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McCain vs Obama: Carbon Auctions

Tuesday, May 13, 2008

Greg Mankiw

Any cap-and-trade system for carbon creates a valuable resource: the right to produce carbon. A key question in the design of the system is how those carbon allowances are allocated. Are they given out for free to power companies and other established carbon emitters? Or are they sold at auction so the revenue can be used to reduce government debt, fund public programs, or reduce distortionary taxation? If the allowances are sold, their price resembles a Pigovian tax, which readers of this blog will recognize as the optimal policy response.

In his speech yesterday, Senator McCain gave a nod to selling the carbon allowances:

Over time, an increasing fraction of permits for emissions could be supplied by auction, yielding federal revenues that can be put to good use.

Not bad, but the statement raises several questions. Why over time? Why not immediately? And how high would that fraction become?Here was Senator Obama on this topic in a debate a few months ago:

I think cap-and-trade system makes more sense. That's why I proposed it -- because you can be very specific in terms of how we're going to reduce the greenhouse gases by a particular level. Now what you have to do is you have to combine it with a hundred percent auction.

The Pigou Club gives the edge to Obama.
Environmental Ecomomics isn't my field, but I'm pretty sure Mankiw is misstating this. From a purely economic standpoint, it doesn't matter whether you give away carbon permits or whether the government auctions them off. The result is the same as a pigouvian tax either way. (At least in theory. In practice, you run into problems with auction design if you go with Mankiw's system, and you can bump into problems associated with illiquid markets if you the government issues permits for free. I'm not very familiar with the technical specifics of this particular market, so maybe there's something I'm missing here).There's a political issue here, of course. Should the government confiscate profits from carbon emitters, or should we leave those profits floating around in the private sector? Reasonable people can disagree on that one, but it's misleading to suggest that a Pigouvian tax is economically optimal but cap-and-trade (with or without auctions) isn't.
Mankow is saying they're both potentially Pigouvian, however, Obama is 100% certain to be while McCain only may be.
If that's what Mankiw is saying, then he's wrong. I think he just misspoke and he's really more interested in making a point about increasing tax revenues, which is reasonable.

 
Analysis: Obama looks to general election, hoping America won't notice West Virginia

By NEDRA PICKLER , Associated Press

Last update: May 14, 2008 - 2:26 AM

WASHINGTON - Barack Obama is in hot pursuit of general election voters, hoping America won't notice he got his head handed to him in West Virginia.

The Illinois senator virtually pretended the primary didn't happen Tuesday, with no election night speech or any public appearance at all after the polls closed and gave Hillary Rodham Clinton a more than 2-1 victory even though her candidacy is likely doomed.

At Obama's Chicago headquarters, advisers said there was no reason to worry — West Virginia was demographically suited to Clinton and won't be part of their general election plans. It's also true that Clinton's win is unlikely to slow his march toward the nomination — Obama picked up 30 superdelegates this week, more than the 28 total pledged delegates up for grabs in West Virginia.

But maybe the Obama camp should be more worried. The voters who went against Obama Tuesday night — white, rural, older, low-income and without college degrees — don't just live in West Virginia. They live everywhere in the country, in places Obama needs to win.

They live in places like Macomb County, Mich., where Obama planned to start his day Wednesday by dropping by a Chrysler plant. That's a recognition that he has work to do to win over working class voters even if his campaign doesn't say it.

Obama's daylong visit to Michigan will be his first campaigning there since he signed onto a pledge nine months ago to boycott the state. He pulled his name from the ballot in the state's illegitimate primary, held too early for party rules.

That means many voters in the state are just starting to get to know Obama, said Bill Rustem, president of Michigan think tank Public Sector Consultants.

"There's a lot of excitement among young people and among African-Americans, which should serve him well," Rustem said. "There still are questions among older white people that I think he's going to have to try to appeal to them in some way, shape or form. I'm sure that's in part why he's coming to Michigan — to begin that process."

Obama's campaign leaders say they are confident most of these Clinton voters are Democrats first and will support Obama once the primary is over. In a memo before the polls even closed, they said conclusions cannot be drawn about the general election campaign from the results of the Democratic primaries and pointed out that head-to-head polls between Obama and McCain show Obama is running as well as past Democratic candidates among white voters.

"These people are Democrats," said Democratic consultant Steve McMahon, who is not working for either candidate. "They will come home."

Clinton's advisers said she planned to use her big victory to try to persuade uncommitted superdelegates during a meeting at her home Wednesday that she would be the strongest nominee in the general election.

"It is a fact that no Democrat has won the White House since 1916 without winning West Virginia," Clinton said in her victory speech. "The bottom line is this: The White House is won in the swing states, and I am winning the swing states."

The Obama campaign also said in its memo that Clinton also will likely win handily next week in Kentucky. His saving grace is that Oregon votes on the same day and is likely to give Obama a big win to balance it out. A double shellacking for Obama would have had him limping to the nomination.

___

EDITOR'S NOTE — Nedra Pickler has covered presidential politics for The Associated Press since 2002.

Obama will have a very tough time with McCain. He is getting 90% of the black vote, a vote that typically votes democratic. The states he is winning are typically republican states in recent presidential elections. The main reason he is getting victories in the mountain states and the southern states is the black vote and the young professionals. I'm glad that people are going out and voting but he won't win the general election. If the black vote was split 50-50 rather than 90-10, Hillary would have beat Obama in most states

 
Poblano Model explains how Obama can win

If it is assumed that there will be no more new registered voters than in a usual Presidential election cycle, then it is easy to see how Obama could struggle in the general election. However, as has been proven so far by a very large Democratic primary turnout, this isn't a typical year. The above link will explain what Obama's campaign strategy is and how it works.

