure changes are actually slower than technology to advance. And in the end, that's a critical difference.

Thursday, June 12, 2008

The wisdom of experience

Now that I'm hearing Joe Biden tossed around as potential VP material, I feel obligated to remind everyone that he is responsible for the single dumbest statement ever made in a Democratic presidential debate:
"BLITZER: If you don't think there needs to be a fence, why did you vote for that legislation?

BIDEN: Well, that fence was -- the reason I voted for the fence was that was the only alternative that was there.

And I voted for the fence related to drugs. A fence will stop 20 kilos of cocaine coming through that fence. It will not stop someone climbing over it or around it."

A singular specimen of incoherence and stupidity.

Long-distance rail: is it viable in Europe?

To elaborate on my earlier Amtrak post, I doubt that long-distance rail will be viable in America outside the Northeast corridor and perhaps a few other niche routes (Los Angeles to San Diego, etc.) anytime soon. This is for one simple reason: the US is too spread out!

As part of a small experiment, I decided to examine different modes of travel between Paris and Berlin. By European standards, these cities are some distance apart, but as the crow flies, they're only 545 miles from each other. This is roughly the same as the distance between Portland and San Francisco (535 miles).

I looked at prices for a round-trip ticket on a random pair of dates, August 1st to August 10th. The lowest air price was a stellar $151 on Lufthansa, while the lowest rail price was $304 -- twice as much! Not to mention, of course, that the rail journey takes 12 hours, while the air trip is a bit more than an hour and a half. Or that the lower rail price is only available on annoying, overnight trips (9 PM to 9 AM), while the air ticket has standard departure times of 9:20 AM and 5:20 PM.

Admittedly, entering in a few other dates suggests that the $151 I found on my first attempt isn't too common. The lowest fares generally range from $200 to $300. But for any sane person to choose rail over air travel on such a long trip, the train will have to display a genuine cost advantage. The fact that this advantage doesn't exist in an environment with vastly more developed passenger rail systems, on a trip that isn't at all long by American standards, suggests that we shouldn't expect rail to become a serious player in most long-distance transportation.

Of course, you don't have to take my word for it: just ax the absurd subsidies given to Amtrak, which are roughly 150 times greater per passenger-mile than those offered to highway transportation, and see what the market says...

Wednesday, June 11, 2008

Efficient markets

Following up on my Amtrak post, I think that the stock market provides a pretty good analogy for the flawed logic often used to justify government intervention.

As I mentioned earlier, progressives too often go from "X is good" to "government should subsidize, mandate, or otherwise provide more X."

This is remarkably similar to the style of logic I often see when amateurs discuss the stock market. They'll note that company X seems to have a good future, and conclude that the corresponding stock is a good buy. In reality, of course, if enough traders are aware that company X has a good future, this insight will already be incorporated into its stock price, and the stock won't necessarily be a good buy after all. The question shouldn't be "is the company in good shape?", but rather "am I privy to some special facts or analysis that lead me to have a better knowledge of the company's prospects than the market does?"

Similarly, when considering government intervention, the question shouldn't be "is X a good thing?". Instead, we should ask "is there some specific market failure that causes the wrong amount of X to be supplied?"

In both cases, the proper reasoning is a little subtle. Rather than look at something in an absolute sense, you need to examine it relative to the baseline assumption of an efficient market.

More solar cheerleading

In my last post, I discussed solar electricity produced by photovoltaic cells. I should mention, however, that there is actually another kind of solar electricity with greater near-term potential: thermal solar energy.

Believe it or not, the most economical way to produce electricity from the sun may be the steam engine. Thermal solar electricity generation literally involves heating water to make steam, using reflectors to concentrate sunlight at a single receptor. A recent report places the current cost of generation at around 10 to 12.6 cents per kilowatt-hour, and estimates that a combination of volume production, plant scale-up, and technological advancement will push costs down to 3.5 to 6.2 cents per kilowatt-hour by 2020. These prices are easily competitive with nuclear and natural gas, and approach competitiveness with coal, which generally costs 2-3 cents per kilowatt-hour wholesale. A $25-a-ton price on carbon would push up the cost of coal electricity by about 2.5 cents per kilowatt hour, eliminating any remaining disparity. Higher carbon prices could thrust coal out of contention altogether.

