The Education Revolution: Where to Begin

Copyright Albert Bridge and licensed for reuse under this Creative Commons Licence.

Last week, I posted my thoughts on the potential of an education revolution in North America. I came to the conclusion that a drastic change to North America’s education system will not occur because it would require the complete subsidization of post-secondary education. Today I will look at one region where the revolution could occur.  

Where it could occur is in countries that are currently building their education systems and infrastructures. There are several benefits for countries to look into the latest approaches to education in lieu of more traditional methods:

• There is less need for teachers and educators, both of whom are grossly undersupplied in developing countries.
• Students would learn from a young age how to use technology, fostering future economic growth.
• Initial reviews show that new delivery methods of education (Khan academy etc.) foster greater knowledge retention and critical thinking skills.
• Blended education systems are much more accessible and flexible for teachers and students.

Is it realistic?

I think it would only be realistic for a very rich nation that is still building its education system. I'm thinking a small, newly-rich country, something like Qatar or another small, oil-producing nation. If successful, the education would help the country sustain its economic growth into a future where it will no longer be able to rely on its non-renewable resources. 

Related links:

1. Khan Academy website

2. 8 Great TED Talks About The Future Of Education And Teaching

Volcanoes, Phytoplankton, & the Future of Geoengineering

From Flickr Creative Commons, some rights reserved

Keeping with the recent theme of climate change, today I will look at the potential of geoengineering to regulate climate change. If we cannot lower greenhouse gas emissions enough to mitigate climate change, we turn to Plan B— geoengineering. The idea of geoengineering stems from the 1991 eruption of Mount Pinatubo in the Philippines, which created a haze of sulphur particles that reflected sunlight away from earth and cooled the atmosphere by nearly a degree Fahrenheit. Today, I will show you the three most prominent geoengineering plans and how they could potentially save our climate.

1. Copy Mount Pinatubo

This plan is to emulate a volcanic eruption by injecting the atmosphere with sulphur, which reflects sunlight away from earth. Presently, there is no clear way to get the aerosols into the stratosphere. Potential solutions range from shooting sulphur-laden cannonballs into the atmosphere to having balloons carry the sulphur into the atmosphere. One significant problem with aerosol engineering is that the increased sulphur in the atmosphere would trigger acid rain.

2. Iron Seeding Oceans

The plan here is to pump iron into the sea to stimulate the growth of phytoplankton. Phytoplankton love iron, and are also very effective at pulling carbon out of the atmosphere during photosynthesis. The theory is that phytoplankton will pull substantial amounts of carbon from the atmosphere and then when they die after a couple of months, the carbon will fall harmlessly to the bottom of the ocean. The risk is in the uncertain affects on the ocean’s ecosystems from the increased iron and carbon. 

3. Whiten the Clouds

Here the plan is to whiten the tops of clouds so that they reflect more solar radiation. To do this, 1500 remotely driven, wind-powered boats would be used to spray seawater into the sky. The uncertainty here is how long the clouds would remain whitened.

Conclusions

Incredibly, these are three of the least imaginative plans. Other ideas include: shooting mirrors into space, building fake trees, and creating tubes to pump carbon into the depths of the ocean. Personally, I think whitening the clouds has the most potential as it requires far fewer resources and seems much simpler. I think that it’s important to remember that these are last-ditch efforts as all geoengineering plans have the potential to create their own environmental problems.  

Further Reading:

1. Geoengineering Problems from Popular Mechanics
2. The Geoengineering Debate from the Economist

Cap-and-Trade or Carbon-Tax (Part II)

from Flickr Creative Commons some rights reserved

Yesterday I profiled the merits of a cap-and-trade system for climate change mitigation. Today I will evaluate the cap-and trade-system against the alternative of a carbon tax. 

Carbon Tax Overview

A carbon tax is an environmental tax levied on the the production, distribution, or use of fossil fuels based on the carbon content of the fuel. Economists call it a Pigovian tax as it is used to make emitters pay the full social cost of their pollution. The tax is used to make emitters pay for the negative externality of their pollution. It works through the government choosing the price per ton of carbon and then converting this price into a tax to be placed on oil, natural gas, and electricity. The tax is generally placed on the transaction, for instance on the sale of gasoline. It makes dirty fuels more expensive and therefore encourages consumers to either use less of these fuels, or to switch their consumption to cleaner alternatives. 

