1. How does climate change fit into the Big Question? (”When does individual optimization lead to good outcomes for the group as a whole?”) Is there a case for government policy, or will the invisible hand take care of it?
2. The three main policy approaches that folks talk about are command-and-control (e.g., fuel economy standards for cars, or the type of direct regulation that the EPA is slowly moving towards), carbon taxes, and cap-and-trade. Read more here about carbon taxes and cap-and-trade (which comes in two flavors, auctioned and grandfathered).
3. What’s the point of the “cap” in cap-and-trade, and what’s the point of the “trade”?
4. Economists overwhelmingly favor “economic instruments” (carbon taxes or cap-and-trade) over the direct command-and-control approach. Why do you think this is? (Hint: Think about the previous question :)
5. How would you analyze the impacts of carbon taxes or cap-and-trade using supply and demand curves? (Hint: Carbon taxes are sometimes called “price” instruments, and cap-and-trade is sometimes called “quantity” instruments.)
6. There are a million opinions you can read about existing proposals in the U.S. and in Copenhagen, so find one or two and bring your thoughts and questions. Some options (in no particular order) include James Hansen (”Cap and fade“), the WSJ editorial board (”Reckless ‘endangerment’“), Paul Krugman (”An affordable truth“), Alan Durning of Sightline (”Things I love—and hate—about Waxman-Markey [the federal cap-and-trade bill]“), Bjorn Lomborg (”Costly carbon cuts“) and yours truly (”Carbon cap: Be careful what you wish for“).

PS. We are not going to spend much if any class time talking about climate science because you already had a chance to do that. What we are going to do is take the IPCC scientific consensus as given and focus on “Okay, assuming this is correct then what should we do about it?” I am happy to talk about Climate-gate (or anything else you want to talk about :) for a few minutes, but I am not going to let this take up too much time during class. (I am of course also happy to talk more about this stuff outside of class or via email :)

• Ch 10: From some to many. (You shoul be able to define “competitive market” and to differentiate between game theory and price theory.)
• Ch 11: Supply and demand. (Look at problem 11.1—this will be on the exam!—and some or all of problems 11.2 – 11.8. You should also be able to solve simultaneous equations as in section 11.3 on “the algebra of markets”.)
• Ch 12: Taxes. (Look at problems 12.1 – 12.11. These problems are really the heart of the section of the class.)
• Ch 13: Margins. (There are no problems in this chapter, but note that you can use margins to explain, e.g., how taxes shift the curves in Ch 12. You do not need to be able to explain why, e.g., supply curves are also marginal cost curves, but you should be able to discuss the basics of these curves both as supply/demand curves and as marginal cost/benefit curves.)
• Ch 14: Elasticity. (Look at some or all of problems 14.1 – 14.5. You should also be able to describe perfectly elastic long-run supply curves and explain how taxes affect them.)
• Ch 20: Supply and demand details. (Look at some or all of problems 20.1 and 20.3.)

Happy studying, and please bring a calculator to the exam!

PS. Here is the cheat sheet (which as an added bonus also includes an old exam :).

PPS. During the week of Dec 14 you will have to give a 3-5 minute oral presentation about the book you’ve read. As noted in the syllabus, your mission is to “sell” your book, i.e., try to convince the rest of the class that your book is so awesome that they should read it for fun over winter break. The best way to do this is probably to give a very quick overview of the book and then focus on one chapter or story or other little nugget that you think it particularly interesting. Relating it to material we studied in class would of course be good too. (I don’t think you need to do a PowerPoint, and I’m not sure it would help you, but if you want to do one then you need to have it ready the night before so I can load it onto my computer.)

• Leaders Will Delay Deal on Climate Change, NY Times, Nov 14 2009.
• Capital Waits as Budget Chief Crunches Numbers, NY Times, Nov 16 2009.
• Entitlement Spending and the Long-Term Budget Outlook, by CBO (Congressional Budget Office) director Douglas Elmendorf. You can see the latest CBO blog posts here.
• Fiscally Responsible Health Reform Redux by White House OMB (Office of Management and Budget) director Peter Orszag, whose previous job was… (it was discussed in the NYT article above). You can see the latest OMB blog posts here; of particular interest to you might be Birth date, business cycles, and lifetime income, about the impact of entering the labor market during a recession.