One of the greatest advantages of thermal solar is its ability to produce energy even when the sun isn't shining. As it turns out, one of the best ways to store energy is in heat. Molten salt can store the heat produced by concentrated sunlight with incredible efficiency, allowing us to "smooth" out the production from thermal solar stations.

As long as solar is a relatively small fraction of our energy mix, this isn't really necessary. Since the sun tends to shine brightest at roughly the times when electricity consumption is at its peak, at the current margin solar power just makes it easier to deal with peak consumption, and large-scale energy storage isn't as vital. But eventually, if we want solar to produce a large share of our total energy, we'll have to find some way to use it both day and night, and thermal storage is an obvious solution.

With all the promising developments in solar technology, we should remember that subsidies have been critical to the industry's development. As I discussed in the second half of this post, subsidies to encourage research into alternative energy, particularly given the sharp cost barriers in energy markets, have an economically coherent and indeed compelling rationale. (spillovers in research associated with production) Compared to the possible benefits, subsidies for solar power cost virtually nothing, and should be expanded as part of an intelligent energy policy.

Tuesday, June 10, 2008

Nuclear power is not the future

A November 2007 article in Nuclear Engineering International reported that according to Moody's Investment Service, the total capital costs of a new nuclear plant are roughly $5000-$6000 per kilowatt of generating capacity. Now, in a more recent Wall Street Journal article, Moody's reports that newer cost estimates released by the nuclear industry have "blown by our highest estimate" of costs from the earlier study.

The fact that nuclear cost estimates have "blown by" the $6000 per kilowatt mark is a little shocking when you note that solar cell manufacturers like Nanosolar are approaching $1000 per kilowatt. Obviously, capital cost per unit of generating capacity isn't the only consideration governing energy prices -- there are generating and maintenance costs, and plants never operate at full capacity -- but with both nuclear and solar power it constitutes the bulk of production costs, and thus provides a useful first-order approximation to the cost of electricity.

Even if Nanosolar's estimates are too optimistic, the current market price of $4800 per kilowatt of solar capacity, combined with the steep downward trajectory in historical price displayed here (page 13) and the rapid increase in investment as solar approaches cost parity, suggests that costs will indeed fall to $1000 per kilowatt in the not-so-distant future. At this point, solar power will undoubtedly be cheaper than nuclear.

And all this doesn't even consider the massive subsidy implicit in federal liability guarantees, the unresolved questions about nuclear waste disposal, or a uranium supply constraint that will become binding if any large expansion of nuclear power takes place...

At this stage, it's hard to imagine anything dumber than McCain's apparent insistence that the Lieberman-Warner cap-and-trade bill include more subsidies for nuclear power. Just as the deranged band of Washington neoconservatives only shows interest in humanitarian interventions when they involve blood and guts, the modern Republican approach to climate change is to mention it only as an excuse for mindlessly promoting more nukes.

Amtrak is a waste

Anyone who talks to me knows that my disdain for John McCain is almost limitless. He's a shallow, cranky buffoon whose "maverick" showmanship obscures a complete lack of policy understanding, and whose foreign policy credibility is derived solely from once having been a prisoner of war. His bombast on international affairs is matched by an equally appalling cluelessness on domestic policy, where he has transformed from an outspoken opponent of Bush's tax cuts to a full-on supporter, apparently because he buys the discredited supply-side line that slashing taxes increases revenues.

Yet there is one issue where McCain is right: killing Amtrak. And if you can't accept that such a blockhead would be correct on an issue where so many of the leading lights of the liberal wonkosphere are wrong, there is an important lesson to learn here about the failures of policy enthusiasm sans economic intuition.

Far too many progressives hew to a simple policy rule: "if it would be nice to have more of X, then we should subsidize, mandate, or otherwise support X through the government." But to truly make a case for government action, a different question is necessary: not "should we have more X?" but rather "why is it desirable for the government to subsidize or provide X?".

