Stories tagged economics

Compared to another wreck around the same time, passengers on the Titanic were much more calm and composed. According to economist David Savage, that's because the Titanic sank so slowly that social order had time to kick in and dictate people's behavior.

Watch now
Watch nowCourtesy NPR
Well, I learned about it a day too late to listen live, but NPR's Marketplace hosted a invigorating conversation on Climate and Sustainability yesterday. You can listen to audio and watch video of the event online. We need more events like this, bringing scientists and business leaders together to create a sustainable environment that works for humans in our modern economy.

May
28
2010

A few weeks ago, I assumed that some of our readers were bored with the same ol’ climate change arguments. I know you know what I’m talking about: the Cuddly-Animals-are-Dying and the Catastrophic-Disasters-Will-End-the-Human-Race arguments come to mind first. Now, I’m not saying there isn’t some merit to these frames, but c’mon! Can’t we get a little variety?

Stephen Polasky: This UofM professor and IonE fellow has some BIG ideas about $, the earth, and climate change.
Stephen Polasky: This UofM professor and IonE fellow has some BIG ideas about $, the earth, and climate change.Courtesy University of Minnesota

Lucky for you, University of Minnesota professor and Institute on the Environment fellow Stephen Polasky thinks creatively. In April, he gave a presentation on how adopting inclusive wealth could ultimately reduce climate change and its effects. And since virtually everybody likes money, I’m going to go out on a limb and bet you want to know more about the ca-ching!$

Here’s the skinny:

Economists say that just about everything has a monetary value, and how much something is worth plays largely into the decisions politicians make. Scientists like Polasky are increasingly saying that these traditional accounting methods do a poor job assessing value to natural resources, and these mistakes are leading us to make irrational choices. As an alternative, Polasky suggests adopting inclusive wealth theory.

This is not going to cut it.: Inclusive wealth is a really complicated theory for both scientists and economists.
This is not going to cut it.: Inclusive wealth is a really complicated theory for both scientists and economists.Courtesy happyeclaire (Flickr)

Ready for the good stuff??

Economists and scientists both agree that the environment has worth, called natural capital, but they disagree on how much. In fact, not only do economists and scientists disagree with each other, but they disagree amongst themselves! To be fair, determining something’s worth can be extremely difficult. Because there are already economic markets for some natural resources like trees (i.e. lumber) and metals (i.e. gold), it’s easier to assess their value. Most ecosystem services, however, like the flood control provided by wetlands, are more difficult to put a dollar value on.

Inclusive wealth theory says that our decisions should be made on economic assessments that include true representations of the value of natural resources (difficult as that may be).

Politicians make important decisions regarding environmental policies, including actions that affect climate change. When politicians are choosing between multiple policy options, they are conducting policy analysis. One criterion that politicians pretty much always use is a cost-benefit ratio, or cost efficiency. In order to do that, politicians must determine the value of each policy option and weight the outcome against the rest. (It might sound complicated, but you do this same process informally everyday when you make decisions regarding what to eat for breakfast and whether to walk or ride your bike to school/work.)

Timber!: Land use changes, like logging, release greenhouse gases like carbon dioxide into the atmosphere, ultimately contributing to climate change.
Timber!: Land use changes, like logging, release greenhouse gases like carbon dioxide into the atmosphere, ultimately contributing to climate change.Courtesy Ben Cody

Polasky and other like-minded individuals argue that under traditional accounting methods, politicians’ cost-benefit ratios are distorted – they are not accurately representing the true worth of the environment. Furthermore, as a result, we’re making some pretty big, bad decisions. According to Polasky, the solution is simple in theory, but difficult in practice: adopt inclusive wealth theory to more accurately measure environmental worth. If we increase the value of the environment in our analysis, the cost-benefit ratios will change and perhaps favor decisions that are more environmentally friendly. That is, under inclusive wealth, we might finally see how important it is to take climate change-reducing actions such as reducing our fossil fuel consumption, protecting forests from logging, and stopping eating so much meat… or not.

