Desperate times bring desperate measures

Update: Edwardo Porter makes the same point, only he does a much better job of it.

A bit off topic, but the impending government shutdown has me thinking in simple game theoretic terms.

Some on the left (and right) seem to think that Congressional actions are "crazy" as government shutdown is likely to hurt the Republican party.  After all, that's what happened the last time when Newt Gingrich shut down the government in 1995, which led to his demise and helped Clinton win reelection against Dole in 1996.

It's probably fair to guess that, while this time is different (isn't every time, at least a little?), the shutdown will likely hurt the Republican party.  So why are they doing it?  Are they really crazy?  Has the radical fringe taken over and leading us over the cliff to disaster?

Well maybe. But maybe their actions, even if potentially disastrous, are rational and not surprising given the circumstances.  It seems to me the Republican party is in a desperate situation, and desperate times rationally bring about desperate actions. It's possible, though probably unlikely, that Obama and the Democrats will cave and give Republicans something in exchange, like partial repeal of the health care law, for not blowing up the economy.  It also seems possible, though unlikely, that shutdown and/or default will hurt Democrats as much or more than Republicans.  Even if these are unlikely propositions, they have more than zero probability.

The alternative is that Republicans do nothing and let Obamacare be implemented, the economy continues to recover, and the nation's demographics steadily change, all of which basically ensures death of the modern Republican party. So, do they go for the Hail Mary pass or just give up?  It seems to me that a rational party goes for the Hail Mary pass, which is what they're doing.

So, the good news is that the Republican party, Tea Partiers included, probably isn't crazy.  The bad news is that it's hard to see how this whole thing plays out without the country, and possibly much of the world, being badly hurt.

Climate Change and Resource Rents

With the next IPCC report coming out, there's been more reporting on climate change issues.  Brad Plumer over a Wonkblog has nice summary that helps to illustrate how much climate change is already "baked in" so to speak.

I'd like to comment one point.  Brad writes "Humans can only burn about one-sixth of their fossil fuel reserves if they want to keep global warming below 2ºC."

I'd guess some might quibble with the measurement a bit, since viable reserves depends on price and technology, plus many unknowns about much fossil fuel there really is down there.  But this is probably in the ballpark, and possibly conservative.

Now imagine you own a lot of oil, coal and/or natural gas, you're reading Brad Plumber, and wondering what might happen to climate policy in the coming years.  Maybe not next year or even in the next five or ten years, but you might expect that eventually governments will start doing a lot more to curb fossil fuel use.  You might then want to sell your fossil fuels now or very soon, while you can.   If many resource owners feel this way, fossil fuel prices could fall and CO2 emissions would increase.  

This observation amounts to the so-called "green paradox."  Related arguments suggest that taxing carbon may have little influence on use, and subsidizing renewable fuels and alternative technologies, without taxing or otherwise limiting carbon-based fuels, might make global warming worse, since it could push emissions toward the present.

Research on these ideas, mostly theoretical, is pretty hot in environmental economics right now.  It seems like half the submissions I manage at JEEM touch on the green paradox in one way or another.  

All of it has me thinking about a point my advisor Peter Berck often made when I was in grad school. At the time, we were puzzling over different reasons why prices for non-renewable resources--mostly metals and fossil fuels--were not trending up like Hotelling's rule says they should.  Peter suggested that we may never use the resources up, because if we did, we'd choke on all the pollution.  Resource use would effectively be banned before all of it could be used. If resource owners recognized this, they'd have no incentive to hold or store natural resources and the resource rent (basically the intrinsic value based on its finite supply) would be zero, which could help explain non-increasing resource prices.

For all practical purposes, Peter understood the green paradox some 15-20 years ago.  Now the literature is finally playing catch up.  

I've been touched by genius

Awesome news.  My colleague David Lobell just won the MacArthur grant.

http://news.stanford.edu/news/2013/september/macarthur-fellowship-awards-092513.html

Seriously, David is a fantastic colleague and very deserving of this award.  Also, I think we have some great new research in the pipeline and with any luck this might help bring some exposure to it.

GGG is among the top 200 most influential economics blogs (just barely)

I just stumbled upon this ranking via Econobrowser, which is number 10, and one of the blogs I really like to visit.

Greed, Green and Grains is number 199.

Well, I guess that's not a crown jewel, but I'll take it, especially given how my little niche isn't one of the biggest fields of economics and how little time I have to dedicate to this thing. 

I realize posting is thin.  I will try to post when I can, but my commitments are just too many to post much these days.  G-FEED, which is steadily growing in influence, will have more posts because there a number of us contributing, some of whom are rapidly becoming the rock stars of science, with some major publications and media attention.