One wonders what’s going on down in the District of Columbia.  A Democrat President has put on the table what amounts to a reduction in Social Security benefits, although none are necessary.   Purportedly the benefit reductions are needed as part of a ‘grand bargain’ the President seems determined to craft with Republicans, who want to eliminate SS but who are smart enough to never mention such a thing in public.  No doubt in the mid-terms, Republicans will run advertisements about how the Democrats want to reduce SS benefits!!!

Anyway, for my readers edification, if not that of the President, here’s an article by an expert explaining why SS benefit reductions are completely irrelevant to the nation’s economic future.

The People’s Choice for the People’s Pension

By NANCY FOLBRE

Nancy Folbre is an economics professor at the University of Massachusetts, Amherst.

Social Security, the most transparently self-financed program of the federal government, is not increasing our budget deficit. The most recent trustees’ report shows sufficient funds to pay full benefits until 2033.

Today’s Economist

Perspectives from expert contributors.

No one is making out like a bandit: Social Security beneficiaries who retired in 2010 are expected to get back approximately what they paid in.

If we wanted to adopt a cautious policy measure that would eliminate the shortfalls predicted 20 years down the road, we could eliminate the cap on earned income subject to Social Security taxes, currently set at $113,700. Such a measure would lead to increased payments by about the top 5.2 percent of wage earners.

Legislation designed to “scrap the cap” has been introduced in Congress. Senator Mark Begich, Democrat of Alaska, and Representative Ted Deutch, Democrat of Florida, have drafted a law that would require all workers to pay the same overall Social Security tax rate, and Senator Bernie Sanders of Vermont, an independent, and Representative Peter DeFazio, Democrat of Oregon, recently proposed application of the tax to earnings over $250,000 (as well as under $113,700) creating a “doughnut hole” exemption for earners in between in order to win more votes.

President Obama has voiced support for cap elimination or modification proposals in the past.

But as Thomas B. Edsall pointed out in a recent commentary, “scrap the cap” has apparently been taken off the table, despite evidence of considerable public support for it.

Readers doubtful of that public support should read the new National Academy of Social Insurance report, “Strengthening Social Security: What Do Americans Want?,” based on an online survey asking respondents whether they favored or opposed 14 specific changes to Social Security. The analysis also draws on findings from focus groups to add qualitative texture to the quantitative results.

That online survey, an opt-in model, is not based on a probability sample, but its findings echo other representative surveys, including this Quinnipiac University poll from 2011, which found that 56 percent of Americans favored raising the cap on taxable Social Security income.

Readers mystified by the yawning gulf between public opinion and current political discussion might benefit from the background provided in Eric Laursen’s magisterial history, “The People’s Pension: The Struggle to Defend Social Security Since Reagan.” The book offers more than 800 pages of fascinating if gory details about the lobbying efforts and misinformation campaigns aimed at bringing the program down.

It also reports on a series of surveys going back to 1977 in which most respondents said they would be willing to pay higher payroll taxes if that would shore Social Security up for the future.

Mr. Laursen effectively decodes much of the economic jargon that has obscured public understanding of these issues, and continues to blog regularly on this topic.

Readers feeling demoralized by the history of class warfare over social insurance might be cheered by two of the short videos recently entered in an online contest sponsored by the Peter G. Peterson Foundation on the theme of “I’m Ready” to fix the national debt.

In one entry, “Being Honest, Tough Choices,” a serious young man uses his webcam to explain in simple, direct terms why he supports Social Security and deplores the rhetoric of “makers versus takers, young versus old.”

Another entry, originally titled “Scrap the Cap” but currently labeled “Movin’ In, Kids,” has outpaced all others to date in terms of both viewings and ratings. It features some lovable oldsters in a hilarious rap performance warning their son that if their Social Security benefits are cut he better pull out the sofa bed and put out some fresh towels because they will be living together from now on.

Their song and dance goes on to explain why scrapping the cap would be better for everyone concerned.