What do you think?

How much $$ is the environment worth to you? What about individual ecosystem services like pollination by bees or decomposition of waste by microbes?

Are politicians doing an accurate job of assessing the value of natural capital?

Post your comments below!

Jan
13
2009

Solar slowdown: Solar panel revenues projected to drop 19% in 2009
Solar slowdown: Solar panel revenues projected to drop 19% in 2009Courtesy richardmasoner

Global finances hurt solar industry

Suntech Power Holdings Co. Ltd., the world's largest solar module maker, suspended its plan to expand capacity by 40 percent in 2009. Instead, it laid off 10 percent of its 8,000 strong workforce.

Global revenues for photovoltaic solar panels are expected to drop 19 percent in 2009, believed to be the sector's first-ever contraction, as prices fall due to oversupply, research firm iSuppli said last December" Reuters

Say it aint so

My hope is that a change in government incentives will prove to be a game changer.

Additional news, First Solar

First Solar was featured by Investopedia yesterday as a solar company to watch in 2009.

Jun
24
2008

Water, water everywhere, and not enough to drink: Making water more freely available actually makes it more scarce
Water, water everywhere, and not enough to drink: Making water more freely available actually makes it more scarceCourtesy Today is a good day

Or just mis-managing what we have? Blogger Fabius Maximus argues for the latter. He claims that most water "shortages" are actually the result of political forces: in poor countries, corruption and mismanagement; in wealthy countries, politically popular price supports.

Which gives me yet another opportunity to discuss the dismal science of economics and the law of unintended consequences.

Y'see, water is essential to human life. Therefore, governments try to provide clean, safe water to their citizens. And, being all egalitarian and everything, Western democracies want to make water equally available to all. So they provide it free, or at an extremely low price, so that everyone can afford it.

(Of course, nothing is "free" -- the water service is subsidized by taxes.)

Unfortunately, this leads to a little something known as the ragedy of the commons. If a resource is free, then there's nothing to prevent people from using way too much of it, or even wasting it. Thus, free-or-low-cost water leads to farmers growing rice in the California desert, or developers building water-intensive golf courses, or simply home owners tending lush lawns in climates not suited for them.

Now, I have nothing against rice, or golf, or lawns, even. (My own lawn, I'm a little less than fond of, but that's another story.) The point is, making water freely available to everyone to drink and bathe also makes it freely available for a wide variety of more wasteful uses, which leads to some of the shortages we see today.

Jun
16
2008

Sizing up the competition: Capuchin monkeys can be trained to use money, and react to it in surprisingly humanlike ways.
Sizing up the competition: Capuchin monkeys can be trained to use money, and react to it in surprisingly humanlike ways.Courtesy Arriving at the horizon

Researchers in Italy have taught capuchin monkeys how to use money to buy food in lab experiments. The monkeys were observed making simple economic decisions.

The study is not yet available on-line, but it sounds an awful lot like this research from Yale, published last year. There, the monkeys not only learned to use money, but to respond to price fluctuations, and even to steal. However, they could not budget and they gambled irrationally – a lot like their hominid cousins.

There was also an incident of flinging feces at fellow monkeys who did not play by the rules – perhaps the most dismal experiment in the history of the dismal science.

Gone fishin': A long-tailed macaque in Thailand demonstrates its unorthodox technique.
Gone fishin': A long-tailed macaque in Thailand demonstrates its unorthodox technique.Courtesy nittynorn

Meanwhile in Indonesia, industrious long-tailed macaque monkeys aren't waiting for handouts. They are supporting themselves by observed fishing, scooping fish from the water with their bare hands and eating them.

This is the first documented evidence of fishing in this species, though other primates – including baboons, chimps and orangutans – are known to fish. Researchers believe this behavior in macaques is an indication of their flexibility and ability to adapt to new conditions.

Jun
01
2008

Another dismal post about the dismal science.