 
The battle is over. Obama is the Democratic candidate. We'll never know how Clinton would have done in the general. (How would Green Bay have done in the Superbowl?) It's useless, IMO, to argue it anymore, because between now and November a million things are going to happen that will change the election again. Obama may turn states that were red into swing states. OTOH, it may be back to Florida and Ohio again. It's simply impossible to predict at this point. But the important thing now is to discuss how McCain and Obama match up against each other and forget talking about Hillary. She's a done deal.
I know. But, what will SofaKings and the other Hillary supporters do without this to cling onto for dear life? They have to still believe in this fantasy.
SofaKings is not a Hillary supporter. He is just like Moe Green and Rayder who claim to be independents, but do nothing but criticize the left and a give a free pass to the right. They've been doing it for years. This should be no surprise.
Figures.So, seriously. Who are the true Hillary honks on this board? Trey gave her up, recently, and is now on board with Obama. But, who else here--anywhere--actually supports that woman other than those who are 65+ or single women over 45 with cats?
whoknew is still a HRC :thumbup: or else just comes in to stir #### up
 
Poblano Model explains how Obama can win

If it is assumed that there will be no more new registered voters than in a usual Presidential election cycle, then it is easy to see how Obama could struggle in the general election. However, as has been proven so far by a very large Democratic primary turnout, this isn't a typical year. The above link will explain what Obama's campaign strategy is and how it works.
Excellent article, and I have a feeling that it's dead on. Everything about Obama's campaign, the 50 state strategy, the money poured in from new donors, and above all the use of the internet, represents something we have not seen before in American politics. Those who argue that Obama cannot beat McCain are looking at the older models, I fear.Any study of the history of warfare will always tell you that the experts get it wrong every time because they refer to past battles. For instance, in early 1940, all the military experts predicted a long gruelish battle between Germany and France, duplicating the trench warfare of 1914. None of them could forsee how the massing of tanks combined with control of the air made that old warfare obsolete; the Germans won within a month. I think we may be seeing a similar analogy here. It's unfortunate for me, as a McCain supporter, but I think it is true.

 
Those "hillbilles" are what are called blue collar workers, and if Obama continues to lose this vote, he will lose to McCain.
how much active courting of this "blue collar" vote will mccain do? as a rule, GOP candidates are:- anti-union;- they're seen as in the pocket of the super rich and corporations;- they're anti-immigrant; and- cutting gov't spending on social programs.although Iraq and the WoT aren't at the top of the list of grievances, McCain is seen as a proponent of the current policy. a policy that has kept sons and daughters in harm's way for far too long.once the Dem campaign and the media coverage that follows it shifts from internecine to GOP v Dem then we'll see whom the average american embraces more readily.
 
In 2004,Bush won Iowa by 1%. Obama beat Hillary.Bush won Colorado by 5%. Obama crushed Hillary.Bush won Missouri by 7%. Obama beat Hillary.Kerry barely beat bush in Wisconsin by less than 1%. Obama killed Hillary there.Kerry won in Oregon by 4%. Obama will beat Hillary there.Bush won Nevada by 4%. Hillary beat Obama.Bush won New Mexico by 1%. Hillary beat Obama.Kerry won Pennsylvania narrowly. Hillary beat Obama.What are your other "swing" states?
:lmao:OH and FL are swing states, too, but I like your argument here.
 
I can't stand Hillary Clinton, but what she just said is right. The general election is always won in the swing states, and she has won most of them. It is not gonna matter, as Obama all but has it wrapped up, but I still believe she would stand a better chance at winning in November than Obama will.
If this is true, why is she losing? If she's the better candidate, she ought to be winning by now. Right?
The better candidate in the democrat primaries and caucuses is not necessarily the better candidate in the GE.
Just an FYI: Hillary would get CRUSHED in the general election, in case you haven't been following things too closely. Her negative ratings indicate that too many people (myself included) can't stand her. She would have had no shot against McCain.I know you're a Hillary honk. I'm just telling you, for the sake of the party, it's a damn good thing she ran an awful campaign and lost to Obama.
I am no longer as confident as I was in an Obama victory, but I agree Hillary has NO CHANCE in the general.Right now, the Republicans are tremendously unenthused and uninspired by their candidate. Nothing would galvanize Repbulicans together and bring them out of the wood works more, IMO, than Hillary Clinton.Turnout matters alot in the general, and I think alot of Republicans stay at home this cycle with McCain vs. Obama.
 
I gotta say, as a McCain supporter, I'm not confident at all at this point. Of course things could change. It surprises me how much the conservative talk show hosts are buying into the Clinton spin, and predicting there is no way Obama can win the general. You know the line: he can't win with eggheads and African-Americans. But to me far more decisive and worrisome for Republicans than this viewpoint is the results in the congressional races recently. When Dems are winning seats that have been red for decades, you know change is in the air. If Obama can bring all the new voters to November, and if he can retain enough of the Hillary supporters in the big states (and I don't really see why he can't do both of these things) he will win not just a victory, but an overwhelming one with a Democrat landslide. I don't want to see this, but it could very well happen.
Honestly, once McCain gets into a real race here...I think he's going to get CRUSHED by Obama. He's flubbing all over himself (without anybody in his way), and his vision for the direction of this country is no real departure from Bush's. And, Obama is going to expose both of these realities once those two go head-to-head. I think McCain is going to get thrashed in the GE.
I'm cautiously optimistic that this is true.If McCain were the McCain of 2000, he would be a much more formidable opponent. The problem for him is that he's redefined himself to comport with the republican base. The prime reason he even survived the primary season was due to his alignment with Bush on Iraq. That might have won him the nom, but it won't guarantee much else. As many have said, McCain is a woefully flawed candidate at this point.Obama has his flaws as well (they all do), but many of these are superficial and can be addressed over time. His "inexperience" is eroding with each passing day, and Hillary can be thanked for having accelerated the vetting process. I guess she's been good for something. Youth versus old age never ends well for the old guy, and it really won't end well for the old guy who is joined at the hip with a terribly unpopular president. Once things move head-to-head between McCain and Obama, these distinctions will be there for all to see. McCain of 2000 would have measured up nicely against a newer senator, but not now. Not after eight years of flailing under Bush.I think the odds are good that Obama will win this going away when it's all said and done, but I never take anything for granted in politics. I do know that McCain does not match up well with Obama at all, and certainly he's not a good candidate in a "change" election.
The funny thing with McCain is that he has managed to really p### off the Republican base, while at the same time p###### the independents and moderates that supported him before. He is neither a conservative, nor a maverick, at this point.
 
