Energy Security vs Water Security

Interesting article in NYTimes on using fracking to unlock oil supplies. Although fracking uses up valuable water supplies,

The oil industry says any environmental concerns are far outweighed by the economic benefits of pumping previously inaccessible oil from fields that could collectively hold two or three times as much oil as Prudhoe Bay, the Alaskan field that was the last great onshore discovery. The companies estimate that the boom will create more than two million new jobs, directly or indirectly, and bring tens of billions of dollars to the states where the fields are located, which include traditional oil sites like Texas and Oklahoma, industrial stalwarts like Ohio and Michigan and even farm states like Kansas.

“It’s the one thing we have seen in our adult lives that could take us away from imported oil,” said Aubrey McClendon, chief executive of Chesapeake Energy, one of the most aggressive drillers. “What if we have found three of the world’s biggest oil fields in the last three years right here in the U.S.? How transformative could that be for the U.S. economy?”

But I wonder how much gain there is if switch from importing oil to importing water? Not that we can ever insulate ourselves from imported oil, there is not that much to frack. But even if there was, aren't supplies of water also important? Would politicians be so happy to have our water consumption decided by an Organization of Water Exporting Countries?

Don't Knock the Ryan Plan?

Joe Nocera tells us not to knock Paul Ryan. Not that he likes the plan itself:

The Ryan plan, which would give seniors a fixed amount they can use to buy health insurance, would undoubtedly shift the cost burden over time from the government to seniors themselves, making health care far less affordable for millions of people. Ryan says that “empowering” health care consumers will help control costs, but that’s absurd: Medicare itself has far more pricing power than the people who actually need treatment.

The first part of Nocera's critique is correct, the cost of health care is shifted to seniors themselves, but the second part makes no sense (though I have seen this before, see here). I wonder how people can hold such contradictory ideas in their heads at the same time? If you shift more of the costs to seniors, who have limited budgets, they will get less health care. If they pay less for health care, costs will fall. Of course so will the amount of health care provided. But you cannot deny that if people cannot afford healthcare they will buy less of it.

Indeed, that seems to be the biggest problem with the Ryan plan. It controls the costs of healthcare by forcing people to buy less than they need.

But then the confused Nocera argues that we should not scorn Paul Ryan. Because the costs of health care are real he argues that:

It would be nice if we could treat the Ryan plan not as an object of derision but as a launching off point for a serious debate. That way, maybe for once we could avert a crisis instead of acting shocked when it finally arrives.

But this seems odd to me. Why not let the Obama Plan be the start of a discussion to control Medicare costs? You don't want to scorn Ryan who argues that Obamacare destroys Medicare. But we should start the discussion with Paul Ryan?

Nocera is really confused.

Supermarkets and Schools

Greg Mankiw connects to this Don Boudreaux article in the WSJ asking what supermarkets would be like if they were run like public schools. Mankiw thinks the article is thought-provoking, so do I, but for opposite reasons I think. Have you ever seen what supermarkets are like in poor neighborhoods? Compare groceries and school in South-Central Los Angeles. The schools are better, much better, and that is saying something. They are even safer. For a study of groceries in South Central you can go here.

Of course there are plenty of good groceries stores in Brentwood and Beverly Hills. So what is the point that Boudreaux and Mankiw want to make. That we can have school choice and the affluent will get good choice and good schools, and the poor will get their education from bodegas and liquor stores? Do they think that the crime and violence, let alone lack of purchasing power, that inhibits supermarkets from moving to poor neighborhoods will not deter schools?

Playing with Fire

Pennsylvania Senator Pat Toomey puts in his two cents as dumbest legislator early in his term. With Congress playing fire over a debt ceiling bill, he calls for legislation to only pay interest on the debt. As this article in the NYTimes notes:

“I think the important thing to do would be to make it clear to markets that the government is not going to default on its debt,” said Senator Patrick Toomey, Republican of Pennsylvania, whose bill assigns priority to interest payments. “It would be easy, I think, to make it clear to the markets that they don’t have to worry about this.”