Pros 

• Transparent and easily understandable, which is important for garnering public support.
• Stabilizes energy prices. 
• Easily implemented and can be done on municipal, provincial/state, national, or global levels. 
• Substantial revenues from the tax. 
• Little monitoring needed from government. 

Cons

• A regressive tax as low-income residents are affected disproportionately more than other income groups. 
• The total level of emissions cannot be restricted to a certain level, making it difficult to limit global emissions. 
• The demand for fuel is highly inelastic (doesn't respond much to price changes) and therefore the tax would have to be very high to reduce demand significantly. 
• Politically risky to implement a tax.

The Answer
I believe that a carbon tax is the better policy for climate change mitigation because it can be quickly implemented, does not require a global framework, and generates clear revenues for the government.

A carbon tax is much simpler to implement than a cap-and-trade system. Because of its simplicity, it can be implemented much quicker than a cap-and-trade system. For example,  British Columbia enacted and implemented a carbon tax in five months. By comparison, the only comparable carbon cap-and-trade system in North America (Northeastern U.S.), took five years of negotiation and rule-making.

Similarly, the carbon tax's simplicity aides it's feasibility as the tax can be effective on any level. A carbon tax is not inhibited by the need for a global or even national plan, it can be easily implemented on a regional level as in British Columbia. In 1997 the world's leaders convened in Kyoto to discuss developing a plan for Climate Change, and they decided to implement a global cap-and-trade system. Fourteen years later, the plan— overcome by erratic participation— has yet to amount to any decreases in emissions. 

The carbon tax also brings in a clear revenue stream. A cap-and-trade system that auctions permits could yield similar revenues; however, firms would likely bargain away these profits by demanding a free allocation of permits. 

I should note that a cap-and-trade system is an immense improvement over the do-nothing status quo, even if it’s second best to a carbon tax. If governments insist on cap-and-trade system (as the Obama administration has done), we should embrace the movement from the status quo even if it represents a second best choice.

Cap-and-Trade or Carbon-Tax (Part I)

© Copyright bernard bradley and licensed for reuse under this Creative Commons Licence.

I've been hearing a great deal of climate change discussion in the news lately, but the discourse has generally overlooked the policy implementation debate. Meaningful action to mitigate climate change has been held back by the lack of consensus regarding whether a cap-and-trade or carbon tax system should be implemented. Finding a harmonious answer to this problem is imperative to the success of a global response to climate change. Today’s post, analyzing cap-and-trade systems, is the first of two posts that will cover the debate (the second post will examine carbon tax systems). 

Cap-and-Trade Overview

A cap-and trade system works through the oversight of a central governing body as they are responsible for setting the cap— the limit on the amount of emissions that can be polluted. After setting the cap, the authority distributes permits to emitting firms. The total amount of emissions allowed through the permits will equal the level of emissions set by the cap and firms must acquire permits in order to emit. The authority has the choice of auctioning off the permits, distributing them evenly to all emitting firms, or distributing them to each firm proportionately based on their past emissions. The trade part then comes into play as firms are free to trade permits to one another in the emissions market. Firms are rewarded for lowering their emissions by the revenue they receive from selling permits, and thus, in theory, firms will lower their emissions. 

Pros

• Efficient: Firms that can reduce emissions at low prices will do so, and then sell their permits to firms that face higher costs in reducing emissions. 
• Allows for setting the maximum level of emissions. This facilitates staying on a predetermined emissions track and thereby not crossing potentially catastrophic emission thresholds. 
• The risks of market volatility are lessened as the desired quantity of emissions cannot be exceeded. 
• Firms have incentive to monitor each other, because cheating firms lower the value of all permits. 
• The substantial profits the governing body receives from auctioning the permits.
• It would facilitate global co-operative action. 

Cons

• The market may lead to highly volatile prices for consumers.
• The market requires the participation of many firms/nations to be succcesful.
• Significant resources are required to monitor the market and track firms/nations to ensure they don't cheat. 
• Considerable time and planning would be required to implement the system. 
• Many environmentalists oppose the idea of issuing 'rights to pollute'.

My next post will analyze the carbon tax alternative and evaluate which option is better suited for efforts to mitigate climate change. 