I can't stand Hillary Clinton, but what she just said is right. The general election is always won in the swing states, and she has won most of them. It is not gonna matter, as Obama all but has it wrapped up, but I still believe she would stand a better chance at winning in November than Obama will.
When she says stuff like that I always wonder who buys it. Now I know. Primary results do not translate to GE results. They can't. Do you guys also beleive that all the states McCain lost will automatically go for Obama? Do you think California will go for McCain? Losing a state to Clinton in the primaries does not mean that state can't be won by Obama against McCain.
 
In 2004,Bush won Iowa by 1%. Obama beat Hillary.Bush won Colorado by 5%. Obama crushed Hillary.Bush won Missouri by 7%. Obama beat Hillary.Kerry barely beat bush in Wisconsin by less than 1%. Obama killed Hillary there.Kerry won in Oregon by 4%. Obama will beat Hillary there.Bush won Nevada by 4%. Hillary beat Obama.Bush won New Mexico by 1%. Hillary beat Obama.Kerry won Pennsylvania narrowly. Hillary beat Obama.What are your other "swing" states?
:kicksrock:OH and FL are swing states, too, but I like your argument here.
I think Obama can win both of those.
 
In 2004,Bush won Iowa by 1%. Obama beat Hillary.Bush won Colorado by 5%. Obama crushed Hillary.Bush won Missouri by 7%. Obama beat Hillary.Kerry barely beat bush in Wisconsin by less than 1%. Obama killed Hillary there.Kerry won in Oregon by 4%. Obama will beat Hillary there.Bush won Nevada by 4%. Hillary beat Obama.Bush won New Mexico by 1%. Hillary beat Obama.Kerry won Pennsylvania narrowly. Hillary beat Obama.What are your other "swing" states?
Nice job leaving out Ohio and West Virginia, two states that the Democrat must win in November. Obama lost handily to Clinton in both of those states. And let's not forget Florida, which isn't counting, but we all know that Clinton would stand a better chance of winning there than Obama would. And please do not put me into the "delusional Clinton supporters" category. I have already said I cannot stand her. I am just trying to be realistic about the chances of both Democrats in the general election.
 
I can't stand Hillary Clinton, but what she just said is right. The general election is always won in the swing states, and she has won most of them. It is not gonna matter, as Obama all but has it wrapped up, but I still believe she would stand a better chance at winning in November than Obama will.
When she says stuff like that I always wonder who buys it. Now I know. Primary results do not translate to GE results. They can't. Do you guys also beleive that all the states McCain lost will automatically go for Obama? Do you think California will go for McCain? Losing a state to Clinton in the primaries does not mean that state can't be won by Obama against McCain.
Good thing I never said that. And I know that primary results do not always translate to general election results, but assuming you are an Obama supporter, are you telling me his poor effort in several significant swing states does not concern you?
 
In 2004,Bush won Iowa by 1%. Obama beat Hillary.Bush won Colorado by 5%. Obama crushed Hillary.Bush won Missouri by 7%. Obama beat Hillary.Kerry barely beat bush in Wisconsin by less than 1%. Obama killed Hillary there.Kerry won in Oregon by 4%. Obama will beat Hillary there.Bush won Nevada by 4%. Hillary beat Obama.Bush won New Mexico by 1%. Hillary beat Obama.Kerry won Pennsylvania narrowly. Hillary beat Obama.What are your other "swing" states?
:suds:OH and FL are swing states, too, but I like your argument here.
I think Obama can win both of those.
He is going to need to spend A LOT of time with Jewish voters, in my opinion. No one talks about that much, but I see that as a big problem that needs to be fixed by Obama. Jewish voters it seems have been swaying towards the right more and more every year since the war on terror, and turmoil in the Middle East, and the whispers about Obama and some of his own misstatements I bet are already taking their toll among Jewish voters. This is something that he needs to fix FAST. Everything he says about Israel needs to be strong, pro-Israel, he needs to assure the leaders one on one about Farrakhan and the like. I really like his statement in one of the debates about how he wants to restore the historical bond between Jews and blacks from the civil rights era. Well, guys like Farrakhan were largely responsible for severing that bond and driving a wedge.I really think he has alot of work to do here.
 
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I can't stand Hillary Clinton, but what she just said is right. The general election is always won in the swing states, and she has won most of them. It is not gonna matter, as Obama all but has it wrapped up, but I still believe she would stand a better chance at winning in November than Obama will.
When she says stuff like that I always wonder who buys it. Now I know. Primary results do not translate to GE results. They can't. Do you guys also beleive that all the states McCain lost will automatically go for Obama? Do you think California will go for McCain? Losing a state to Clinton in the primaries does not mean that state can't be won by Obama against McCain.
Good thing I never said that. And I know that primary results do not always translate to general election results, but assuming you are an Obama supporter, are you telling me his poor effort in several significant swing states does not concern you?
Yes, I'm telling you does not concern me. This is the first time "my candidate" has lost and I was glad to see that he's looking to the general and going to Michigan rather than dwelling on it.
 
