The discussion on levying a "Carbon Tax" to reduce green house gases is gaining momentum. I created a presentation on the issue just for you!!

The most effective why to reduce the consumption and/or production of a good  is by way of the price mechanism.  If you want to reduce the consumption of a good raise the price. If you want to reduce the production of a good then increase the cost of producing it.

Why would we want to do that?

If the production and/or consumption of  a good results in uncompensated costs on others who are not producers or consumers of the good, it is is termed an "external cost".  It is a not absorbed into the price consumers pay for the good or that producers incur by producing the good.

Goods consumed and produced with heavy doses of fossil fuels as an input are nice examples goods that impose significant external costs on society and are not reflected in the market price.

A "Carbon Tax" is one way to "internalize" the external, uncompensated costs that arise out of the use of fossil fuels in the production and/or consumption of goods.

Below I excerpted key paragraphs on a discussion of a carbon tax that puts in simple language the goal of the tax.

The Myriad Benefits of a Carbon Tax

The beauty of a carbon tax is its market-based simplicity. Economists since Adam Smith have insisted that prices are by far the most efficient way to guide the decisions of producers and consumers. Carbon emissions have an “unpriced” societal cost in terms of their deleterious effects on the earth’s climate. A tax on carbon would reflect these costs and send a powerful price signal that would discourage carbon emissions. 

Producers and consumers would adjust their behavior in response to this signal in ways that are most efficient for them. And these efficient micro decisions would support efficient societal outcomes. 

There’s much debate about what the proper “social cost of carbon” might be, but there is no debate that carbon emissions are seriously underpriced. Any tax on carbon would be an important step in the right direction, and it could be gradually increased to give consumers and producers time to modify their decisions.

Here is my abbreviated PPT presentation I use for my AP Microeconomics class to illustrate graphically how the presence of a negative externality in the market place affects social welfare when the full costs of consuming and producing a good are not factored into the market price.  I hope it is helpful in understanding the issue.

I recently created this. Any constructive comments are welcome regarding content and editing are welcome. Thank you.

Negative Externalities--Short Version

Uploaded by Gene on WizIQ Tutorials

The Demise of the Horse and Mule Era and the Rise of the Automobile and Tractor Era---Part 2. I think history and econ buffs will enjoy this.

Between 1915 and 1960 the horse and mule population in the US decreased by 22,404,000 (yes, millions). Notice it increased prior to 1915.

The decrease over this time span was primarily due to the advent of the automobile for personal and commercial use (urban) and tractors for agricultural use on the farm (rural).

This period is also known as a golden age for agriculture and productivity down on the farm.

I would like to put a little different spin on this productivity miracle.

Source: Humane Society

 The passage below is from a Census Report from 1934. It gives an estimate as to how much acreage is needed to grow a variety of food commodities to feed a horse or mule for one year.  Remember, at this time this was the "fuel" source for agriculture.  Part of the yield from growing food HAD to be diverted to feed the livestock help produce the rest of the harvest.

Source: Fifteenth US Census

The amount of acreage needed varies depending on the combination of commodities used. Let's just informally use a ratio of 5 arable acres to grow food for one horse or mule.

This means from 1915 to 1960, 112,020,00 (that is 112 Million!) FEWER acres of land were required to be used for horse and mule fuel (22.404 million fewer horses and mule X 5 acres).

Put in perspective, this is equivalent to the combined TOTAL acreage of the agricultural States of Nebraska, Iowa and Indiana, that did not go to the feeding of horses and mules but to people.

Note: I am assuming no change in technology and the horse and mule population would have stayed pre-1915 constant.  Maybe, maybe not.

Physical land resources, especially in urban areas, were freed up for alternative uses and allowed those areas to progress at a different pace and on a different trajectory.

The untold story of advancement in technology is also reflected in the demise of the horse and mule powered economy.

Just thought that was interesting.  Hope you do too.

Interest rates on loans are increasing. Here I show you how even a small change in interest rates will cost you money. You WILL be shocked!!

The buying and selling of a house for most people is the biggest personal financial transaction they will undertake in a lifetime.  Because most people have to borrow the money it takes to buy one, the interest rate paid on that borrowed money is of utmost importance.

In the last few weeks interest rates on loans to buy house have spiked upward.  Only a couple of months ago someone with excellent credit could borrow money to purchase a house at close to 3.5% interest rate on a 30 year loan.  Today, that rate is around 4.6%.  I know this because we are in the process of selling a house and buying a new one and I was quoted 4.67% for a new loan.

That may not seem like much of a change, but it is deceiving and an easy trap to fall into when you are quoted an interest rate. Small differences matter!!

Below I used an online loan calculator to give you some examples of how changes in interest rates affect how much you pay back to the lender. For each scenario I assumed a loan for $200,000 for 30 years, a 2% total property tax rate (could be higher or lower depending on where you live) and home insurance of $1,000 (again, could be higher or lower).

The only thing I change is the interest rate for each loan.  I use 3.5%, 4.5% and 5.5% respectively.  I highlighted the change in the monthly payment and the TOTAL in interest payments you would make over the 30 year life of the loan.

See the difference every 1% change in the interest rate makes?  Pardon the pun, but it is in your interest to seek the lowest interest rate you can on a loan of any sort.  Higher interest rates means more money transferred to the lender and less for you to use for savings or present consumption.

Would you like that in Paper or Electronic form? Paper industry getting beaten to a "pulp" by the digital bullies...

While we will likely always have a want for paper, it is an industry on the decline because of the rise of a suitable substitute---digital technology in every form.