Toomey's plan to pay interest payments but not other government obligations -- such as wages -- seems as dumb politically as economically. After all, much of the debt is held by foreigners, so Toomey would pay off the Chinese before American citizens who toil for the public. I guess this fits with the basic Republican idea that interest recipients are more important than average Americans, but it is certainly playing with fire to do so. This would convert the government into a debt junkie who chooses each month whether to pay utilities or the rent and which creditors to hide from. Does Toomey really believe financial markets will still trust US debt under such behavior?

Greeks are Angry

Greeks are angry over the costs of reform. See this article in the Guardian.

A growing chorus of voices is urging the Greek government to restructure its debt as fears grow that a €110bn bailout has failed to rescue the country from the financial abyss and is forcing ordinary people into an era of futile austerity.

"It's better to have a restructuring now … since the situation is going nowhere," said Vasso Papandreou, whose views might be easier to discount were she not head of the Greek parliament's economic affairs committee.

Given the scale of protests to minor adjustments it is hard to see how Greece can make the big adjustments necessary to adjust their fiscal situation:

Tomorrow, in a clear sop to the thousands who have signed up to the "can't pay, won't pay" movement, the ruling socialists will announce reductions of up to 50% in road toll fees. As the nation struggles to rein in a debt of €340bn, the logic of appeasing protesters – an estimated 8,000 Greeks a day were refusing to pay tolls – has outweighed antagonising them further. "Our hope is that this will calm things down," the deputy transport minister Spyros Vougias said.

Last week, a man shot a bus inspector hired to crack down on fare dodgers after protesters stormed a police station, snatched hundreds of confiscated number plates and set light to thousands of fines. Days later thugs attacked Antonis Loverdos, the health minister, as he visited a hospital in Athens. In Patras, James Watson, the 83-year-old Nobel Prize-winning geneticist was also attacked as he prepared to give a speech at the city's university.

It is hard to see how Greece can adjust without haircuts from bondholders. Some trade between haircuts and real reforms might make it palatable. But that opens up a complex political economy problem for Europe, since there are other economies, notably Portugal and Ireland with similar, though right now more manageable, problems.

Natural Gas Nonsense

Joe Nocera has an article in today NYTimes arguing in favor of tapping the Marcellus Shale. The main point he makes:

The truth is, every problem associated with drilling for natural gas is solvable. The technology exists to prevent most methane from escaping, for instance. Strong state regulation will help ensure environmentally safe wells. And so on. Somewhat to my surprise, this view was seconded by Abrahm Lustgarten, a reporter for ProPublica who has probably written more stories about the dangers of fracking than anyone. In a comment posted online to my Tuesday column, he wrote that while the environmental issues were real, they “can be readily addressed by the employment of best drilling practices, technological investment, and rigorous regulatory oversight.”

Ironically, the NYTimes also has a front page article today arguing that GOP Pushes to Deregulate Environment at State Level. And this does not even deal with our PA Governor Tom Corbett who has ordered that "the Secretary of Environmental Protection must personally approve all enforcement actions and notices of violation. But only for natural gas drillers." Moreover the Governor will not allow any severance tax to cover any social costs associated with removing the gas.

Nocera argues that all his opponents are NIMBYs. But he ignores any discussion of the high cost of getting the gas out. We are told how abundant the natural gas is, but that any severance tax will lead to a drastic cut in production. Which must mean that most wells are marginal -- that only with very high prices is it profitable to produce the gas.

I am not against drilling but I think one should not ignore the costs. I suppose the problem is that bankers do not drill for natural gas. If they did Joe Nocera would be telling us that we should never take one cubic foot out of the ground -- you cannot trust anything a banker says. But no problem with gas drillers. And environmental regulators, so much better than bank regulators.