It certainly seems that with skyrocketing oil prices and impending climate change, more rail would be a good idea. The fact that rail may be an efficient solution to today's transportation needs, however, doesn't indicate anything about whether government should become directly involved. As long as we recognize that central planning isn't a good way to administer an economy, "more of X would be nice" simply isn't a compelling reason for legislative action.

Now, if we're talking about light rail within metropolitan areas, the justification for government action is pretty clear. Such projects require extensive use of eminent domain, change patterns of demand in the rest of the public transportation network, and relieve congestion problems that are difficult to internalize in the price system. For instance, although it's impossible to imagine a city as dense and rich as NYC without a well-functioning subway system, it's unlikely that private enterprise could have come up with the subway network we see today.

But long-distance, intercity rail? It is very easy to imagine a vibrant, privately administered network of passenger rail spanning the United States; we had one for almost 100 years. The resurgence of freight rail indicates that there are no structural obstacles to private rail. There really isn't a case for government ownership of a long-distance passenger rail company.

Of course, there is a difference between government control and government subsidy. Direct control is appropriate when there is something about a service that makes public provision inherently more efficient. As we've established, this is true for local rail but not long-distance rail.

Subsidies are warranted in a wider variety of circumstances: whenever the private benefit from some good differs from the broader social benefit. If private and social benefits are aligned, the market will usually achieve the optimal allocation of resources, but otherwise the market may fail. There are thus many circumstances where the government shouldn't directly control the market, but may still use taxes and subsidies to adjust prices until they appropriately match the real societal costs.

The usual claim here is that road transportation is heavily subsidized, and that rail transportation therefore deserves a "level playing field." This isn't entirely true. The federal tax on motor fuels yields around $28 billion, while the Federal Highway Administration spends $38 billion. This is a disparity, but on a per-passenger-mile basis it pales in comparison to the grotesque Amtrak subsidies currently on display.

Some also suggest that the threat of carbon pollution justifies subsidizing rail. Since there is currently no price on carbon, the theory goes, transportation that is less carbon-intensive should be subsidized to compensate. There are two problems with this reasoning. First, it makes much more sense to put a price on carbon, not to chaotically throw around subsidies in an attempt to remedy the situation. Second, the subsidies justified by such an argument are far, far smaller than what we see today. Passenger cars emit an average of .54 pounds of CO2 per passenger mile, while heavy rail emits .25 pounds. At a price of $25 per ton of carbon, similar to what exists in Europe today, the difference between the two works out to .36 cents per passenger mile. Amtrak provides less than 6 billion passenger miles of transportation, and multiplication gives us an "efficient" subsidy of $22 million. Even if we compare with air travel, or raise the price of carbon, a general result still holds: the subsidy given to Amtrak is 50-100 times greater than anything justifiable from carbon emissions.

This all highlights the importance of rigorous policy thinking. Sure, if you consider highway subsidies and carbon pollution, subsidies for a national rail system might seem like a good idea. But it is impossible to compare cost and benefit without looking at the actual quantities involved. And upon careful examination, there is no market failure vast enough to account for the subsidies currently offered to Amtrak -- not even close.

Again, "it seems like more X would be nice" does not justify "let's create an inefficient federal corporation to provide X and spend billions to subsidize it." As long as we're doing the latter, there will be times when Cro-Magnon conservatives bleating "government bad" are right, and wonkish, enthusiastic liberals are wrong.

Sunday, June 08, 2008

On "tearing up"

Now that the nomination race is over, and Hillary has managed to redeem herself by giving a gracious concession speech, I won't be writing about her very often. That said, I'm still infuriated by this comparison:

"When Mitt Romney teared up, he was described as compassionate, while [Clinton] was labeled weak."

Mitt Romney cried when discussing his church's evil, racist past, and his joy when its longstanding anti-black policy was reversed. Hillary Clinton cried because it looked like she was going to lose an election.

If any male candidate had done the same, the public reaction would have been far, far less charitable.

This isn't to say that the campaign was free of sexism. It wasn't, and I agree that female candidates still face a tougher reception in American politics. But the crying episode is the worst possible example to make that point: it's a case where being a woman clearly helped.