Today, we look at The Copenhagen Consensus. A group of economists are presented with a thought experiment: let’s say you had $75 billion to spend on solving one of the world’s problems – how would you allocate your funds?

Economists, being the dismal people that they are, take no account of what is “moral” or “right” or what “ought” to be done. They just try to figure out where you get the biggest bang for your buck. Their answer? Micronutirents for kids. Providing vitamin A and zinc to 80 percent of the 140 million children who lack them would provide almost $17 in health benefits for every dollar invested.

Other items in the top ten:

  1. Micronutirents for kids
  2. Expanding free trade
  3. Fortifying foods with iron and salt
  4. Expanding immunization coverage of children
  5. Biofortification
  6. Deworming
  7. Lowering the price of schooling
  8. Increasing girls' schooling
  9. Community-based nutrition promotion
  10. Support for women's reproductive roles

The majority of the most-efficient solutions deal with health, thus proving the old saying, an ounce of prevention is worth a pound of cure.
The least-efficient proposal was a plan to mitigate global warming. Nobel Prize-winning economist Thomas Schelling noted that that spending $75 billion on cutting greenhouses gases would achieve almost nothing. In fact, the climate change analysis presented to the panel found that spending $800 billion until 2100 would yield just $685 billion in climate change benefits.

Economist Richard Nordhaus, in his book A Question of Balance: Weighing the Options on Global Warming Policies, draws a similar conclusion. Projects to massively reduce greenhouse gases end up costing more than they deliver—in some cases, many trillions of dollars more. OTOH, investing in alternative energy (wind, solar, etc.) and bio-engineering can produce great results for the amount spent on them.

The economists at Copenhagen felt funding research and development of low-carbon energy technologies was worthwhile, and ranked it 14th out of the 30 proposals they considered.

Other items at the bottom of the priorities list are proposals to reduce air pollution by cutting emissions from diesel vehicles; a tobacco tax; improved stoves to reduce indoor air pollution; and extending microfinance. These are not necessarily bad ideas. It’s just that other proposals provide more bang for the 75 billion bucks.

May
30
2008

How much is your life worth? In dollars and cents?: Or, to put it another way, how much would you pay for an extra ten years of healthy life?
How much is your life worth? In dollars and cents?: Or, to put it another way, how much would you pay for an extra ten years of healthy life?Courtesy Tracy O

Gosh, how long has it been since I’ve pulled out the old “there’s a reason they call economics ‘the dismal science’” trope? Must have been a good 15, maybe 20 minutes. Well, here it is again. How much would you be willing to pay to live a longer, healthier life? In order to answer the question, you have to put a dollar value on your life. How much is ten years’ of healthy life worth? The "fight aging!" blog discusses the situation in cold, hard terms of dollars and cents – a new therapy might add ten healthy years to your life, but if it cost more than those years were worth, would anybody still get it? What if it came down in price, but only the richest people could afford it? And how long would it take before it became affordable to everyone?

Putting dollar value on human life – man, those economist be whack!

Mar
05
2008

Red blood cells infected with Plasmodium falciparum: This thin film Giemsa stained micrograph reveals ring-forms, and gametocytes of Plasmodium falciparum.
Red blood cells infected with Plasmodium falciparum: This thin film Giemsa stained micrograph reveals ring-forms, and gametocytes of Plasmodium falciparum.Courtesy cdc

  • Malaria is both preventable and curable.
  • A child dies of malaria every 30 seconds.
  • More than one million people die of malaria every year, mostly infants, young children and pregnant women and most of them in Africa.

A recent article in the NY Times discussed if it is possible to eliminate malaria. They need more money, better health systems and a vaccine. Some experts feel the big push to eradicate malaria is counterproductive or even dangerous. Dr. Arata Kochi, the W.H.O. malaria chief stated in the article that, “… enough money, current tools like nets, medicines and DDT could drive down malaria cases 90 percent. But eliminating the last 10 percent is a tremendous task and very expensive.” He doesn’t want people to have false hope.

