Tuesday, March 29, 2011
Stand-Up Economist
The CSU Chico Economics club is proud to play host to the world's first and only Stand-up Economist at a FREE show on April 5th at 7pm in Holt 170. Yoram Bauman, as he is known to his friends, is a professor at the University of Washington. However, Prof. Bauman also does stand-up comedy. His humor centers around economics but he wastes no time squeezing in humor of all sorts. Because Prof. Bauman's philosophy is focused on making economics accessible to everyone, his humor is universal whether you have a degree in economics or not. So come see this free showing of the Stand-Up Economist!
Friday, January 28, 2011
New Happenings
As the Spring semester gets underway, the Economics Club is preparing for some very exciting events!
First and foremost, we're getting ready to host a speaker on Friday, February 4th from noon to 1pm in Ayres 106. The speaker, Dr. Thornton-Snider, is a member of the UCLA Anderson Forecast Board and will be presenting on the Economic Forecast for California. This is a free event and we're expecting an audience of students, faculty, small business owners, economic developers, and local media.
We're also planning a more comedic event for April. Stay tuned!
If you're interested in joining the club or want to see what else we have in store for the upcoming semester, join us for pizza at Woodstocks on Tuesday, February 1st at 7pm. We'll be picking officers, planning meeting times, and eating pizza! I hope to see lots of familiar faces!
Marcy McCormick
Interim President
CSU Chico Economics Club
First and foremost, we're getting ready to host a speaker on Friday, February 4th from noon to 1pm in Ayres 106. The speaker, Dr. Thornton-Snider, is a member of the UCLA Anderson Forecast Board and will be presenting on the Economic Forecast for California. This is a free event and we're expecting an audience of students, faculty, small business owners, economic developers, and local media.
We're also planning a more comedic event for April. Stay tuned!
If you're interested in joining the club or want to see what else we have in store for the upcoming semester, join us for pizza at Woodstocks on Tuesday, February 1st at 7pm. We'll be picking officers, planning meeting times, and eating pizza! I hope to see lots of familiar faces!
Marcy McCormick
Interim President
CSU Chico Economics Club
Sunday, October 31, 2010
Parked Cars - Proposition 21
Parked Cars
An economic look into Proposition 21
I remember camping trip with my family to the relatively well-visited Patrick’s Point State park when the lady behind the counter at the gift shop approached us with a clipboard and a pen, asking us in the polite, gentle, but albeit aggressive way that only old ladies seem to exhibit, if we would sign a petition. Upon further examination, we discovered that it was a petition for a ballot issue that would, in effect, save the State Parks. What I found out later, after I had signed my soul away, was that it included an eighteen dollar expansion of driver registration fees, which is something that didn’t sit well in my stomach. But it was too late, and the proposition evolved out of petition form, into what we now know as Proposition 21.
At the heart of proposition 21 is the need to better fund the financially failing State Park system of California through a safe and secure means. It is common knowledge that California is facing an absolutely massive budget deficit, and unlike the Federal Government, we don’t have a magic money machine, known by economists as the Federal Reserve, to bail us out. Instead, we have the taxpayers. And that is exactly where this proposition is aimed. It will essentially raise the cost of owning a car by eighteen dollars a year. However, there are real benefits to this somewhat annoying tax hike which include free parking and admission to all state parks for cars that are affected by the surcharge. On top of that nice little bribe, the state also receives a way to securely fund the continued preservation and maintenance of some of the most beautiful places on the planet as well as the environmental benefits that go along with it.
Overall, the proposition is slated to raise $500 million dollars annually for state parks; however, opponents say that the money could be better spent in other areas that are hurting more. Essentially, the opportunity cost of spending the money on parks instead of other things far outweighs the receivable benefits of keeping the parks open, clean, and healthy.