PS. For those of you puzzled by my supply-and-demand-curve references to “Yellow and Blue Makes Green”, here are a few ads (about a talking fridge, a comic book guy, and piranhas) that explain matters. Next time I teach this I’ll have to show them in class :)

• Ch 6: Cake cutting (Look at some or all of problems 6.1 – 6.3.)
• Ch 7: Pareto efficiency (Look at some or all of problems 7.1 – 7.4.)
• Ch 8: Simultaneous-move games (Look at some or all of problems 8.1 – 8.6.)
• Ch 9: Auctions (Look at some or all of problems 9.1 – 9.6.)
• Ch 10: From Some to Many will not be on the exam but it might be enlightening. (There are no problems in this chapter, but you should understand the concepts.)
• Ch 17: Fisheries will not be on the exam but again might be enlightening. (There are no problems in this chapter, but it’s an important instance of the Tragedy of the Commons.)
• Ch 18: Sequential-move games (Look at some or all of problems 18.2 – 18.5, 18.8, 18.12(a)-(c), 18.14, 18.15, 18.16.)

PS. You do not need to bring a calculator to the exam, but you will next time so you might as well get in the habit. Also, there aren’t many formulas for this exam, but I put a couple of definitions on the cheat sheet. Let me know if you have any other requests for the cheat sheet, and FYI also on the cheat sheet is a practice exam.

At Lakeside yesterday I asked Will this question:

You’ve written that “America needs a national commission… to assess the evidence about climate change.” But there already was one: in 2001 the National Academy of Sciences said that the IPCC report from earlier that year “accurately reflects the current thinking of the scientific community on this issue.” Given that the IPCC’s 2007 report expressed even more confidence, wouldn’t another commission be a waste of time and money?

He said Yes, and then (I have this on tape!) he said that he didn’t want there to be any climate scientists on the commission because they would be biased by their research grants &etc. He wanted a commission along the lines of the 9/11 commission, made up of retired senators and other Good People.

And you know what? I think that’s an awesome idea! Because me and my peeps are convinced that the Good People will agree with us—heck, if we can’t convince the Good People then we’re toast—and George Will and his fellow skeptics are convinced that the Good People will agree with them, and asking the Good People is a cheap way to break the deadlock.

Since deciding on the composition of this commission would undoubtedly be controversial, here’s my undeniably brilliant proposal: Let’s get the 9/11 Commission to do it. Since that commission was formed for a different purpose the odds are that it has no axe to grind one way or the other about global warming, and the commission members’ work on 9/11 seems to have earned them the trust of everyone who isn’t Lyndon LaRouche. (Here is George Will suggesting a panel “akin to the 9/11 commission” to investigate torture.)

And I even have a snazzy name for this new commission: The 2911 Commission.

Their task would be to investigate the science of climate change. If they conclude that the scientific consensus is bogus then I will shut up about the “scientific consensus” and publicly agree with George Will that we should just wait until 2021 to see what happens. (Why 2021? Because yesterday I asked Will about a 1996 quote from Julian Simon—“my guess is that global warming will simply be another transient concern, barely worthy of consideration ten years from now”—and Will’s response was that he thought Simon’s only mistake was that he was off by 15 years.)

But if the 2911 Commission concludes (duh) that there is no reason to doubt the scientific consensus about climate change, then…. well, who knows what might happen then? :)

PS. As noted at the beginning, Will and I don’t agree on everything. For example, I think our default position should be to trust the scientific consensus until the 2911 Commission releases their report, and Will almost certainly thinks we should assume that the science is guilty until proven innocent. But that’s small potatoes. The big picture is that we agree!

PPS. If the 9/11 Commission can’t do it and we need to pick names, I nominate Scott Turow.

• Are you a libertarian?
• What are your thoughts on Social Security and the issues around it? Do you think the government needs to completely scrap the system?
• You seem to have issues with the government’s handling of health care. Could you expand on these issues and suggest an alternative method for addressing the health-care problem?
• In terms of health insurance, how would you address the issue of adverse selection and do you think the current health plan proposal will address this issue?
• You have opposed the stimulus packages by Presidents Bush and Obama. What do you think is the best way to right the economy?
• Should the “Big Three” automakers have been allowed to fail? If so, what would you say to those out of a job due to the collapse of these companies?
• What is your opinion on getting rid of overly powerful unions, like the one that made Boeing lose billions of dollars?
• Do you think the financial system is under-regulated or over-regulated or ???
• Do you think American corporations have the best interests of the American people at heart, and if not is there a role for government to protect those interests?
• Under what circumstances do you think individual self-interest leads to good social outcomes?
• What do you think about recycling?
• Do you agree: “This is my long-run forecast in brief: The material conditions of life will continue to get better for most people, in most countries, most of the time, indefinitely. Within a century or two, all nations and most of humanity will be at or above today’s Western living standards.” (Julian Simon 1997)
• Will you please write another column about carbon taxes?
• Do you agree: “[M]y guess is that global warming will simply be another transient concern, barely worthy of consideration ten years from now…” (Julian Simon 1996)
• Do you think that carbon taxes will reduce our greenhouse emissions or will it just raise the price of goods that use such gases?
• You’ve written that “America needs a national commission… to assess the evidence about climate change.” But there already was one: in 2001 the National Academy of Sciences said that the IPCC report from earlier that year “accurately reflects the current thinking of the scientific community on this issue.” Given that the IPCC’s 2007 report expressed even more confidence, wouldn’t another commission be a waste of time and money?
• What do you think is the future of the Republican party?
• Do you have any advice for us as we turn into adults?
• What is your favorite part of journalism?
• Why are you against the death penalty?