In 2004,Bush won Iowa by 1%. Obama beat Hillary.Bush won Colorado by 5%. Obama crushed Hillary.Bush won Missouri by 7%. Obama beat Hillary.Kerry barely beat bush in Wisconsin by less than 1%. Obama killed Hillary there.Kerry won in Oregon by 4%. Obama will beat Hillary there.Bush won Nevada by 4%. Hillary beat Obama.Bush won New Mexico by 1%. Hillary beat Obama.Kerry won Pennsylvania narrowly. Hillary beat Obama.What are your other "swing" states?
:thumbdown:OH and FL are swing states, too, but I like your argument here.
I think Obama can win both of those.
He is going to need to spend A LOT of time with Jewish voters, in my opinion. No one talks about that much, but I see that as a big problem that needs to be fixed by Obama. Jewish voters it seems have been swaying towards the right more and more every year since the war on terror, and turmoil in the Middle East, and the whispers about Obama and some of his own misstatements I bet are already taking their toll among Jewish voters. This is something that he needs to fix FAST. Everything he says about Israel needs to be strong, pro-Israel, he needs to assure the leaders one on one about Farrakhan and the like. I really like his statement in one of the debates about how he wants to restore the historical bond between Jews and blacks from the civil rights era. Well, guys like Farrakhan were largely responsible for severing that bond and driving a wedge.I really think he has alot of work to do here.
I completely agree - and I think Florida is going to be VERY tough for him. He may very well lose FL.I think in Ohio, McCain will be his best friend if they can successfully tie McCain to Bush and blame him for the economy.
 
In 2004,Bush won Iowa by 1%. Obama beat Hillary.Bush won Colorado by 5%. Obama crushed Hillary.Bush won Missouri by 7%. Obama beat Hillary.Kerry barely beat bush in Wisconsin by less than 1%. Obama killed Hillary there.Kerry won in Oregon by 4%. Obama will beat Hillary there.Bush won Nevada by 4%. Hillary beat Obama.Bush won New Mexico by 1%. Hillary beat Obama.Kerry won Pennsylvania narrowly. Hillary beat Obama.What are your other "swing" states?
Nice job leaving out Ohio and West Virginia, two states that the Democrat must win in November. Obama lost handily to Clinton in both of those states. And let's not forget Florida, which isn't counting, but we all know that Clinton would stand a better chance of winning there than Obama would. And please do not put me into the "delusional Clinton supporters" category. I have already said I cannot stand her. I am just trying to be realistic about the chances of both Democrats in the general election.
Let's not forget in the "electability" argument that Obama has had to endure a lot of attacks from both Hillary and the Republicans, while Hillary has been treated very well by Obama, and the Republican part of the media has been actively campaigning for her for months. That will NOT be the case in general election. The same Republicans that are kissing her butt right now will turn on her with a fury that will make the swiftboat stuff look like child's play. And who buys into that BS? Uneducated voters. I doubt she'd still be the "working class hero" after the Republicans dig out every skeleton in her closet, and plant a few more of their own.
 
Now that the last Hillary bastion is behind us, we can go on with closing out this election. From here on out, the race gets interesting. Last nights news surprised no one. Obama didn't campaign much at all there, knowing the demographics hugely were against him.

But upcoming contests:

Kentucky: 51 delegates ---- Clinton +27% ish

Oregon: 52 delegates ---- Obama + 15% ish

Puerto Rico: 55 delegates (open primary)

Montana: 16 delegates (open primary)

South Dakota: 15 delegates

So, it looks like Obama and Clinton will split states next Tuesday, taking more delegates off the table without much advantage going either way (slightly clinton). After next Tuesday, there will be only 86 delegates left, and many more superdelegates left.

To be honest, the next week elections really won't matter that much. This was the last state that really mattered to the campaigns, and from here on out, it will be less about the states, and more about superdelegates and behind the scenes power plays. More and more supers will come out for Obama, and Hillary will try to use the data from this latest state to slow that tide, to show that Obama is not going to be able to draw blue-collar whites with lower education levels. Whatever power she can muster from her strong showing, she will wield...but to what effect.

Obviously, she wants the presidency, but to get that, the rules have to change. Will she wield her power, her votes, her reputation, to force the delegates from MI and FL to be seated? Will this become the central focus of her campaign from here on out? I can't see any other option for her than to hit that topic hard and often, and use whatever political leverage she has to get them counted, because then, only by raising the magic number from 2025 to something a few hundred higher, does she have ANY shot.

If she can win a revote in those states, she has a bigger shot as well. Odds are, she'll by lobbying for that too. So at this point, the remaining states are not really worth much to her, what's worth more is what's off the table right now - MI/FL and the superdelegates. Full court press on these subjects should be coming soon.

 
I can't stand Hillary Clinton, but what she just said is right. The general election is always won in the swing states, and she has won most of them. It is not gonna matter, as Obama all but has it wrapped up, but I still believe she would stand a better chance at winning in November than Obama will.
When she says stuff like that I always wonder who buys it. Now I know. Primary results do not translate to GE results. They can't. Do you guys also beleive that all the states McCain lost will automatically go for Obama? Do you think California will go for McCain? Losing a state to Clinton in the primaries does not mean that state can't be won by Obama against McCain.
The following two links show this phenomenon. I'm not saying Obama can't win some of the states that are narrow now and win in November, but I think it shows presently that Clinton has the advantage in those swing states. These maps have nothing to do with the primary, but rather polling each Democrat individually against McCain. I also get that both sides are still bitter at the other now and some of that may subside. All of that said, this is Hillary's case and the polling for now does support that.http://www.electoral-vote.com/evp2008/Obama/Maps/May14.html