On the other end of the argument, proponents of the proposition cite that the community of California will be rewarded with a slew of environmental benefits that could have a very positive impact on the health of our state. The most substantial and concrete examples of economic benefit from this proposition are cited on a yesforstateparks.com fact sheet and state:
“State parks strengthen the economy by attracting millions of tourists, who spend $4.32 billion annually in park‐related expenditures in California, according to a recent study. It found state park visitors spend an average of $57.63 in surrounding communities per visit. They generate so much economic activity that every dollar the state spends on state parks generates another $2.35 for California’s treasury.”
(http://www.yesforstateparks.com/get-the-facts/fact-sheets/general-fact-sheet)
Taking into consideration the fact that this figure is most likely affected by diminishing marginal returns, it is still a substantial number when coupled with the environmental benefits provided.
However the question still remains whether the returns in this sector would outweigh the returns in something like education. But then one must wonder if Prop 21 were to fail, if any many would be spent in education at all.
Ultimately the decision boils down to the fact that even if any opportunity cost were to yield a higher rate of return for the state and her citizenry, and that is a very formidable ‘if’, would such an opportunity be taken. My intuition says ‘probably not’, but at least it gives us more to consider when we decide we want to raise taxes on ourselves to make up for our budget-inept state legislatures.
With everything said and done, my verdict on this one is a solid ‘Yes’. I’m not a fan of covering up budget inadequacies by simply finding more money to waste, but this proposition does something that the State has been unable to: find a stable way to fund a program. Not just any program, but one of the dearest and, in my opinion, most important environmental programs in California.
An economic look into Proposition 21
I remember camping trip with my family to the relatively well-visited Patrick’s Point State park when the lady behind the counter at the gift shop approached us with a clipboard and a pen, asking us in the polite, gentle, but albeit aggressive way that only old ladies seem to exhibit, if we would sign a petition. Upon further examination, we discovered that it was a petition for a ballot issue that would, in effect, save the State Parks. What I found out later, after I had signed my soul away, was that it included an eighteen dollar expansion of driver registration fees, which is something that didn’t sit well in my stomach. But it was too late, and the proposition evolved out of petition form, into what we now know as Proposition 21.
At the heart of proposition 21 is the need to better fund the financially failing State Park system of California through a safe and secure means. It is common knowledge that California is facing an absolutely massive budget deficit, and unlike the Federal Government, we don’t have a magic money machine, known by economists as the Federal Reserve, to bail us out. Instead, we have the taxpayers. And that is exactly where this proposition is aimed. It will essentially raise the cost of owning a car by eighteen dollars a year. However, there are real benefits to this somewhat annoying tax hike which include free parking and admission to all state parks for cars that are affected by the surcharge. On top of that nice little bribe, the state also receives a way to securely fund the continued preservation and maintenance of some of the most beautiful places on the planet as well as the environmental benefits that go along with it.
Overall, the proposition is slated to raise $500 million dollars annually for state parks; however, opponents say that the money could be better spent in other areas that are hurting more. Essentially, the opportunity cost of spending the money on parks instead of other things far outweighs the receivable benefits of keeping the parks open, clean, and healthy.
On the other end of the argument, proponents of the proposition cite that the community of California will be rewarded with a slew of environmental benefits that could have a very positive impact on the health of our state. The most substantial and concrete examples of economic benefit from this proposition are cited on a yesforstateparks.com fact sheet and state:
“State parks strengthen the economy by attracting millions of tourists, who spend $4.32 billion annually in park‐related expenditures in California, according to a recent study. It found state park visitors spend an average of $57.63 in surrounding communities per visit. They generate so much economic activity that every dollar the state spends on state parks generates another $2.35 for California’s treasury.”
(http://www.yesforstateparks.com/get-the-facts/fact-sheets/general-fact-sheet)
Taking into consideration the fact that this figure is most likely affected by diminishing marginal returns, it is still a substantial number when coupled with the environmental benefits provided.
However the question still remains whether the returns in this sector would outweigh the returns in something like education. But then one must wonder if Prop 21 were to fail, if any many would be spent in education at all.
