The hidden cost of energy

Many people have been linking to the new study claiming that America’s current energy sources cost $120 bn per year excluding the effects of climate change (largely health costs from other forms of pollution). Environmental Capital’s Keith Johnson puts it in a way that caught my attention:

Looked at another way, coal’s hidden pricetag adds up to 3.2 cents per kilowatt hour. Compare that to the 2 cents-per-kilowatt hour that wind power gets from the government — that’s less a subsidy than a partial attempt to level the playing field.

Wow – I would not have guessed that the costs reach the scale of cents per every KWh produced, which is quite hefty. If these numbers are robust – and no doubt there will be ample debate over that – then that is yet another argument that the benefits of climate change legislation far outweigh the costs.

Debt as important as climate

That's the case Tom Friedman makes in the NYT. For human existence on the planet, perhaps not, but for the United States of America, absolutely. The seeming inability of American legislative and executive branches to behave in a fiscally responsible manner is a big source of frustration to me personally (for example, in the healthcare debate that I opted out of).

Prediction markets for government program budgets

I maintain that I'm still largely opting out of the healthcare debate (although not totally successfully). But I found this suggestion from Robin Hanson quite interesting (in response to Megan McArdle on the CBO projection of the healthcare legislations budgetary implications):

The alternative is prediction markets. Compared to the value of making good decisions on these bills, or to the effort spent in “rage and anguish” on them, the cost to create prediction markets giving quality unbiased estimates of actual bill budgets would be small.

This is a clever idea, but I'm afraid the major obstacle is that it would be very hard to create prediction markets large enough that they couldn't be manipulated by those who had a high stake in the outcome of legislation. To take one example, Democrats would have you believe that insurance companies stand to lose billions in profits if this legislation passes - you think the industry would hesitate to spend a few million dollars influencing the budget forecast of said legislation, were it in their power?

We've even had a recent example of this, first spotted by the hawk-eyed Nate Silver at fivethirtyeight.com: a McCain supporter investing "hundreds of thousands of dollars" in pumping up McCain presidential victory contracts on Intrade in September 2008.

Overall, if the trader’s motive was to influence the Intrade market, he was remarkably successful, Rothschild said. The trader’s actions help keep the probability of Obama winning the election on Intrade about 10 percent lower than Betfair and IEM for more than a month.

Enabling deep-pocketed stakeholders to influence the budget forecasts for major legislation by 10% would be downright disastrous.

P.S. Not only would potential arbitrageurs be seriously outgunned by insurance companies, but the long time horizon (when would the contract be closed out – 2019?) makes the arbitrage risky in other ways reduces the attractiveness of the return on an annualized basis.

The food-healthcare connection

Michael Pollan connects the healthcare debate to food:

To listen to President Obama’s speech on Wednesday night, or to just about anyone else in the health care debate, you would think that the biggest problem with health care in America is the system itself — perverse incentives, inefficiencies, unnecessary tests and procedures, lack of competition, and greed.

No one disputes that the $2.3 trillion we devote to the health care industry is often spent unwisely, but the fact that the United States spends twice as much per person as most European countries on health care can be substantially explained, as a study released last month says, by our being fatter. Even the most efficient health care system that the administration could hope to devise would still confront a rising tide of chronic disease linked to diet.

That’s why our success in bringing health care costs under control ultimately depends on whether Washington can summon the political will to take on and reform a second, even more powerful industry: the food industry.

This is, of course, Pollan talking to his own pet cause… but in this case it makes a certain amount of sense.

I found this interesting:

Recently a team of designers from M.I.T. and Columbia was asked by the foundation of the insurer UnitedHealthcare to develop an innovative systems approach to tackling childhood obesity in America. Their conclusion surprised the designers as much as their sponsor: they determined that promoting the concept of a “foodshed” — a diversified, regional food economy — could be the key to improving the American diet.

All of which suggests that passing a health care reform bill, no matter how ambitious, is only the first step in solving our health care crisis. To keep from bankrupting ourselves, we will then have to get to work on improving our health – which means going to work on the American way of eating.

I think the battle between the proponents and critics of industrial agriculture will be fought on many battlefields for a long time.

Ugly protectionism

Yikes - Obama has slapped tariffs on Chinese tires and China is already retaliating. Greg Mankiw is justifiably disappointed. I hope Obama isn't trying to drum up support for healthcare through protectionism. Healthcare reform is not worth the negative impact a trade war would have on living standards worldwide.

Update: Condemnation in the econoblogosphere is rapid and unanimous, cutting across ideological lines. E.g. Brad DeLong: "Barack Obama Does Something Really Stupid". The WSJ's Real Time Economics rounds up others, including this gem from Ferris Bueller's Day Off:

“In 1930, the Republican controlled House of Rep, in an effort to alleviate the effects of the… Anyone? Anyone?… the Great Depression, passed the…Anyone? Anyone? The tariff bill? The Hawley-Smoot Tariff Act which, anyone? anyone? Raised or lowered?… Raised tariffs, in an effort to collect more revenue for the federal gov’t. Did it work? Anyone? Anyone know the effects? It did not work, and the US sank deeper into the Great Depression.”

Opting out of healthcare (debate)

Ben Casnocha articulates something similar to what I've been feeling on the American healthcare debate:

I've decided I'm just going to read it about once it's resolved.

You can't keep up with everything. Rather than lightly follow along and skim articles and pretend to be informed, I'm consciously opting out. I rarely do this when it comes to current affairs -- I'm kind of a junkie -- but I must say, this time around, it feels liberating.

I've backslid a few times, but every time I get started it is a slippery slope - I truly don't know enough to debate, nor probably do the people I've argued with, and it just gets frustrating at some point. I think it would be great if everyone had healthcare, and I think it's important that the government be on sound fiscal footing. I will leave the debate of how to get there to smarter and/or braver souls than I.