Making University Education Free

© Copyright RichTea and licensed for reuse under this Creative Commons Licence.

Yesterday in class, we were discussing the recent boom in online courseware. Many universities have begun providing courses online. For example MIT has 2000 courses available on their website, they can be found here http://ocw.mit.edu/index.htm. Furthermore, there is a growing movement to make university content freely available, much like in a library. The question becomes, would fully subsidizing post-secondary education be an efficient use of resources?

My response is no.

Exhibit A: The World Bank's data on the rate of return to education clearly shows that tertiary education (post-secondary) is the least profitable form of education. Furthermore, their data demonstrates that the social rate of return decrease as you move to higher levels of schooling. It is also interesting to note that the private rate of return on tertiary education is a very high 19%, nearly double the social return of 10%.

Here's the link:
http://siteresources.worldbank.org/EDUCATION/Resources/278200-1099079877269/547664-1099079934475/547667-1135281504040/Returns_Investment_Edu.pdf

Exhibit B: Data from the government of Canada compares the return on business capital to that of university education and concludes that investing in business capital is the more beneficial choice as it yields a 15% rate of return.

And the link: http://www.hrsdc.gc.ca/eng/cs/sp/hrsd/prc/publications/research/1998-000134/page06.shtml

Exhibit C: Fully subsidizing tertiary education would come at a prodigious (in my mind impossible) cost. Likewise, by factoring in decreasing returns to scale, the social rate of return to tertiary education estimated here (10%) would certainly decrease substantially. Furthermore, the increased availability of tertiary education would lead to over-education. What I mean here is that many people will be forced to take jobs that do not use the skills they acquired in their schooling. This is because the market for highly skilled/highly educated individuals cannot increase indefinitely. For the labour market to be efficient the number of college graduates must roughly match the number of employers seeking the skills of college graduates. The same holds true for higher levels: master's, PhD, etc.

While open courseware is great, going a step further by making post-secondary education free would be foolish because of the inefficiencies it would create in the labour market, and the tremendous cost it would mean for tax-payers.

Which economies would be able to fully support tertiary education?

The Good News: We Have Today

What if you were told that of the eight people closest to you, you only had enough food to feed one. One would survive, the other seven would not. How do you go about deciding who to feed? Imagine how difficult it would to be decide which of your children you would save. It is an impossible dilemma, and one that Dr. James Lovelock believes will become inevitable by 2100.

Lovelock’s Predictions

• By 2020 extreme weather will be the norm, resulting in global devastation.
• By 2040 Europe will have a Saharan climate, while much of the UK will be underwater.
• By 2100 Europe and Australia’s climates will be 8° Celsius hotter than the present.
• By 2100 food shortages and mass starvation will wipe out seven eighths of the world’s population, with an estimated 1 billion people surviving.

The Gaia Hypothesis

James Lovelock is an independent environmental scientist, best known as the originator of the Gaia hypothesis. His Gaia hypothesis proposes that all organisms and their surroundings on Earth are closely integrated to form the living, self-regulating system known as Gaia. Gaia’s goal is to provide an optimal environment for life, and she (Gaia) regulates herself to achieve this goal. Through the observation of paleoclimate data, Lovelock has concluded that increased greenhouse gas levels have forced Gaia into an unstable state. He determines that humanity has pushed Gaia to regulate herself into a state of much hotter temperatures, making much of earth uninhabitable for humans. Lovelock foresees Gaia arriving at this hotter steady state by 2100, and warns that drastic climate changes will result in massive food shortages, resulting in the deaths of seven eighths of the world’s population. 

Why I Believe Lovelock

Before you dismiss Lovelock’s observations as merely a potential cover for the National Enquirer, consider the following:

He’s One of the Preeminent Scientists of Our Time

• Fellow of the Royal Society.
• Formally a leading researcher at NASA, Oxford, Harvard and Yale.
• Became an independent researcher in 1964, to allow himself more freedom and creativity in his research.

His Past Predictions have Proven Correct

• He was the first to detect the widespread existence of CFCs in the atmosphere.
• While working for NASA in the 1960s, he correctly predicted that NASA’s attempts to find life on Mars would be unsuccessful, as his observations had proven Mars’ atmosphere to be uninhabitable.
• In 1965, Shell Oil asked him what the world would look like in 2000, and he predicted that we would be facing grave environmental problems.
• His theory of Earth being a living self-regulating system was initially ridiculed. It is now the consensus.
• The UN’s Intergovernmental Panel on Climate Change (IPCC) is slowly accepting his climate change observations.