http://www.electoral-vote.com/evp2008/Clin...Maps/May14.html

 
In 2004,Bush won Iowa by 1%. Obama beat Hillary.Bush won Colorado by 5%. Obama crushed Hillary.Bush won Missouri by 7%. Obama beat Hillary.Kerry barely beat bush in Wisconsin by less than 1%. Obama killed Hillary there.Kerry won in Oregon by 4%. Obama will beat Hillary there.Bush won Nevada by 4%. Hillary beat Obama.Bush won New Mexico by 1%. Hillary beat Obama.Kerry won Pennsylvania narrowly. Hillary beat Obama.What are your other "swing" states?
Nice job leaving out Ohio and West Virginia, two states that the Democrat must win in November. Obama lost handily to Clinton in both of those states. And let's not forget Florida, which isn't counting, but we all know that Clinton would stand a better chance of winning there than Obama would. And please do not put me into the "delusional Clinton supporters" category. I have already said I cannot stand her. I am just trying to be realistic about the chances of both Democrats in the general election.
So, even counting Ohio and WV, I'm not sure how the claim can be made that Hillary has this overwhelming influence in the "swing" states. Some, yes. Others, no. But, Obama has more broad support than Hillary. He has the support of more states. He has more votes. He has more delegates. He has more support from party leaders/Superdelegates. He would fare better than Hillary, it appears, in at least half of these so-called "swing" states.I'm just not seeing it...this defense of Hillary being the better national candidate.
 
Mark Davis said:
NorvilleBarnes said:
I can't stand Hillary Clinton, but what she just said is right. The general election is always won in the swing states, and she has won most of them. It is not gonna matter, as Obama all but has it wrapped up, but I still believe she would stand a better chance at winning in November than Obama will.
When she says stuff like that I always wonder who buys it. Now I know. Primary results do not translate to GE results. They can't. Do you guys also beleive that all the states McCain lost will automatically go for Obama? Do you think California will go for McCain? Losing a state to Clinton in the primaries does not mean that state can't be won by Obama against McCain.
The following two links show this phenomenon. I'm not saying Obama can't win some of the states that are narrow now and win in November, but I think it shows presently that Clinton has the advantage in those swing states. These maps have nothing to do with the primary, but rather polling each Democrat individually against McCain. I also get that both sides are still bitter at the other now and some of that may subside. All of that said, this is Hillary's case and the polling for now does support that.http://www.electoral-vote.com/evp2008/Obama/Maps/May14.html

http://www.electoral-vote.com/evp2008/Clin...Maps/May14.html
http://www.fivethirtyeight.com/ provides much better info IMO. It uses the averages of several polls in its calculation.Right now Obama gets 266 electoral votes against McCain and Hillary gets 259 in her race. As an Obama supporter this isn't a bad thing, he's shown the ability to run an excellent campaign. That is underestimated by a lot of people.

 
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IvanKaramazov said:
McCain vs Obama: Carbon Auctions

Tuesday, May 13, 2008

Greg Mankiw

Any cap-and-trade system for carbon creates a valuable resource: the right to produce carbon. A key question in the design of the system is how those carbon allowances are allocated. Are they given out for free to power companies and other established carbon emitters? Or are they sold at auction so the revenue can be used to reduce government debt, fund public programs, or reduce distortionary taxation? If the allowances are sold, their price resembles a Pigovian tax, which readers of this blog will recognize as the optimal policy response.

In his speech yesterday, Senator McCain gave a nod to selling the carbon allowances:

Over time, an increasing fraction of permits for emissions could be supplied by auction, yielding federal revenues that can be put to good use.

Not bad, but the statement raises several questions. Why over time? Why not immediately? And how high would that fraction become?Here was Senator Obama on this topic in a debate a few months ago:

I think cap-and-trade system makes more sense. That's why I proposed it -- because you can be very specific in terms of how we're going to reduce the greenhouse gases by a particular level. Now what you have to do is you have to combine it with a hundred percent auction.

The Pigou Club gives the edge to Obama.
Environmental Ecomomics isn't my field, but I'm pretty sure Mankiw is misstating this. From a purely economic standpoint, it doesn't matter whether you give away carbon permits or whether the government auctions them off.
I wouldn't say that's true if the purely economic standpoint includes public choice theory. The permits aren't going to be given away for free either way; the question is whether the cost should be paid through an auction or through political campaign contributions. :thumbup: There is reason to think holding an auction would cut down on rent-seeking behavior.
There's a political issue here, of course. Should the government confiscate profits from carbon emitters, or should we leave those profits floating around in the private sector? Reasonable people can disagree on that one, but it's misleading to suggest that a Pigouvian tax is economically optimal but cap-and-trade (with or without auctions) isn't.
This issue is related to the rent-seeking I mentioned above as well as to the gas tax holiday.What normally happens when the government gives out permits (or other benefits to producers) for free instead of charging for them? In a competitive market, the benefit goes to the consumers in the form of lower retail prices. The value of the handout to producers is competed away. Because the price to consumers is reduced, the quantity purchased increases.

But I don't think that can happen here because the quantity of permits is fixed. And therefore the quantity of goods that can be produced is fixed. Since the quantity of goods purchased cannot increase, the price of goods will not be reduced. Thus the handout to producers is not competed away after all; it is enjoyed by the producers. (Just like the gas tax holiday would benefit producers rather than consumers.)

The handouts would therefore create economic rents -- i.e., producers would enjoy supercompetitive profits. Ordinarily that would attract new entrants into the marketplace to compete for those profits. But in this case there is a prohibitive barrier to entry -- there are no more permits available. (I guess the permits could be distributed randomly to anyone who puts his name on a list; but I suspect the political reality is that they'd instead be distributed to already-existing firms in the relevant market.) A new market entrant could purchase permits from the firms that got the handouts; but unlike in a normal situation where economic profits are available, the quantity of production, and thus probably the quantity of firms engaged in production, will not increase. This -- along with built-in rents preventing inefficient firms from going out of business -- will have a limiting effect on innovation and creativity.