Ultimately the decision boils down to the fact that even if any opportunity cost were to yield a higher rate of return for the state and her citizenry, and that is a very formidable ‘if’, would such an opportunity be taken. My intuition says ‘probably not’, but at least it gives us more to consider when we decide we want to raise taxes on ourselves to make up for our budget-inept state legislatures.
With everything said and done, my verdict on this one is a solid ‘Yes’. I’m not a fan of covering up budget inadequacies by simply finding more money to waste, but this proposition does something that the State has been unable to: find a stable way to fund a program. Not just any program, but one of the dearest and, in my opinion, most important environmental programs in California.
Proposition 23
Proposition 23
Proposition 23 suspends AB 32 until unemployment remains at or below 5.5% or lower for four consecutive quarters. These unemployment rates are a rare occurrence in California. Since 1976, this has only happened 3 times. AB 32 is a measure signed by Governor Arnold Schwarzenegger in 2006 that requires California to reduce its green house gas emissions to 1990 levels by 2020. It is important to note that these years are arbitrary;. it would result in a 25% decrease in these green house gasses and would most likely require an implementation of a cap and trade system. Cap-and-trade limits the amount of Greenhouse Gases (GHG) by requiring producers to buy a limited number of permits which can then be bought and sold. This allows market forces to determine the price of emissions while accounting for previously ignored social costs. AB 32 plans to control 85% of emissions with a cap-and-trade policy.
The cost imposed by green house gases on society is not captured in the market prices for goods and services. The objective of the cap and trade program is to create a market that captures these costs. Businesses can choose to continue operations that result in carbon output by buying carbon contracts or if they can reduce their carbon output levels, businesses can sell carbon contracts on the market for a profit. In theory, contract prices reflect the social costs associated with high levels of carbon output. As fossil fuel power supplies must now purchase contracts that reflect social costs, alternative renewable energy sources become more price competitive and would be expected to gain market share.
Jobs
With the economy in the midst of a deep recession and unemployment rate in California hovering around 12.4%, there is a fear that AB 32 will put a damper on the economy and the job market. In the short run, there will be some jobs lost as the increase in costs of petroleum increase the marginal cost of each individual worker in the firm. This will have more of an impact on workers for dirtier firms whose demand for petroleum products is inelastic. The loss of jobs could have an effect on overall aggregate demand, which would in turn result in jobs in other sectors lost. In the long run “green” firms will have an increased demand for workers that are more skilled and can add more value to the companies since there will be greater demand for clean, renewable energy. This will lead to a certain degree of structural unemployment since jobs will be lost in some industries while some industries see a net job growth. As other firms adopt this technology, the marginal cost of each worker will decrease, and it would make since for firms to hire more workers in order to maximize its profits. However, it is very unclear about the actual amount of job growth or loss if prop 23 does not pass and AB 32 does go through. AB 32 will have a different impact different markets.
An increase in green jobs is dependent largely on Californian firms’ ability to gain a footing in the green energy market. There are questions about whether newly formed California companies can compete against developed green energy firms from Germany, China, and other European countries who already have benefited from government green energy legislation. Without trade barriers it seems likely that foreign green energy companies will step in and dominate some aspects of the California green energy market.
Though small, the renewable energy industry is the one of the fastest growing industry in the country. Green tech jobs are growing ten times faster than in any other sector. Currently 60% of the US green energy firms are located in California; Proposition 23 will potentially hurt this industry by reducing the price competitiveness ofr renewable resources.
Government
Not passing prop 23 could also could also possibly result in lost government revenue in the short run. Profits could be lost by businesses which could result in a decrease in tax revenue, depending on the extent that it reduces profit. If jobs are lost because of AB 32, this could also have a negative impact on the amount of money that is collected through income tax. A decrease in state revenue could put a greater strain on the budget, which may force government to make even more spending cuts. The method in which the government distributes permits is yet to be decided. If the permits are given away then this will have little effect on the government revenues. If permits are auctioned government revenues will increase.