Thoughts

What I take away from Lovelock’s observations is that our future is uncertain. Then again haven’t we always known this? Hasn’t tomorrow always been a mystery?

Lovelock merely refocuses our attention on life’s uncertainty— it’s brevity. So what do we do in the face of life’s uncertainty?

Embrace it! Enjoy the moment, enjoy today, because as Lovelock demonstrates, and we have always known, the future is uncertain.

Further Watching:

1. James Lovelock interview with George Stroumboulopoulos (If you had told me 10 years ago that he'd go from MuchMusic punk rocker to Canada's Letterman, I would have called you nuts!)

http://www.youtube.com/watch?v=sRQ-NqaYFzs

2. James Lovelock presentation of his latest book, The Vanishing Face of Gaia

http://www.youtube.com/watch?v=Eg7Jt_Yzl1o&feature=related

The Inescapable Debt

This US debt defaulting drama is everywhere, there's no escaping it— it wakes me up on the radio, covers my newspaper, and is the discussion amongst my classmates as I enter class. It is time for me to put forth my thoughts especially in regards to how it affects sustainable economics. 

Politics or Economics?

What strikes me most is how the disagreement is much more political than economical. I say this because the correct economic choice is obvious; the debt limit must be increased (or removed altogether) and the debt cut gradually. It is the ABCs of economics: in a recession/ recovering from a recession you maintain or increase government expenditure so to facilitate growth; in an expansion/ when the economy is doing well you can lower government expenditure so to keep inflation stable. The Republicans demand of cutting trillions from federal spending is bad policy as it would set the economy back amid decreased demand and increased unemployment. 

It must be frustrating for Americans to watch this ongoing political posturing as both sides are more concerned with looking tough for the upcoming election than they are about doing what’s best for the country. Neither side wants to concede to the other’s demands. Worst of all neither side will even entertain the idea of getting rid of the arbitrary debt limit (the US is the only advanced economy with one) as doing so is said to be ‘political suicide’.

This problem of political self-interest has long undermined effective economic policy. The issue is that the nation’s goals and those of the politicians who make decisions on behalf of the nation are not aligned. The central aim of a politician is to be re-elected, not to do what’s best for the nation.

Until this problem is fixed, the best option (in this case dismissing the debt limit) will all too often be overlooked in favor of what looks best politically.

Questions
- How sustainable is it to finance the present economy through borrowing?

- At what point does continued borrowing become unsustainable and overly burdensome?

The good news is that for better or for worse, the ordeal will finally be over August 2nd.
I can hardly wait.

Worth Reading:

CBS News debt limit primer

http://www.cbsnews.com/8301-503544_162-20078566-503544.html?tag=contentMain;contentBody

The Tragedy of the Commons

Hello readers,

            Today I’d like to present my thoughts on the present-day relevance of Garrett Hardin’s classic discourse entitled “The Tragedy of the Commons”. Written in 1968, the article was the first attempt at a solution for common resources. Economists define common resources as non-excludable (there are no property rights, therefore anyone can use them) and rivalrous (one person’s consumption limits the consumption of another person).

            Hardin’s example involves a pasture open to all and a number of herdsmen who will keep as many cattle on the pasture as possible. The size of the land is fixed, and eventually the pasture will become over populated, as each herdsman will benefit from continuing to add cattle. The rationale of the herdsman for adding an additional animal is as follows:

Positive: The herdsman receives all the proceeds from the sale of the additional animal

Negative: The additional overgrazing created by the one more animal. The effects of this overgrazing are shared equally by all the herdsman, thus making the private cost to the individual herdsman a fraction of the total social cost to the pasture as a whole.

            Given the incentive, each individual herdsman will continue to add cattle even though it is harmful to the pasture as a whole.

            I have brought forth the example of the Tragedy of the Commons, because it applies directly to the problem of pollution. Pollution is the reverse of Hardin’s pasture, rather than taking something out of the commons, we are putting in. The problem is that what we are putting in­­—greenhouse gas emission into the air, sewage and chemicals into the water— is harmful. And the pollution continues as the rationale man finds his share of the cost of the waste he pollutes into the commons to be less than the cost he would face to purify his wastes before releasing them.