I think Mankiw is right that the edge here goes to Obama.

 
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What normally happens when the government gives out permits (or other benefits to producers) for free instead of charging for them? In a competitive market, the benefit goes to the consumers in the form of lower retail prices. The value of the handout to producers is competed away. Because the price to consumers is reduced, the quantity purchased increases.

But I don't think that can happen here because the quantity of permits is fixed. And therefore the quantity of goods that can be produced is fixed. Since the quantity of goods purchased cannot increase, the price of goods will not be reduced. Thus the handout to producers is not competed away after all; it is enjoyed by the producers. (Just like the gas tax holiday would benefit producers rather than consumers.)

Thus the handouts would create economic rents -- i.e., producers would enjoy supercompetitive profits.
This isn't really true, because the permits aren't "handouts." Under the status quo, energy companies can pollute costlessly. A cap and trade system restricts their ability to pollute, whether you give permits away or sell them. Either way, there's now an opportunity cost associated with pollution: either you have to buy a permit from the government, you have to buy a permit from another firm, or your forgo the opportunity to sell a permit on the open market. Any cap and trade system takes a resource that previously had a price of zero (pollution rights) and drives its price up to its socially efficient level, assuming the program is implemented correctly. That happens regardless of how permits are allocated. You could auction them give them away; the market price ends up being the same.

I'm sure Mankiw knows this. I think when he talks about an auction system as being the same as a Pigouvian tax, he means that both achieve social efficiency and they both generate an identical amount of revenue for the government. Giving permits away achieves social efficiency too, but doesn't generate any tax revenue.

FWIW, the original SO2 program involved only a very small number of permits being auctioned. I think something like 95% of them were just given away to firms based on their previous production patterns. That program worked pretty well, and didn't generate any super-normal profits, because they made it costlier to produce SO2, not cheaper. Edit: Not only were few permits auctioned off, but the proceeds from the auction were rebated to firms in proportion to their SO2-allocation levels. There was apparently no net transfer of wealth from the industry to the government at all.

 
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What normally happens when the government gives out permits (or other benefits to producers) for free instead of charging for them? In a competitive market, the benefit goes to the consumers in the form of lower retail prices. The value of the handout to producers is competed away. Because the price to consumers is reduced, the quantity purchased increases.

But I don't think that can happen here because the quantity of permits is fixed. And therefore the quantity of goods that can be produced is fixed. Since the quantity of goods purchased cannot increase, the price of goods will not be reduced. Thus the handout to producers is not competed away after all; it is enjoyed by the producers. (Just like the gas tax holiday would benefit producers rather than consumers.)

Thus the handouts would create economic rents -- i.e., producers would enjoy supercompetitive profits.
This isn't really true, because the permits aren't "handouts." Under the status quo, energy companies can pollute costlessly. A cap and trade system restricts their ability to pollute, whether you give permits away or sell them. Either way, there's now an opportunity cost associated with pollution: either you have to buy a permit from the government, you have to buy a permit from another firm, or your forgo the opportunity to sell a permit on the open market. Any cap and trade system takes a resource that previously had a price of zero (pollution rights) and drives its price up to its socially efficient level, assuming the program is implemented correctly. That happens regardless of how permits are allocated. You could auction them give them away; the market price ends up being the same.

I'm sure Mankiw knows this. I think when he talks about an auction system as being the same as a Pigouvian tax, he means that both achieve social efficiency and they both generate an identical amount of revenue for the government. Giving permits away achieves social efficiency too, but doesn't generate any tax revenue.

FWIW, the original SO2 program involved only a very small number of permits being auctioned. I think something like 95% of them were just given away to firms based on their previous production patterns. That program worked pretty well, and didn't generate any super-normal profits, because they made it costlier to produce SO2, not cheaper.
Good explanation. Thanks.So because pollution is currently not an internalized cost, the effect of instituting a Pigouvian tax would be to increase production costs and therefore, assuming some elasticity of demand, to decrease the quantity of goods produced. (Goods whose production generates pollution, that is.) Which I suppose is the point. (With a cap-and-trade program, it's not elasticity of demand that is required; it's a cap level below current pollution levels.)

So one efficiency-related concern is related to transaction costs. Would an initial auction have lower costs than handouts followed by having permit-sellers and permit-buyers hook up on their own (maybe through eBay)? I'm guessing it probably would, but I don't know.

Aside from transaction costs, though, I think there's another efficiency-related concern -- one that more clearly favors an auction.

The revenue generated by the government from holding an auction, if government spending is independent from such revenue (i.e., if getting revenue from the auction won't cause government spending to increase), will decrease inefficiency in other areas. Generally, the government collects revenue in ways that cause inefficiencies -- through income taxes, excise taxes, etc.

If the government can, in this case, collect some revenues in a way that's neutral with respect to efficiency, then it can decrease tax rates in other areas that are not neutral.

(Does it sound like I'm just looking for ways to justify a preference for Obama's plan rather than McCain's? I'm not consciously doing so.)