Beezer here.  To be honest, we’ve often been a bit lost when it comes to understanding President Obama’s obsession over doing deals in Congress with Republicans.   As a former US Senator, maybe that’s the only way the President believes progress is possible.  Unfortunately, right now the Republican Party is so dysfunctional it has literally nothing positive to offer the nation, and doing deals with someone like that is a complete waste of effort.  They are anti-female, anti-minority, anti-immigrant, anti-climate change, anti-clean energy, anti-environmental, anti-education, anti-science and anti-anything government except Defense.  A party this far removed  from the nation’s citizenry needs simply to be ignored until it can be reformed by new blood from within.  Giving it any sustenance by way of compromise is simply prolonging the time needed for it to face the music.  

During his second inaugural address President Obama talked about climate change and infrastructure work that needs doing.  He wasn’t specific here, but I think I might have some idea of what he’s thinking about.

A lot of carbon release we create that scientists believe is a major dynamic in warming the planet comes from our energy systems, our cars, our buildings, our manufacturing facilities and, of course, our actual energy production and transmission.

The first thing to understand is a lot of that carbon discharge comes from inefficiency in our systems:  We waste most of the energy we burn with fossil fuels.   Consider that only 5% of the energy contained in our gas tanks is used to move the vehicle forward.  The rest warms the road, the tires and the air we displace or is lost in the propulsion system during braking, idling and running accessories like air conditioning or lights.  Half of all that waste is created by vehicle weight.   That’s about to change because carbon fibers have been developed, and are ramping up for mass production, which will cut as much as half that weight.

European race cars are almost completely built from these fibers, for example, but that manufacturing is crude and expensive.  That began to change in 1992 when an engineer, David Taggert, was tasked to an ultra-secret project at Lockheed Martin’s legendary Skunk Works facility in Palmdale, California.  There, Taggert and his engineers developed an advanced airframe for the F-35 Joint Strike Force that was 95% composed of carbon fiber composites.  The new plane was one third lighter than the previous version, yet even though carbon fiber composites were at the time incredibly expensive the new plane was two-thirds cheaper to build.

The use of carbon fiber composites are beginning to move into the airplane manufacturing mainstream, with Boeing’s Dreamliner wings being entirely made of this material.  The Dreamliner flies on 20% less fuel than its competitors and fuel is the single largest cost of running airlines.   Now the automotive industry is about to start making mass produced automobiles using the carbon material.  Manufacturing plants have sprung up across the globe in anticipation of the new sources of demand.  Both BMW and Toyota are in the final stages of introducing passenger vehicles utilizing the weight saving carbon fibers.  They both could be rolled out late this year as 2014 models.  Both will offer incredible mileages (100 mpg to over 200 mpg) as well as strength and safety because these carbon fibers can be made stiff and strong with joints made more flexible, malleable and energy absorbing.    The first ones won’t be cheap, ranging for $35,000 to $55,000.  But as more are sold, and as more carbon fiber manufacturing comes on line, those prices will inevitably drop dramatically.

Solar, windfarm and geothermal advances are cascading prices, and wastage, downward.  Some large energy production facilities, such as the huge solar mirror field now being built in the Mojave Desert, are already cost competitive with fossil fuels even after taking into account the subsidies fossil fuels producers receive from the federal government.  Being built by Bechtel, at 377 Megawatts, it’s the largest solar power plant being built in the world.  It is expected to be completed in 2013.  Energy engineers and interested investors are pushing for the US to build a national ‘smart’ transmission infrastructure, sort of a direct current electron superhighway that can transport energy over longer distances without losing most of the power.  Such a national system could do for energy production and transmission what the interstate highway system, built in the 1950s and 1960s, did for long distance auto and truck transportation.   Such a system would spawn sustainable power systems across the country because direct current systems can get the power from these  mostly rural power sources to cities.

If you want to learn about all the various ways our new energy world is about to develop before our eyes, go buy “Reinventing Fire,” a book sponsored by the Rocky Mountain Institute which details all the improvements which will be showing up in ever larger numbers within the next few years.

In a new study, researchers at Stanford University’s School of Engineering and the University of Delaware developed the most sophisticated weather model available to show that not only is there plenty of wind over land and near to shore to provide half the world’s power, but there is enough to exceed total demand by several times if need be, even after accounting for reductions in wind speed caused by turbines.