A new vaccine
In spite of the debate, research is progressing to reach the goal of eliminating malaria. The Seattle Biomedical Research Institute (SBRI) is home to one of the largest malaria research programs in the United States. SBRI's Malaria Program is focused on vaccine discovery for malaria during pregnancy, severe malaria in children and liver-stage malaria. SBRI scientists are working on a vaccine that uses genetic engineering to render malaria parasites harmless. According to an article in the Seattle Times SBRI is looking for volunteers to be bitten by malaria-infected mosquitoes to aid in the quest for new vaccines and drugs. Scientists will analyze blood from the human volunteers to learn more about the body's immune response to the disease.

What do we do?
Economists believe that malaria is responsible for a ‘growth penalty’ of up to 1.3% per year in some African countries. When compounded over the years, this penalty leads to substantial differences in GDP between countries with and without malaria and severely restrains the economic growth of the entire region. Malaria costs Africa $12 billion every year in lost productivity alone.

What do you think? Where should we be putting our resources?

  • Developing a vaccine (the Bill and Melinda Gates foundation alone has spent $258 million
  • More money to distribute long-lasting insecticidal nets (each net costs $5-7)
  • Mosquito control with indoor residual spraying like DDT (costs nearly $4 per person)
  • Getting effective drug treatments to the infected (effective therapy costs $2.40 for a round of treatment)
Nov
06
2007


Providing health care for all is no easy task.: Photo by Neimster at Flickr.com

There’s been a lot of talk about the American health care system of late. And there’s going to be a lot more talk in the months ahead, as it becomes a campaign issue in the 2008 Presidential election. Gregory Mankiw, a professor of economics at Harvard, has crunched the numbers on health care, and found that some of the issues aren’t quite what they seem.

Lower life expectancy

Demographically and economically, the United States and Canada are fairly similar. Yet Americans, on average, die about two-and-a-half years sooner than our neighbors to the north. So health care in the US must be worse, right?

Not necessarily. Mankiw found that Americans, especially younger ones, are far more likely to die in an accident or a homicide than a similar Canadian. Take that away, and the difference virtually disappears. As Mankiw states, “Maybe these differences have lessons for traffic laws and gun control, but they teach us nothing about our system of health care.”

Infant mortality

In America, a higher percentage of babies die during infancy than in other countries. Ironically, this is not a sign that American health care is worse, but rather, that it is better.

In many countries, low-weight babies who are born not breathing are considered stillborn—doctors do not try to save them. American doctors do. In fact, America has the best rate of success with low-weight babies, simply because we are willing to take on these high-risk cases. But high risk also means high failure rate: despite the doctors’ best efforts, many of these babies die anyway, raising our infant mortality rate. In other countries, the baby is not counted as ever having been alive at all, making their rate appear low.

Also, Mankiw notes that low birth weight is associated with teen pregnancy, and America has a higher teen pregnancy rate than many other countries. While there are steps we can take to reduce that phenomenon, overhauling the way we pay for health care is not going to have any effect on teenagers’ behavior.

Millions of uninsured

Many politicians have noted that some 47 million Americans – nearly one in six – has no health insurance. Some of these people want health insurance, but can’t afford it, or can’t get it through their jobs. This is a real problem.

However, Mankiw notes that this 47 million includes a lot of other groups. Millions of poor people are already eligible for Medicaid, but have simply never enrolled. Millions more have been offered health insurance through their jobs, but declined. We could reduce the 47 million substantially, without changing a thing, just by getting these folks to sign up.

Mankiw notes that a large number of uninsured are illegal immigrants. Getting these people covered is a matter of immigration reform, not health care reform.



So, when you hear politicians throwing numbers around in the health care debate, remember: the story behind the numbers is often a lot different than the sound bites make it appear.

Meanwhile, here’s a possible solution to providing health care to the uninsured.