 
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So because pollution is currently not an internalized cost, the effect of instituting a Pigouvian tax would be to increase production costs and therefore, assuming some elasticity of demand, to decrease the quantity of goods produced. (Goods whose production generates pollution, that is.) Which I suppose is the point. (With a cap-and-trade program, it's not elasticity of demand that is required; it's a cap level below current pollution levels.)
Right. Both systems should reduce the amount of electricity, say, produced. A tax does so indirectly by increasing marginal cost, while a cap system does so by restricting pollution. (Ignoring abatement efforts, of course, which both programs encourage).
So one efficiency-related concern is related to transaction costs. Would an initial auction have lower costs than handouts followed by having permit-sellers and permit-buyers hook up on their own (maybe through eBay)? I'm guessing it probably would, but I don't know.
I think there were some minor problems at first with SO2 markets being a little thin, but it wasn't a big deal and it didn't last long.
Aside from transaction costs, though, I think there's another efficiency-related concern -- one that more clearly favors an auction.The revenue generated by the government from holding an auction, if government spending is independent from such revenue (i.e., if getting revenue from the auction won't cause government spending to increase), will decrease inefficiency in other areas. Generally, the government collects revenue in ways that cause inefficiencies -- through income taxes, excise taxes, etc.If the government can, in this case, collect some revenues in a way that's neutral with respect to efficiency, then it can decrease tax rates in other areas that are not neutral.
That would be nice, yes. I'm just talking about auction systems vs. give-away systems in a vacuum. If we knew for sure that the government would spend that auction revenue in an efficiency-enhancing manner, then that would be an argument in favor of an auction, and Mankiw alluded that that in his blog. Let's just say that I'm less than completely optimistic about the government doing things that way, but it's a valid point. There are a couple of other minor points I should make:1) I did some quick reading on this, and your earlier concern about rent-seeking seems to be justified. Richard Schmalensee is one of the guys who helped design the SO2 system in the early 1990s, and he's written a lot about this program. He mentions that there seems to have been at least some degree of rent-seeking behavior in the process of allocating permits. That's not really a deal-killer, but it is worth keeping in mind. 2) On the other hand, Schmalensee also says that they considered auctioning permits, but it was going to be politically impossible to get such a program through Congress. I don't know if things have changed since then, but I would imagine that Obama's program would encounter some serious industry opposition, which cuts against point (1).
(Does it sound like I'm just looking for ways to justify a preference for Obama's plan rather than McCain's? I'm not consciously doing so.)
I don't think so. I don't have a strong prefernce for either Obama's plan or McCain's plan. Either would be a clear improvement over most alternatives, including our current policy or lack thereof. It was just that Mankiw's quote made it sound like McCain's program was clearly worse than Obama's in terms of economic efficiency, and that just isn't the case. In a theoretical vacuum the two programs are economically identical, and even when you factor in practical issues like auction design, thin markets, and public choice stuff, it still isn't clear that one is obviously worse than the other.
 
Ghost Rider said:
In 2004,Bush won Iowa by 1%. Obama beat Hillary.Bush won Colorado by 5%. Obama crushed Hillary.Bush won Missouri by 7%. Obama beat Hillary.Kerry barely beat bush in Wisconsin by less than 1%. Obama killed Hillary there.Kerry won in Oregon by 4%. Obama will beat Hillary there.Bush won Nevada by 4%. Hillary beat Obama.Bush won New Mexico by 1%. Hillary beat Obama.Kerry won Pennsylvania narrowly. Hillary beat Obama.What are your other "swing" states?
Nice job leaving out Ohio and West Virginia, two states that the Democrat must win in November. Obama lost handily to Clinton in both of those states. And let's not forget Florida, which isn't counting, but we all know that Clinton would stand a better chance of winning there than Obama would. And please do not put me into the "delusional Clinton supporters" category. I have already said I cannot stand her. I am just trying to be realistic about the chances of both Democrats in the general election.
VA is definately up for grabs this season. NC and GA may very well be also. If he chooses the Gov. of KS as his runningmate, and being his mother was from there, maybe there is a shot there as well. Hell, after Katrina I wouldnt rule out MS or LA as being up for grabs either. Mississippi republicans had an issue today right?
 
Ghost Rider said:
In 2004,Bush won Iowa by 1%. Obama beat Hillary.Bush won Colorado by 5%. Obama crushed Hillary.Bush won Missouri by 7%. Obama beat Hillary.Kerry barely beat bush in Wisconsin by less than 1%. Obama killed Hillary there.Kerry won in Oregon by 4%. Obama will beat Hillary there.Bush won Nevada by 4%. Hillary beat Obama.Bush won New Mexico by 1%. Hillary beat Obama.Kerry won Pennsylvania narrowly. Hillary beat Obama.What are your other "swing" states?
Nice job leaving out Ohio and West Virginia, two states that the Democrat must win in November. Obama lost handily to Clinton in both of those states. And let's not forget Florida, which isn't counting, but we all know that Clinton would stand a better chance of winning there than Obama would. And please do not put me into the "delusional Clinton supporters" category. I have already said I cannot stand her. I am just trying to be realistic about the chances of both Democrats in the general election.
VA is definately up for grabs this season. NC and GA may very well be also. If he chooses the Gov. of KS as his runningmate, and being his mother was from there, maybe there is a shot there as well. Hell, after Katrina I wouldnt rule out MS or LA as being up for grabs either. Mississippi republicans had an issue today right?
Okay Okay... time for a reality check. Virginia and North Carolina are in play. The end. (It should be noted at this point that they are NOT in play for Clinton.)I understand that there are lots and lots of black people in GA, LA, and MS but they are not going blue in November.
 
