DISQUS

Paul O'Pinion · 11 months ago

Spot on and a nice companion piece to the David Yermack article in today's Wall Street Journal "Just Say No to Detroit". Yermack states: "If the government wants to spend $25 billion to protect auto workers, it would do better to transfer the money to them directly (perhaps by cutting each worker a check for $10,000) rather than by keeping their unproductive employer in business".
The business has passed them by. Good riddance.

mk · 11 months ago

Well, there's the rub, no? Similar to Tyler's recent comment on the financial bailout.

The default bailout here is unemployment insurance for everyone who loses their jobs. It would be worth estimating the price of such a bailout. Then we could compare against the current proposed bailout (with the acknowledgement that this one might not be the last).

We as a society have already decided that we won't tolerate mass economic dislocation. The question is whether the workers should get checks directly from government, or whether they should get it from GM on government life support.

It might be worth considering a third way, e.g. a partial bailout to soften the landing, or keep the company going for 2 more years, on the condition that it liquidates in an orderly fashion.

mk · 11 months ago

To extend on this point, a quote from a recent Reuters story:

General Motors Corp., seeking a federal bailout as its cash dwindles, would cost the government $200 billion should the biggest U.S. automaker be forced to liquidate, a forecasting firm estimated.
A GM collapse would mean ``more aid to specific states like Michigan, Ohio, and Indiana, and more money into unemployment and extended benefits,'' Nariman Behravesh, chief economist at IHS Global Insight Inc. in Lexington, Massachusetts, said today in an interview.


The key question is which bailout is best, not bailout or no bailout.

R Pointer · 11 months ago

Reading through the comments section over at Matt Y.'s blog was like taking a bath in a cesspool.

I hate my compatriots sometimes.

Freddie · 11 months ago

I would really like it if people would jettison statements like "this is simply true." Particularly philosophy majors.

Will Wilkinson · 11 months ago

Freddie, I learned that "this is simply true" from a bunch of economists, some of them with Nobel Prizes. Do you need me to gin up a petition?

skypotato124550 · 11 months ago

propping of failing industries began in the 1970s, stopped when monetarism was en vogue, then started up again. its fairly obvious that this leads to inflation, falling profits and the 'zombie firms' as described above.

the problem with allowing things to collapse, is, well, it hurts. are we as a society prepared to risk a broad collapse? it wont be limited to GM! it will be indiscriminate and encompassing!

personally i think both solutions to crisis are stupid. there must be another reason why this keeps on happening, and there must be a better solution.

webgrrl · 11 months ago

"an accurate and effective way for the government to estimate and price carbon externalities"

But there is WW. It's called carbon trading. We should have a national carbon market just as we do for NOX and SOX. It works. I mean, when was the last time you even heard the phrase "acid rain?"

Will Wilkinson · 11 months ago

I'm not skeptical about the fact that we can raise the cost of carbon emissions by taxing them. I'm skeptical of the ability to calculate the optimal tax, because I don't think anyone actually knows that the net externality is negative. I understand that's a minority view, but there it is.

Pithlord · 11 months ago

If we don't know whether the consequences are good or bad, we still know that the externality is negative -- on the reasonable assumption that we are risk-averse.

mk · 11 months ago

Not as totally clear as you might think. In particular, burning fuel "makes the economy go round" -- the ready access to cheap automobile transportation increases shopping trips, business trips to meet clients, employee access to a range of employment opportunities, etc. etc. The use of cheap coal increases business hours, reducing prices which increases consumer purchases, etc.

Take a different example: when a new road is proposed, all kinds of externality calculations are made. These include many positive externalities from increasing commerce. Many of the same externalities hold for cheap energy usage, but sometimes these are not included in the externality calculations because there is only a focus on environmental externalities.

Now, if there is a consensus that adds all these externalities up and gets a negative number, that invalidates what I just said. But from what I remember of the literature there is not such a consensus.

Jadagul · 11 months ago

MK: I think the point is that, if we really have no idea what the net externality is, then the _expected value_ of the externality is zero. However, since we're risk averse, we'd prefer a lower variance distribution over a given mean to a higher-variance one. So we tax carbon and reduce the variance.

Not sure whether I believe the argument I've just sketched--would need to think about it more, and homework calls. But it's not prima facie false.

aphor · 11 months ago

Is it necessary for the tax to be optimal for it to be practical?

Paul Zrimsek · 11 months ago

Just to be clear, you do realize that our presumed inability to calculate the optimal carbon tax applies just as much to a tax rate of zero as it does to any other tax rate... correct?

webgrrl · 11 months ago

Who WW, I'm talking about a market price. Why are you talking about taxes? Of course the government cannot calculate the price. That's why we open the national carbon market. It will certainly beat the 3 regional markets that are open or set to open now. Different carbon markets across the country will just be a nightmare.

Paul Zrimsek · 11 months ago

So when the national carbon market is set up, we can rest assured that the price for permission to emit a ton of carbon will equal the marginal cost of producing the permission to emit a ton of carbon? This warms the cockles of my libertarian heart.

webgrrl · 11 months ago

Paul, emissions markets have been proven to work; NOX and SOX are great. Acid rain really is no longer a problem because of emissions trading. Why would carbon be any different than NOX and SOX?

As you may know, the carbon market in the Northeast US has already begun and the Western Climate Initiative, which includes many Western States, most of Canada, and with Florida and maybe some of Mexico joining. But regionalty won't work, since the carbon permits aren't currently fungible between them at this stage. The only way to sanity is 1 national market.

But I'll go even farther - we also need a water market, and probably a fisheries market too.

Paul Zrimsek · 11 months ago

If the government doesn't know the cost of emissions, then a fortiori it doesn't know the correct number of permits to put on the market.

ArtD0dger · 11 months ago

Yglesias' post is indeed spot-on, and it couldn't contrast more with the swam of comments to you last post lobbing insults at your supposed "market as god" economics.

I wonder how long young Matthew will be able to maintain even a patina of leftism on his political worldview.

Bram · 11 months ago

Zombie companies using resources that could otherwise be put to more effective use - great points that I will use when talking with friends and colleagues.

markayi · 9 months ago

i think its useless to help zombie company cause they dont really care about on how to save the world

fourby4 · 8 months ago

If they want to save the world they should make cheap low emission cars. That will make people buy that car and not use their old cars.