             It becomes obvious that pollution will continue until it becomes cheaper for each polluter to treat his pollutants than to discharge them untreated.

The question becomes—How do we make it cheaper to treat pollutants/not pollute than to pollute?

-       A tax is definitely needed. Given that rich people and nations pollute the most, I propose a stepped-tax system either with higher taxes in wealthier nations/regions, or with the tax increasing at higher levels of pollution/emissions. It might be as simple as taxing less fuel-efficient vehicles substantially more. The key here is that the tax must make it cheaper not to pollute. In practice, this has been difficult to establish; for example, carbon taxes have had little effect on reducing emissions as they are to low.

Let me know if you have any other ideas,

AC

The Discounting Debate

            The central reason that the Stern Review’s recommendations have not come to fruition is that The Review’s critics contend that Stern improperly handles future generations. The question of how to treat future outcomes relative to present ones has long been debated by philosophers and economists alike. We shall return to the debate, but first let’s look at the consumption discount rate, δ, which is currently the tool used by economists to handle the question of futurity. The discount rate is the rate at which society is willing to trade present benefits for future ones. It may be useful to think of the discount rate as similar to the interest rate given by banks. Like with banks, future consumption is less valuable than present consumption. A dollar today is more valuable than a dollar in the future. The discount rate formula is:

δ = ρ + gη

where ρ is the social rate of time preference, g is the projected growth rate of average consumption, and η is the elasticity of the social weight attributed to a change in consumption.

So what does it all mean?

            Let’s start with g, which is simply the projected growth of the economy. For example, if we project the economy to grow at 1% annually, then we put 0.01 in for g.

            Next we’ll turn to η, which accounts for the fact that as consumption grows, the marginal value of consumption decreases. It is derived from the economic law of diminishing returns. For instance, a poor person with a low level of consumption will value a $1 increase in income much more than will a rich person with a high level of consumption. Another example, if hungry, we enjoy our first piece of pizza much more than say the tenth piece. The parameter η is relatively uncontroversial; there is a consensus with it being between one and three.

            We are now ready to return to the exciting debate of whether the future should be discounted simply because it is the future. This matter is contained in ρ, the social rate of time preference. On the one side we have the position of most philosophers who argue that present generations have the moral obligation to protect the interests of future generations. They maintain that a value of zero for ρ would ensure equality across generations as it prevents the present generation from ignoring the long-term environmental consequences of present-day activities.  For instance, positive values of ρ can lead to almost entirely devaluing disastrous environment impacts that occur over 50 years into the future. Nicholas Stern endorses this view as his Stern Review uses a value of 0 for ρ.

            Most economists support the other side of the debate. Their view is that investments made in the economy today will increase the wealth of future generations thus making them more able to respond to any environmental issues. The view relies on the optimism that technology, wealth, and human ingenuity will be able to solve any future environmental problem. For example, there is a large group of climate change skeptics who believe that the problem can be solved in the future by merely sucking the greenhouse gases from the atmosphere-like a vacuum (crazy right).

            Stern uses a low discount rate, one that many economists disagree with. Moreover, they oppose his conclusions and recommendations because of the discount rate disagreement. It is no wonder then that policy makers cannot come to a consensus on a plan when economists cannot settle their own discounting debate.

All for now,

AC

The Stern Review

Good Afternoon Everyone,

            In writing a sustainable economics blog, it would be rather irresponsible of me if I overlooked the contribution of Sir Nicholas Stern. In 2006, Nic Stern published the infamous (at least among economists) Stern Review on the Economics of Climate Change. Much of the credit for the recent increase in climate change discourse should be directed at Stern, though Al Gore deserves credit too (Gore more for getting the word out there, Stern actually provides the content and research- 600 pages of it!). I’m going to share with you some of the key aspects of climate change, as described by Stern, that people are generally unaware of.