• Ch 1: Introduction. (Problem 1.1 is a good problem to do :)
• Ch 2: Decision trees. (Look at problems 2.1 – 2.4; problem 2.5 is interesting but too hard for an exam question.)
• Ch 3: Time. (Look at some or all of problems 3.1 – 3.9 and 3.11 – 3.16. )
• Ch 16: Inflation. (Look at some or all of problems 16.1 – 16.10.)
• Ch 4: Risk. (Look at some or all of problems 4.1 – 4.5, 4.7, and 4.10 – 4.12. Problem 4.6—the Monty Hall problem—may confound your intuition, and problem 4.8 is really really hard and is not fair game for the exam.)
• Ch 5: From one to some. (Look at some or all of problems 5.1 – 5.4.)

Happy studying, and please bring a calculator to the exam!

Climate Fixers’ Hard Sell, July 23 2009:

When New York Times columnist Tom Friedman called upon “young Americans” to “get a million people on the Washington Mall calling for a price on carbon,” another columnist, Mark Steyn, responded: “If you’re 29, there has been no global warming for your entire adult life. If you’re graduating high school, there has been no global warming since you entered first grade.”

Which could explain why the Mall does not reverberate with youthful clamors about carbon. And why, regarding climate change, the U.S. government, rushing to impose unilateral cap-and-trade burdens on the sagging U.S. economy, looks increasingly like someone who bought a closetful of platform shoes and bell-bottom slacks just as disco was dying.

Cooling Down the Cassandras, Oct 1 2009:

America needs a national commission appointed to assess the evidence about climate change. Alarmists will fight this because the first casualty would be the carefully cultivated and media-reinforced myth of consensus — the bald assertion that no reputable scientist doubts the gravity of the crisis, doubts being conclusive evidence of disreputable motives or intellectual qualifications.

A New Deal Worth Fostering, Aug 16 2009:

It is a poker skill to know when to hold ‘em and when to fold ‘em. Congress probably should fold its interference with Internet gambling and certainly should get its 10 thumbs off Americans’ freedom to exercise their poker skills online.

Higher Taxes, Anyone? July 12 2009:

To be fair, economics is a science of single instances, which means it is hardly a science. And it is least like one when we most crave certainty from it — when there is a huge and unprecedented event and educated guessing is the best anyone can do.

Carbon’s Power Brokers, June 1 2008:

If carbon emissions are the planetary menace that the political class suddenly says they are, why not a straightforward tax on fossil fuels based on each fuel’s carbon content? This would have none of the enormous administrative costs of the baroque cap-and-trade regime. And a carbon tax would avoid the uncertainties inseparable from cap-and-trade’s government allocation of emission permits sector by sector, industry by industry. So a carbon tax would be a clear and candid incentive to adopt energy-saving and carbon-minimizing technologies. That is the problem.

A carbon tax would be too clear and candid for political comfort. It would clearly be what cap-and-trade deviously is, a tax, but one with a known cost. Therefore, taxpayers would demand a commensurate reduction of other taxes. Cap-and-trade — government auctioning permits for businesses to continue to do business — is a huge tax hidden in a bureaucratic labyrinth of opaque permit transactions.

A Health ‘Reform’ To Regret, June 28 2009:

As market enthusiasts, conservatives should stop warning that the president’s reforms will result in health-care “rationing.” Every product, from a jelly doughnut to a jumbo jet, is rationed — by price or by politics. The conservative’s task is to explain why price is preferable. The answer is that prices produce a rational allocation of scarce resources.

Click here for a complete list of recent George Will columns.

1) We’ll go around the circle and I’ll ask you to give a 20-second update on your book report project. This will have no bearing on your grade, and I have no expectations other than for you to give a 20-second update.

2) We’ll talk a bit more about health insurance. Please come prepared to discuss this article: British Balance Benefit vs. Cost of Latest Drugs. You should bring an opinion about whether the U.S. should have a similar approach to health spending on Medicare/Medicaid/etc. An optional additional reading, by famous health economist Victor Fuchs, is The Proposed Government Health Insurance Company — No Substitute for Real Reform. (This last article is easier to read if you download it as a PDF.)