Thursday, October 31, 2013

To the Editors: Victor Davis Hanson doesn't understand income taxes

My LTE published by the Mercury News:
Hanson fails to understand tax rates

Victor Davis Hanson (Opinion, Oct. 25) strips more from the credibility of his arguments than anything else when he writes of the quiet desperation of the 1 percent in Silicon Valley, beginning with his assertion that they pay well above 50 percent in aggregate income tax rates. Hanson is unaware that a marginal rate applies only to income above the rate cutoff -- the amount a person earns below a rate cutoff is taxed at lower rates. A California couple has to earn more than a half-million dollars annually to begin paying slightly over 50 percent income tax on the additional money they make. They would have to earn many millions of dollars annually before their aggregate rate exceeds 50 percent. We're discussing far fewer than 1 percent at this point, people who can afford to give back to the California economy that helped them build that wealth. The rest of his argument is no better.

Hanson's Op-Ed read "Beneath veneers of high-end living, there are lives of quiet 1-percent desperation. With new federal and California tax hikes, aggregate income-tax rates on dot.commers can easily exceed 50 percent of their gross income." And it went south from there.

I expect a couple would have to make over $4 million annually to have a chance at 50% aggregate income tax rates, but that's making the ludicrous assumption that $4m includes no capital gains and ignores deductions. If you define income the way people usually do, as salary plus commission plus all investment income, I think few people below $10m annually pay over 50% in aggregate income tax. And while Romney's 14% rate was probably an outlier, the vast majority of people making over $10m have lots of investment income and pay very little. This doesn't include payroll taxes but those become a rounding error when your annual income exceeds $4m, and other taxes are also unimportant unless you've chosen a bonfire of vanities lifestyle.

Buffett said he paid a lower tax rate than his secretary, and he seems more accurate about the wealthiest than Hanson.

In other financial news, the US budget deficit is the lowest since the 2007-2008 fiscal year, at $680 billion. Interest on the debt is $415b, so the US is effectively spending only $265b above revenues and the rest is debt turnover. We're very close to having an operating/primary surplus in the near future, probably not a good idea with a still-limping economy.

Should be standard feature in high-rise neighborhoods

From SFGate:

Residents of the small Norwegian town of Rjukan have finally seen the light.

Tucked in between steep mountains, the town is normally shrouded in shadow for almost six months a year, with residents having to catch a cable car to the top of a nearby precipice to get a fix of midday vitamin D.

But on Wednesday faint rays from the winter sun for the first time reached the town's market square, thanks to three 183-square-foot (17-square-meter) mirrors placed on a mountain.

Cheering families, some on sun loungers, drinking cocktails and waving Norwegian flags, donned shades as the sun crept from behind a cloud to hit the mirrors and reflect down onto the faces of delighted children below.

People who live on the north side of high-rises could get sunlight the same way, with remote-controlled mirrors on the south side of adjacent buildings directing reflected sunlight.

Little quality of life amenities like this can reduce the downside of high-density living and increase the number of people who choose that option.

Krugman part 2: you can get pretty far just by regulating coal

Eli's excerpted Krugman's book review of Nordhaus below, but there was one other part of the review that especially interested me:
[Nordhaus] more or less ridicules claims that climate change isn’t happening or that it isn’t the result of human activity. And he calls for strong action: his best estimate of what we should be doing involves placing a substantial immediate tax on carbon.... 
Why is putting a price on carbon better than direct regulation of emissions? Every economist knows the arguments: efforts to reduce emissions can take place along many “margins,” and we should give people an incentive to exploit all of those margins.... The answer is, all of the above. And putting a price on carbon does, in fact, give people an incentive to do all of the above....

And yet there is a slightly odd dissonance in this book’s emphasis on carbon pricing. As I’ve just suggested, the standard economic argument for emissions pricing comes from the observation that there are many margins on which we should operate. Yet as Nordhaus himself points out, studies attempting to analyze how we might most efficiently reduce carbon emissions strongly suggest that just one of these margins should account for the bulk of any improvement—namely, we have to sharply reduce emissions from coal-fired electricity generation. Certainly it would be good to operate on other margins, especially because these studies might be wrong—maybe, for example, it would be easier than we think for consumers to shift to a radically lower-energy lifestyle, or there might be radical new ideas for scrubbing carbon from the atmosphere. Nonetheless, the message I took from this book was that direct action to regulate emissions from electricity generation would be a surprisingly good substitute for carbon pricing—not as good, but not bad.