Knowing that the potential exists, the researchers turned their attention to how many turbines would be needed to meet half the world’s power demand — about 5.75 terawatts — in a 2030 clean-energy economy. To get there, they explored various scenarios of what they call the fixed wind power potential — the maximum power that can be extracted using a specific number of wind turbines.

Archer and Jacobson showed that four million, five-megawatt turbines operating at a height of 100 meters could supply as much 7.5 terawatts of power — well more than half the world’s all-purpose power demand — without significant negative affect on the climate.

“We have a long way to go. Today, we have installed a little over one percent of the wind power needed,” said Jacobson.

In terms of surface area, Jacobson and Archer would site half the four million turbines over water. The remaining two million would require a little more than one-half of one percent of the Earth’s land surface — about half the area of the State of Alaska. However, virtually none of this area would be used solely for wind, but could serve dual purposes as open space, farmland, ranchland, or wildlife preserve.

Rather than put all the turbines in a single location, Archer and Jacobson say it is best and most efficient to spread out wind farms in high-wind sites across the globe — the Gobi Desert, the American plains and the Sahara for example.

“The careful siting of wind farms will minimize costs and the overall impacts of a global wind infrastructure on the environment,” said Jacobson. “But, as these results suggest, the saturation of wind power availability will not limit a clean-energy economy.”

Beezer here.  It’s comforting to know that once we’ve used up all the fossil fuels, there’s still some hope we’d have enough energy to power a modern world.  Add in the technology advances no doubt in store both for solar and windpower and all does not seem hopeless that the world could eventually exist on sustainable, relatively non-polluting energy power.  The study is basing projections to 2030 when wind could become a major player in the global energy market.   That’s only 18 years away, so it’s pie in the sky if for no other than reasons there’s immense money and political power behind the continued use of dirty fuels like coal and oil.

From an article at Yale’s environmental blogsite ‘e360′ , NRG CEO David Crane explains what he thinks is on the verge of happening to utilities across the United States.

David Crane, president and CEO of NRG Energy, is not your typical power company executive, as becomes clear when he calls climate change a “slow-moving catastrophe” and “the fundamental issue of our day.” As head of a Fortune 500 company that produces electricity for up to 20 million U.S. households, he is still neck-deep in hydrocarbons, with more than 90 percent of NRG’s electricity production coming from natural gas, coal, and oil. But the future, vows Crane, will look radically different.

NRG Energy

David Crane

In an interview with Yale Environment 360 senior editor Fen Montaigne, Crane said he believes the U.S. electricity-generating market is on the verge of a profound transformation, not unlike the era two decades ago when the antiquated world of land-line telephones and “Ma Bell” companies was about to give way to cell phones and mobile communications. The electricity future, says Crane, will be transformed by the widespread adoption of three innovations: solar panels on residential and commercial roofs, electric cars in garages, and truly “smart meters” that will seamlessly transfer power to and from homes, electric vehicles, and the grid.

Beezer here.  Don’t know if Crane is early, or even right, but his reasoning certainly appears sound, and as the CEO of one of the nation’s largest utilities one can’t say he doesn’t have real world experience backing up his opinions.   Later on in the article he breaks down the process he anticipates will happen.

e360: Can you explain your three-pronged approach to transforming the country’s electricity system.

Crane: Democratization of customer choice in our sector begins with two things. One is the electric car and the other is the solar panel on the roof. I think it actually starts with the electric car. You put the electric car in your garage and you really have a mini power plant because these batteries that drive electric cars are quite substantial pieces of equipment. The average car in the United States is sitting still about 22 hours a day. Those are hours where the car can either be accepting power from the grid or selling power through the grid in a phenomenon we refer to as V2G, vehicle-to-grid. That leads to the third leg of the trilogy, which is the smart meter, because between a smart meter in your house, combined with time and use pricing, you essentially want that electric car to be charging between midnight and four in the morning. And you want to have it available to basically drain itself a little between 2 and 6 o’clock in the afternoon. But someone has to tell it what’s going on with the grid at that point. And that’s what the smart meter does.