Ghost Rider said:
In 2004,Bush won Iowa by 1%. Obama beat Hillary.Bush won Colorado by 5%. Obama crushed Hillary.Bush won Missouri by 7%. Obama beat Hillary.Kerry barely beat bush in Wisconsin by less than 1%. Obama killed Hillary there.Kerry won in Oregon by 4%. Obama will beat Hillary there.Bush won Nevada by 4%. Hillary beat Obama.Bush won New Mexico by 1%. Hillary beat Obama.Kerry won Pennsylvania narrowly. Hillary beat Obama.What are your other "swing" states?
Nice job leaving out Ohio and West Virginia, two states that the Democrat must win in November. Obama lost handily to Clinton in both of those states. And let's not forget Florida, which isn't counting, but we all know that Clinton would stand a better chance of winning there than Obama would. And please do not put me into the "delusional Clinton supporters" category. I have already said I cannot stand her. I am just trying to be realistic about the chances of both Democrats in the general election.
VA is definately up for grabs this season. NC and GA may very well be also. If he chooses the Gov. of KS as his runningmate, and being his mother was from there, maybe there is a shot there as well. Hell, after Katrina I wouldnt rule out MS or LA as being up for grabs either. Mississippi republicans had an issue today right?
Okay Okay... time for a reality check. Virginia and North Carolina are in play. The end. (It should be noted at this point that they are NOT in play for Clinton.)I understand that there are lots and lots of black people in GA, LA, and MS but they are not going blue in November.
GOP just lost a republican congressional district in northern MS by special election that Bush won by 25% in 2004 and the republican won with 60% his last election. Republicans lost a congressional seat in LA in a district that had been republican for over 3 decades. I think there are a lot of places in play this year because the GOP has been so horrid for 7+ years and those two states felt the brunt of it. Hell, China had 20,000 workers mobilized and helping mere hours after that earthquake (which had no warning) and we couldnt get #### done in NO or the MS gulf coast when there was 2 days notice of a hurricane.
 
He waited way too long, IMO. He was trying to play politics, be some kind of power broker at the convention. Plans like that never really work out. I think Edwards' day as an influential Democrat are done.

 
I just took a trip over to Poblano, which is the new guru site when it comes to electoral projection...

Obama's chances in November:

Mississippi: .2%

Louisiana: 2.8%

Kansas: 5.8%

Georgia: 6.2%

But yes, let's keep pretending that he puts every state in the entire country in play because he is god. That will surely work out in November.

He's going to win the White House. Not with Ohio and Florida, but with Virginia + Colorado + North Carolina. But let's not get ridiculous here.

 
I just took a trip over to Poblano, which is the new guru site when it comes to electoral projection...Obama's chances in November:Mississippi: .2%Louisiana: 2.8%Kansas: 5.8%Georgia: 6.2%But yes, let's keep pretending that he puts every state in the entire country in play because he is god. That will surely work out in November.He's going to win the White House. Not with Ohio and Florida, but with Virginia + Colorado + North Carolina. But let's not get ridiculous here.
I bet those were approximately his odds of winning the nomination at the start of the contest. Not saying that he'll get those states, but, at this point, it's a bit early for those numbers to mean a whole lot. I'd multiply them by 10 to give them a more accurate number come november.
 
He waited way too long, IMO. He was trying to play politics, be some kind of power broker at the convention. Plans like that never really work out. I think Edwards' day as an influential Democrat are done.
Depends on what happens here. If this unleashes the floodgates of superdelgates to back Obama, then he could still be considered a leader.To me, it all was about getting PA and WV behind her, because from here on out, the good news is nowhere near as good as those two states.
 
I just took a trip over to Poblano, which is the new guru site when it comes to electoral projection...Obama's chances in November:Mississippi: .2%Louisiana: 2.8%Kansas: 5.8%Georgia: 6.2%But yes, let's keep pretending that he puts every state in the entire country in play because he is god. That will surely work out in November.He's going to win the White House. Not with Ohio and Florida, but with Virginia + Colorado + North Carolina. But let's not get ridiculous here.
I don't think Obama is a shoe-in for North Carolina.
 
I just took a trip over to Poblano, which is the new guru site when it comes to electoral projection...Obama's chances in November:Mississippi: .2%Louisiana: 2.8%Kansas: 5.8%Georgia: 6.2%But yes, let's keep pretending that he puts every state in the entire country in play because he is god. That will surely work out in November.He's going to win the White House. Not with Ohio and Florida, but with Virginia + Colorado + North Carolina. But let's not get ridiculous here.
I bet those were approximately his odds of winning the nomination at the start of the contest. Not saying that he'll get those states, but, at this point, it's a bit early for those numbers to mean a whole lot. I'd multiply them by 10 to give them a more accurate number come november.
Now let's not get ahead of ourselvesThere's no way Obama wins Georgia and Kansas with 62% and 58% respectively
 
He waited way too long, IMO. He was trying to play politics, be some kind of power broker at the convention. Plans like that never really work out. I think Edwards' day as an influential Democrat are done.
Depends on what happens here. If this unleashes the floodgates of superdelgates to back Obama, then he could still be considered a leader.To me, it all was about getting PA and WV behind her, because from here on out, the good news is nowhere near as good as those two states.
Right. It's what it signifies for the party. The state voting is pretty much moot at this point, so the endorsement doesnt get the vote out for Obama, but it shows a clear direction of the party, and probably the super delegates. Talk about taking the wind out of Clinton's sails after a big WV win and interview with Wolf on CNN.
 
I just took a trip over to Poblano, which is the new guru site when it comes to electoral projection...Obama's chances in November:Mississippi: .2%Louisiana: 2.8%Kansas: 5.8%Georgia: 6.2%But yes, let's keep pretending that he puts every state in the entire country in play because he is god. That will surely work out in November.He's going to win the White House. Not with Ohio and Florida, but with Virginia + Colorado + North Carolina. But let's not get ridiculous here.
I bet those were approximately his odds of winning the nomination at the start of the contest. Not saying that he'll get those states, but, at this point, it's a bit early for those numbers to mean a whole lot. I'd multiply them by 10 to give them a more accurate number come november.
Now let's not get ahead of ourselvesThere's no way Obama wins Georgia and Kansas with 62% and 58% respectively
Those are chances of him winning the state, not outcomes.I think he will put a few southern states in play that previously haven't been. Louisiana would've been a prime candidate if many of the black people weren't scattered to other states from Katrina. It's not that he only gets black votes, but that is a huge base of his and if they were still in LA like they were before, I could see them coming out huge for him.
 

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