And this conclusion becomes especially interesting given the current legal and political situation in the United States, where nothing like a carbon-pricing scheme has a chance of getting through Congress at least until or unless Democrats regain control of both houses, whereas the Environmental Protection Agency has asserted its right and duty to regulate power plant emissions, and has already introduced rules that will probably prevent the construction of any new coal-fired plants. Taking on the existing plants is going to be much tougher and more controversial, but looks for the moment like a more feasible path than carbon pricing.
(Emphasis added.)

The Republican Party has consistently opposed market mechanisms to help the environment, forcing us to use regulations instead or let the environment go to pot. Some times regulations work better than others, but it would be helpful if the Republicans just gave the market a chance.

Nearby (and especially distant) mountains don't prevent sea level rise/saltwater intrusion problems

Per Eli's post below, Judith Curry's put up a silly guest post by Rud Istvan saying that climate change poses no water supply problems to Caribbean islands. There are too many fish to shoot as Istvan gishgallops them in the barrel, so let's talk first about where he's right:  if nobody lived on these islands, then there'd be no water supply problems on those islands for those people who don't live there. In fact, a few people could live on those islands and if they always used far less water than the islands provided with a comfortable margin to spare, then again the problems from climate change would likely be minimal. His lamentation that humans are flawed is correct, while his claim that it doesn't count when climate change makes existing problems worse, not so much.

A brief aside:  I've heard a similar claim from far more credible people that climate change's effects on biodiversity is overemphasized because it only adds to other stresses, most notably habitat destruction that keeps species from being able to migrate to new areas. I'm not buying it.

So the main issue is Istvan's claim that if you can draw a line of any length on the earth's surface from A to B without going below sea level and where A is high up, then B cannot have a saltwater intrusion problem. He only references Caribbean islands, but I don't see why the argument doesn't apply everywhere. So his first example was Pico Duarte in the Dominican Republic, at over 3000m elevation:

Pico Duarte's also over 100 km from Santo Domingo, and still further away from many other DR cities. Some of the other peaks he mentions are closer to those island's biggest cities, except for Pico Turquina in Cuba, which is closer to Port-au-Prince in Haiti than to Havana. Moving water a significant distance isn't easy, and contra Istvan, it's made harder when the landscape is mountainous.

Examining his claim, you would think California with a top elevation of 4400m wouldn't have a problem with saltwater intrusion, but we do. Los Angeles has been battling saltwater intrusion since 1915, and now spends millions of dollars injecting freshwater and treated wastewater to keep saltwater out.  LA, btw, has significant mountains in the same county over 3000m tall, and still has the problem. LA probably has an advantage over many Caribbean islands in that its complex geology limits where saltwater can intrude.

Freshwater tends to float on top of salt water, which is good when you've got saltwater intrusion deep below ground but problematic if you live at sea level near the coast when sea level is rising. Coastal cities on continents tend to have saltwater oceans in one direction and freshwater-providing land in the other three. On islands that starts to get problematic, especially the smaller islands. Most contamination also occurs in the upper ground, so drawing from your uppermost freshwater because that's all you got raises another set of issues.

Finally, higher temperatures will mean greater water demand, for farming, landscaping, and for native vegetation that limit how much water gets past their roots and into the water table. My water district sees large changes in water demand depending on whether we have a warm or cool summer. In the next few years we plan to calculate how climate change is going to increase future demand, but it's safe to say that Caribbean islands will need more water for human activities while getting less of it in the water table.

So all that's pretty silly, but the most striking part for me is Rud Istvan's assertion that human mistakes harming the Caribbean societies count when they're committed by the people there, but not when they're committed by Rud Istvan and others who don't want to face the reality of climate change.

UPDATE:  my attempt to comment at Curry's got bounced back. I'll store the comment here for now, pretty much the same as above:

As a director of the Santa Clara Valley Water District in northern California, I would like to inform Rud Istvan that the existence of mountains in a general area does not prevent saltwater intrusion. In Los Angeles, for example, the 3000m San Gabriel Mountains are physically adjacent to the city in the same county, and still they have to spend millions of dollars annually fighting saltwater intrusion. Contrast that to Cuba's highest peak, which is closer to Port-au-Prince Haiti than it is to Havana.

It's also important to note that warmer temperatures increase water demand from both artificial and natural landscapes, which will further depress freshwater tables and increase saltwater intrusion.