 1. Rich countries contributed much more to climate change than do poor ones. (Image from Jonathan A. Patz et al, 2007)

2. Poor countries will face the greatest negative impacts from climate change. (Image from Jonathan A. Patz et al, 2007)

      
      3. There is considerable uncertainty regarding how much temperatures will increase, and how the economy will be affected. Stern predicts with 90% confidence that temperatures will rise anywhere from 2.6 Degrees Celsius to 6.5 Degrees Celsius. The economic implications of this increase in temperature are even less certain; some economists even contend that climate change is a good thing and will yield greater output (their rationale centers on northern Russia and Canada becoming more habitable and better suited for agriculture). Stern's estimates add to the uncertainty as he predicts the range of losses in 2200 to be between 2.7 and 32.6 percent of GDP per capita.

        4. About half of the measures Stern recommends taking to lessen the affects of global warming will come at a negative cost-they will both decrease emissions and save money. Examples include switching to more efficient: insulation, lighting, and transportation.

                Stern concludes that we must act immediately to avoid the catastrophic effects of global warming; however, drastic action has not yet been taken. Why?

      

     Answer coming next (hint it involves the discount rate)

Population 7 billion

Hello Everyone,

            Last week, while waiting for an appointment, I came across the January 2011 issue of National Geographic. It was the cover’s title of “Population 7 billion” that caught my eye. The normally unbearably long wait went by very quickly as I found myself lost in the article. The report noted that population levels are currently at around 7 billion and will continue to climb to 9 billion by 2045. It predicted that upon reaching 9 billion, population growth would cease and remain fairly constant around the 9 billion mark.

            How did National Geographic arrive at the trend of population growth to 9 billion and then remaining constant?

            They observe that while fertility rates (e.g. the average number of children born to a woman over her lifetime) have declined to approximately the replacement level (fertility rate needed to maintain the population) of 2.1, many nations have a disproportionately large amount of children and adolescents. The glut of children is an effect of previous fertility rates that were overly high. The consequence becomes that when these children become adults, they will contribute to increasing population growth even if the fertility rate is at replacement level. National Geographic predicts that this trend will conclude at around 2045 as by then there will have been consecutive generations with stable fertility rates and thus population stability will be achieved.

            It was an interesting read, here’s the link: http://ngm.nationalgeographic.com/2011/01/seven-billion/kunzig-text/1

It got me thinking; can earth support the 9 billion inhabitants predicted for 2045?

The First Attempt at Sustainable Economic Development

            Today’s discussion relates to this short article (only 4 pages!). So please take a look: http://www.vwl.unibe.ch/studies/3016_e/Hartwick.pdf . Note- don’t get too caught up on the complicated math formulas, focus on the written content and ideas.

            One of the first attempts at providing a formula for sustainable economic development came from John M. Hartwick way back in 1977. Hartwick hypothesized that to avoid hurting future generations by over-consuming today, we must “invest all profits or rents from exhaustible resources in reproducible capital such as machines.” To clarify, ‘rents’ is essentially the same as profits, it is the difference between the selling price of the resource and the resources’ production cost. Stated simply, Hartwick is endorsing taking all profits from non-renewable resources (oil, natural gas, coal, gold etc.) and investing them in physical capital (machines, buildings, infrastructure etc.).

Does Hartwick’s idea lead to sustainability?

           

            My opinion is that Hartwick’s formula would not successfully lead to sustainable economic growth. Unsuccessful because it does not include the negative environmental externalities that come with both the extraction and use of natural resources, and the building of physical capital. Negative externalities are the social costs that not accounted for in the market. For example, automobile pollution is a negative externality of transportation. One method of accounting for the externality would be putting a tax on gasoline. Nevertheless, here are some examples of negative externalities that would adversely affect the sustainability of Hartwick’s plan:

·      --The considerable environmental damages from resource extraction:

            -Ecosystem and wildlife disturbances from extraction sites

            -Noise pollution, air pollution, and greenhouse gas emissions from extraction

·      --The air pollution and greenhouse gas emissions from oil, coal, and natural gas combustion

·      --The substantial air and noise pollution that comes with building of physical capital

            Consequently, when factoring in these environmental externalities I arrive at the conclusion that Hartwick’s theory is not a sufficient condition for sustainable economic development.

Here are a couple other questions that I thought of when reading Hartwick’s article:

            1. How do you account for the depreciation of physical capital? It seems to me that physical                   capital depreciates much faster than natural capital (further research needed here).

            2. How do we account for the possibility that extraction costs increase- thereby making profits decrease- as resource reserves deplete?

           

All for now!

AC