Thanks Paul Ryan

Like most Republican initiatives, Paul Ryan's budget proposal is designed for me. Tax cuts for the well-off (which extend to the moderately well off), burden placed on future generations. For example, all the burden of Medicare reforms go to those 54 and younger. I'm 55, so I get off okay. Just like Republican tax policy or environmental policy all the costs are on future generations and I don't have any.

The reason is straightforward as David Leonhart notes in the NYTimes:

Yet there is at least one big way in which the plan isn’t daring at all. It asks for a whole lot of sacrifice from everyone under the age of 55 and little from everyone 55 and over. Representative Paul Ryan, the Wisconsin Republican who wrote the plan, calls the budget deficit an “existential threat” to the United States. Then he absolves more than one-third of all adults from responsibility in dealing with that threat...

The reason is partly political. Older people vote in larger numbers than younger adults. Children, of course, can’t vote at all.

This is the basic issue. All the young Obama voters did not vote in the midterm elections, so the Republicans won. Ryan rewards his constituency. Taxes will be cut. Spending for the poor will be cut. The deficit, well it will be cut if unemployment magically can fall to 2.8%, and if unicorns can fly.

Like all good Republican policies, the benefits go to me and the sacrifice goes to the future -- the young who will be left with the cost of the environmental cleanup and a huge federal debt -- and the poor who live elsewhere. I really don't understand why I should be so lucky.

Wisconsin Uprising and All That

The uproar in Wisconsin has awaken my desire to blog.

The fight over the right of public sector unions to collectively bargain is an interesting question. In principle, I would tend to be on the side of ending this right. Unlike unions in the private sector, public sector unions are bargaining with elected officials who have little incentive to hold the line since these unions are major voting interests.

On the other hand, it is pretty transparent that this is an attempt to break a key voting block on the Democratic side of the spectrum at the same time that the Supreme Court has opened up the spigots for corporate donations with their Citizens United Decision.

In this case it is hard not to agree with Krugman:

In principle, every American citizen has an equal say in our political process. In practice, of course, some of us are more equal than others. Billionaires can field armies of lobbyists; they can finance think tanks that put the desired spin on policy issues; they can funnel cash to politicians with sympathetic views (as the Koch brothers did in the case of Mr. Walker). On paper, we’re a one-person-one-vote nation; in reality, we’re more than a bit of an oligarchy, in which a handful of wealthy people dominate.

Given this reality, it’s important to have institutions that can act as counterweights to the power of big money. And unions are among the most important of these institutions.

You don’t have to love unions, you don’t have to believe that their policy positions are always right, to recognize that they’re among the few influential players in our political system representing the interests of middle- and working-class Americans, as opposed to the wealthy. Indeed, if America has become more oligarchic and less democratic over the last 30 years — which it has — that’s to an important extent due to the decline of private-sector unions.

The irony, however, is that what the unions and right thinking people should be fighting is not for public sector union fighting power but a consensus that will cut subsidies for heating for low-income households so that the estate tax can be reduced and taxes can be cut for the super-rich.

Why doesn't anybody protest that? The contrived budget crisis caused by excessive tax cuts is the real shame.

End all Energy Subsidies

An interesting article that discusses ending all energy subsidies. The argument is that since most subsidies actually go to fossil fuels, this will help green possibilities. And with cap and trade dead, it may be the only politically feasible way to encourage green alternatives.

If President Obama wants to set us on a path to a sustainable energy future—and a green one, too—he should propose a very simple solution to the current mess: eliminate all energy subsidies. Yes, eliminate them all—for oil, coal, gas, nuclear, ethanol, even for wind and solar. It will be better for national security, the balance of payments, the budget deficit, and even, believe it or not, the environment. Indeed, because wind, solar, and other green energy sources get only the tiniest sliver of the overall subsidy pie, they’ll have a competitive advantage in the long term if all subsidies, including the huge ones for fossil fuels, are eliminated. And with anti-pork Tea Partiers loose in Washington and deficit cutting in the air, it’s not as politically inconceivable as you might think.

In any event, it certainly would eliminate wasteful subsidies.