Istvan might consider doing further research on these issues before he reaches for what appears to be simplistic conclusions. Climate change makes water supply problems worse as a general matter. Islanders (and for what it's worth, everyone else) may not have handled their other water supply issues perfectly, but that's no excuse to keep greenhouse gas emissions high.

Sympathy for those lost in the shuffle

Interesting editorial in the Mercury News over the "resource reshuffling" issue and California's effort to control climate change. And attention, carbon tax fans, you're not safe from this issue either.

It's a variation on the leakage problem, that reducing carbon emissions in one jurisdiction might result in more emissions elsewhere. The argument in this case is that coal and gas plants outside of California that previously supplied the California and other state markets would just reshuffle who gets supplied with what, with California achieving "reduced" emissions only because other states are being credited with the "increased" emissions.

I'm not sure what to think of the argument. To be fair, it reminds me a lot of my Burma boycott days from the 1990s, when a retail buyer of clothing from a manufacturer would promise not to take any of their Burma imports. We said that's unacceptable, the manufacture will just reshuffle the Burma stuff to another retailer who doesn't even pretend to care about ethics.

But there's always another hand. The resource reshuffling mentioned here shrinks the market for the worst fuels - gas can sell anywhere, while coal can't. And doesn't that reshuffling happen all the time anyway - if I buy an electric car and a bunch of solar panels, wouldn't just a tiny decrease in gas price result in more purchases that (almost) make up for my removal of my vehicle from the market? What's the real solution - is California supposed to go to other states, buy and shut down their coal plants, and then buy and shut down any new coal plants proposed to take the old plants' place? As for the editorial, it suggests continued responsibility for the reshuffled emissions - but for how long? Forever?

I think I could agree with some transitional responsibility for reshuffled emissions for one or a few years, but after a while I'd say the emissions belong to whoever's creating them, not whoever used to create them in the past.

Notes from the Seattle Divestment Forum today and yesterday

I got my five minutes at the press conference, starting about 10 minutes into the video below:

(Link here for Oct. 17 video - no idea why the freeze frame is on my blathering mug instead the mayor's....)

The main takeaway from the conference - two thirds of fossil fuel reserves represented on world capital stock exchanges have to stay in the ground to stay within the 2C temp rise goal. The valuation of the rest is a carbon bubble.
     My note - I suppose it could be that the carbon returns to the ground instead of the fossil fuel stays, although CCS hasn't done well.

Seattle Mayor Mike McGinn:  we're the first generation to experience climate change, and the last to be able to stop it.
     My note - a bit of an overstatement and understatement - we can't stop it, and even a business as usual scenario for X years in the future would be disastrous but not a reason to do nothing starting X years in the future.

A contract-and-grow strategy works for fossil fuel companies - e.g., an oil company that stops throwing away profits on finding new fossil reserves and increases dividends instead will be worth more and serve its owners better than a typical oil company that spends money finding reserves it will never burn.

Lots of discussion on fiduciary duty, something used as an excuse to not divest. Bob Massie calls it a Harry Potter spell - "Fiduciarydutyparalyis!" Given the risks from companies that say they don't care about the future, the fiduciary duty could actually support divestment - what does that say about the quality of the management?

One speaker presented two portfolios, one with fossil fuel companies and one without. The one without had a larger carbon footprint. Climate divestment can get tricky.
       My note - I expect that most of the time, this would not be the usual outcome. Perfect v good issue.

Talking to financial people, it sounds like the recognition of financial exposure that you see in the insurance sector is starting to happen in the financial sector.

A number of professionals showed backcast simulations of divested portfolios v. typical portfolios. Overall it seemed to not diverge all that much.

One person asked a question I had - would recognizing the carbon bubble create a race by companies to get the fuel burnt first, before we hit the ceiling? Response said no, projects are currently being cancelled. YMMV.

Investor engagement/shareholder activism - speakers acknowledged this can be a viable alternative in some circumstances, but argued that if a problem with a business is its core business strategy, then shareholder activism won't work. One speaker made a slightly contrary argument - they're going to engage directly with fossil fuel companies to get them to drop the $100b most expensive new fossil fuel projects in planning stages, setting the stage for shareholder lawsuits if they don't drop them and then the projects crash and burn metaphorically.

Someone raised the slippery slope issue that climate divestment is only one issue and that it opens the door to still other ways to reduce the investment universe. I can understand the reasoning - I think a reasonable response might be that you can consider multiple causes, up to whatever line you choose to draw on restricting your investment universe. Then cage match the causes against each other. The speaker said you also have to look at the investor's mission and the cost of a screen - e.g., divesting from Russia-investing companies would be much more difficult than divesting from top 200 fossil fuels.