For the paper manufacturing/producing sector this decline has been gradual but inevitable.  My father worked in paper mills in the Northeast all his life and growing up I saw first hand its demise.

Creative Destruction is a cold, cruel process for those on the declining end of an industry but exciting, vibrant and forward looking for those in the emergent industries.  Those who focus on maintaining the status quo for the former group only impede the inevitable progress made by the latter group.

Should grandma still get her checks in the mail? The paper lobby thinks so.

"...It’s easy to understand why the companies might be upping their presence in Washington: The Internet age has devastated traditional paper products, with newspapers, magazines and print advertising at historic lows. At the same time, e-commerce has boosted demand for packaging, so they’ve pressed for things like reform of the United States Postal Service, to keep it as cheap as possible for vendors like L.L. Bean and Pottery Barn to send large volumes of glossy mailers. Paper manufacturers were even active on the Farm Bill, asking for wood pulp to be included in the bill’s priority purchasing programs for bio-based products..."

President Obama wants to turn out the lights on the coal industry. The problem is the coal industry GIVES us that light in the first place. See the facts here...

President Obama in a speech today pretty much threw down the gauntlet in the direction of the US coal industry.  Rightly or wrongly, we ARE dependent on the stuff.

Here are the facts---you decide for yourself the proper course of action.

This graphic is from 2009 so it may be a little dated as far as the numbers.  But if I had to make an un-educated guess (all I have) I would say the percentages are still in the ballpark.

I modified it to isolate coal, which supplies 20% of our overall energy needs (gray box on left).  BUT it powers 48% (18.30/38.19 X 100) of our electricity needs/wants (box in upper middle).  Read that again.

Nothing else (based in reality) comes close to meeting that power need/want.

Rational debate and policies based on what "is" (positive) and not what "ought to be" (normative) will be more helpful in getting to where we need to be.  Coal is not the fuel of the future but it is of the here and now and many tomorrows.

UPDATE:  Just found this at the Energy Information Agency:

In 2012, the United States generated about 4,054 billion kilowatthours of electricity.  About 68% of the electricity generated was from fossil fuel (coal, natural gas, and petroleum), with 37% attributed from coal.

Energy sources and percent share of  total electricity generation in 2012 were:

• Coal 37%
• Natural Gas 30%
• Nuclear 19%
• Hydropower 7%
• Other Renewable 5%
  • Biomass 1.42%
  • Geothermal 0.41%
  • Solar 0.11%
  • Wind 3.46%
• Petroleum 1%

This gets interesting now.  Natural Gas met 18% of our electricity needs/wants in 2009 and now it is 30%.  Coal has decreased from 48% to 37%.

In 3 years we already have transitioned from coal to a much cleaner (and abundant) burning fossil fuel natural gas.

Environmental goals being met without any additional policies.  Go figure...

Year over Year spending per worker in direct travel and tourism sector is down but up in the indirect, support sector. Is this a good sign or bad?

Just how important is the economic impact of  tourism in the US(from BLS current release)?

In the first quarter of 2013, total current-dollar tourism-related spending was $1.5 trillion and consisted of $888.5 billion (59 percent) of direct tourism spending — goods and services sold directly to visitors — and $606.2 billion (41 percent) of indirect tourism-related spending — goods and services used to produce what visitors purchase.

Total Tourism-Related Employment  was 7.9 million jobs in the first quarter of 2013 and consisted of 5.7 million (71 percent) direct tourism jobs — jobs where workers produce goods and services sold directly to visitors — and 2.2 million (29 percent) indirect tourism-related jobs — jobs where workers produce goods and services used to produce what visitors purchase.

Total direct and indirect spending on and tourism for the months of January, February and April of 2013 was $1.5 Trillion dollars and it help sustained 7.9 million jobs (both in RED). If you divide $1.5T by 7.9M each job was supported by $189,873 in average spending on tourism/travel for the 3 months. 

If you just look at direct spending and direct jobs, if you divide $888.5B by 5.7M each job was supported by $155,877 in average spending on tourism/travel for the 3 months.  

Just to give some perspective and consistency, lets look at the First Quarter period from 2012.  It is common to compare year-over-year changes to see what the seasonal trend might be.

In the first quarter of 2012, total current-dollar tourism-related spending was $1.4 trillion and consisted of $848.6 billion (59 percent) of direct tourism spending — goods and services sold directly to visitors — and $577.9 billion (41 percent) of indirect tourism-related spending — goods and services used to produce what visitors buy.

Total Tourism-Related Employment was 7.6 million in the first quarter of 2012 and consisted of 5.4 million (71 percent) direct tourism jobs — jobs where workers produce goods and services sold directly to visitors — and 2.2 million (29 percent) indirect tourism-related jobs — jobs where workers produce goods and services used to produce what visitors buy.

If we do the same calculations using the numbers in RED and BLUE we see that an average total spending (direct + indirect) worked out to $184,210 ($189,873 in 2013) per worker and the average total direct spending was $157,148 ($155,877 in 2013) per worker.

Total (direct + indirect) average spending per worker increased by 3.07% from 1st Quarter 2012 to 1st Quarter 2013.

However, factoring out the indirect sector we find that total (direct) average spending per worker DECREASED by 0.80% from the same time period.

Seems like a vote of confidence if employers directly serving tourism are willing to hire more workers at a lower customer spending per worker threshold.  However, the flip side is in the indirect support supply side they seem less willing to hire as increased spending per worker flows to them.

Any other thoughts??