However, depending on the elasticity of demand for petroleum products, the tax alone could generate revenue. This additional revenue could be used to subsidize individuals and industries that are hurt most by this bill. However, the idea of the cap and trade is to allow firms whose costs of cutting green house gas emissions is great to pollute more through the purchase of the permits. If additional revenue is created, this could also be used to fill the state budget shortfall. This would allow government to reduce their spending cuts which would have an overall benefit on the state wide economy because there would be fewer reductions in aggregate demand. Additional revenue could also result in reductions of taxes in certain areas which could possibly compensate for the short term lost production in the economy.
Effects outside of California
Another issue to consider is business flight. There is a fear that by putting a price on emissions, businesses will find it more profitable to operate in other states and therefore leave California. If this happens, this could put a drag on the state economy in multiple ways. First, that would mean jobs would leave the state. Second, because of the lost jobs, there would be result of a loss of revenue from personal income taxes. There would also be a loss of revenue from taxes on businesses who leave the state. However, some economists believe this is an unlikely scenario because capital mobility is relatively low.
There is also a concern about how much AB 32 will actually reduce green house gasses. It may be difficult for California alone to reduce the carbon footprint that the world produces. If business flight takes place, obviously California will have reduced its carbon footprint, but the total amount of green house gasses will not go down very much. Even if AB 32 is successful, the amount California reduces its green house gasses is insignificant to the amount that is produced globally. However, the idea is for California to become known for clean, renewable energy and for the rest of the world to follow.
California is also a major energy importer. While AB 32 has methods to account for imported dirty energy the system is imperfect since no there is no way to directly measure the emissions of energy companies outside the state.
Are there better policies?
There are two prominent methods for correcting this market failure. In a cap-and-trade policy the government decides the quantity of emissions for the entire market and allows market forces to determine the price of emissions. If the government taxes the amount of emission they are fixing the price of emissions for the entire market and allowing market forces to determine the quantity of pollution. Which is more important for the government to decide, the price of emissions or the quantity of emissions? California emits 1.4 percent of the world’s greenhouse gas emissions. The amount of emissions reductions has relatively little effect on the greenhouse gases in the atmosphere. While the price of emissions affect how much dirty energy firms are punished and how much clean energy firms are rewarded. It also affects how much money is invested in green energy companies. Investment provides the money needed to hire individuals in clean energy firms who develop green technology and increase energy efficiency. The importance of invested has lead many to believe that deciding the price of emissions, through emissions taxing, is a more effective solution. Markets tends to underfund research and development; causing some to believe that subsidies for research and development would be an effective way to push the price of green energy down. If the price of green energy can be pushed below that of dirty energy then firms will move in mass toward green energy.
This cap-and-trade program in AB 32 has been criticized for randomly choosing emissions levels of 1990 in the year 2020 and allowing the price of emissions to move up and down. Randomly choosing emissions levels neglects the costs GHG have on the world as well as how costly reducing emissions can be for businesses and ultimately consumers. While, allowing the price of emissions to go up and down makes it less stable for investment, it also means that as more businesses will switch to clean energy. With more businesses switching to clean energy they will no longer need to buy permits. This causes the price of permits to decrease thus decreasing the incentive for companies to continue to reduce emissions and invest in green technology.
Conclusion
AB 32 squanders many opportunities to aid the green technology sector, which the major source of predicted new jobs as well as savings. The method for permit distribution is yet to be decided and will affect government revenues, subsidies for green technology, and the stability of the emissions market. So, they have a chance to partially redeem their mistakes with the groundwork legislation. If trade barriers are small enough California’s energy markets could be taken over by more developed green energy businesses in Europe and/or China. This would decrease the amount of jobs available to Californians.
Thursday, October 14, 2010
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