On a personal note, I ran into a guy who I used to work with on Burma human-rights issues 18 years ago, and saw him today for the first time since then. Small world.

Eye-opening for those of us who don't have to deal with this ourselves

Sexual harassment from Bora Zivkovic, who's done so much good for science blogging and then used it to harass women. What a shame. Comments worth reading too, one woman after another talking about dealing with the same damn thing.

More context here.

Supreme Court's latest nonsense - it takes four to tango but five to win

The Supremes have decided to accept an industry/US Chamber appeal of a lower court decision saying the EPA was "unambiguously correct" when it used regulating greenhouse gases for motor vehicles as a trigger to begin regulating emissions by power plants. They refused to consider broader questions, including reconsideration of their 2007 decision that effectively mandated the beginning of EPA regulation. The EPA also interpreted legal requirements of the Clean Air Act to allow them to focus only on major polluters - the forces of darkness tried to make a poison pill of the law by forcing them to regulate everybody, and AFAICT that's been shut down.

This issue involves arcana of the CAA, much of it beyond my area. I can just say that it takes only four of the nine supremes to accept an appeal but it takes five to win. The original 2007 vote was 5-4. Granting cert to consider the appeal doesn't necessarily indicate a change in the vote count, but it does indicate that at least four think they've got a chance to ruin the global environment.

While it's legal arcana, the environmental implications are huge. That the US Chamber is again choosing the fossil fuel industry interests over the green business interests shows its dysfunction in failing to represent American businesses.

LA Times chooses not to publish nonsense Letters to the Editor

Specifically, if a letter asserts that there's no sign humans have caused climate change, then they don't publish it, instead hoping that some other letter may contain factual information.

This strikes me as reasonable enough; the usual comparison to creationism applies. I would limit it somewhat - if a LTE quoted one of the very few peer-reviewed, skeptical abstracts, then that's not complete nonsense. Whether an outlier opinion deserves such a prominent placement is the next question and probably depends on the letter and context.

My anecdotal sense is that the false equivalence of ten and even five years ago in the mainstream media over climate science has changed, and the LA Times is one example.

Government disappearances

A little personal tale from the government shutdown - I came back yesterday from vacation at Baxter State Park visiting three moose, two beaver, one insolent racoon, and a million colored leaves, with the plan of leaving next week for our water district's fall trip to Washington DC. We go to lobby the Feds on funding for our various flood control projects and San Francisco Bay restoration program. So much for that trip - our staff tell us that government officials we'd been planning to meet are basically disappearing - they're not even legally allowed to answer calls we make to them on their government-issue phones. The story's that it will get even worse after Friday - the Office of Management and Budget has allowed a few agencies to teeter forward on rollover funding, but that's done with after this week. So we'll be going in November on the hope that things will work out then.

Here's my thought experiment:  why shouldn't the Democrats demand that the Republican House pass climate change legislation or a fiscal stimulus as a condition of funding the government and raising the debt limit? If the tactic of taking the national and global economy hostage is legitimate, why shouldn't Democrats use it?

This isn't even a case where Republicans can argue the ends justify the means, a utilitarian argument they usually avoid. The ends they seek are the opposite of the ends that Democrats would seek so there's no utility-maximizing outcome, just a government shutdown and potential default. The only way to win the game is not to play - except of course for trying to win elections, a legitimate way to change the law.

One good thing about the strange fact of the Army Corps of Engineers running America's domestic flood control program is they're more likely to operate during a government shutdown, so we were able to do a little negotiation at yesterday's district board meeting. Not sure if it'll be interesting, but I'm attaching below a clip where I tried unsuccessfully to pin down one of their experts on an environmental issue. For decades we've allowed trees and bushy vegetation to grow on our levees along streams, incorporating them into our riparian system and providing important benefits to endangered fish. Recently the Corps has been changing that.

I think he's truly trying to be helpful, but I'm not sure if I failed to ask the right question or if it's just that it's not possible to be more specific.

(Video here, October 8, Item 2.1)

In a good news item, a request I made over the summer to increase the rebate we give people to tear out their lawns and put in low-water use landscaping is being supported by staff. Some of our local cities match our rebate and will increase their matching, so in some places we're rebating $2 per square foot of removed lawn, which will pick up a significant fraction of the cost.