Right now around the country people are trying to introduce smart meters as just another information device. In our view, no one wants to pay for another information device, particularly when the information being given is about something that people don’t care about, which is their electricity use. So smart meters will only be accepted by the American

Smart meters will only be accepted by the American public when they do something of value.”

public when they do something of value. And the first thing that they’ll do of value is they will sense when it’s expensive to run electricity and they’ll turn appliances off around the house. But the next thing they’ll do, which is the most valuable thing that will actually put dollars in your pocketbook, is that when the smart meter recognizes that the wholesale system is getting tight and there is good pricing, it will actually sell into the grid from the car battery. Or if power from the grid is getting really expensive, the smart meter might just turn the house off from the grid and then run the key appliances in the house off the electric car in the garage.

Then you have the solar panels on the roof. If you tie in a rooftop solar panel with a smart meter, then it’s exactly analogous to the electric car battery. The smart meter could turn off the house from the grid at 3 in the afternoon and rely exclusively on the power that’s coming from the solar panels on the roof, saving the customer a lot of money on their bill from the grid. And if the person puts a big solar panel on their roof, they could sell power from that.

Beezer again.   Crane acknowledges that a smart government can help all this along, and he’s discouraged by the partisanship in Congress and elsewhere that’s not allowing that to happen.  Nevertheless he sees that transformation as inevitable even without government support–it will just take longer.   Oh well.  

The earth appears to be warming and the amount of carbon dioxide being pumped into the atmosphere is one metric scientists pay attention to when trying to predict future trends.   From an article in the New York Times, written by energy and environment journalist Justin Gillis and entitled ‘The Threats to a Crucial Canopy.‘

In the 1950s, when a scientist named Charles David Keeling first obtained accurate measurements of carbon dioxide in the atmosphere, a mystery presented itself. Only about half the carbon that people were releasing into the sky seemed to be staying there. It took scientists decades to figure out where the rest was going. The most comprehensive estimates on the role of forests were published only a few weeks ago by an international team of scientists.

As best researchers can tell, the oceans are taking up about a quarter of the carbon emissions arising from human activities. That is causing the sea to become more acidic and is expected to damage marine life over the long run, perhaps catastrophically. But the chemistry is at least somewhat predictable, and scientists are reasonably confident the oceans will continue absorbing carbon for many decades.

Trees are taking up a similar amount of carbon, but whether this will continue is much less certain, as the recent forest damage illustrates.

Carbon dioxide is an essential part of the cycle of life on Earth, but geologic history suggests that too much can cause the climate to warm sharply. With enough time, the chemical cycles operating on the planet have a tendency to bury excess carbon.

In the 19th century, humans discovered the usefulness of some forms of buried carbon — coal, oil and natural gas — as a source of energy, and have been perturbing the natural order ever since. About 10 billion tons of carbon are pouring into the atmosphere every year from the combustion of fossil fuels and the destruction of forests.

The concentration of the gas in the atmosphere has jumped 40 percent since the Industrial Revolution, and scientists fear it could double or even triple this century, with profound consequences.

Beezer here.  The article documents several attacks that are underway against our forests, from warmer temperatures that are drying out forests making them vulnerable to huge fires, to the expansion of tree destroying beetles whose populations are no longer controlled by cold winters.   Between forests and oceans, fully half of atmospheric carbon dioxide is absorbed in a natural tug of war that keeps the earth’s systems in rough balance.  In geological time frames these swings can take hundreds of thousands of years, longer than our existence as a species. These swings have wiped out species who dominated the ecosystem for millions of years.   We may be the first specie that would recognize the danger posed by global warming, but recognizing danger and knowing what to do about it may be quite different challenges. 

From a wide ranging interview of celebrated economist Daren Acemoglu, published at the Minneapolis Federal Reserve website, comes a discussion of what is called ‘directed technological change.’   Simply put, economists try to model the effects of technological changes, both at the micro and the macro level.

In one section of the interview Acemoglu talks about the conflicts between fossil fuel energy systems and technological innovation in so-called ‘clean’ energy.  Can a huge economy like that of the US navigate towards cleaner systems without damaging overall future growth? 

Directed Technical Change & Global Warming

Region: I definitely want to ask about your related work with James Robinson on economic and political transformation, but first let me jump to another of your seminal contributions in economics: directed technical change. In brief, the idea is that innovation is directed by two competing forces: the price effect that encourages innovation toward scarce factors and the market size effect that does the opposite, directs it toward abundant factors.

You and your co-authors recently applied this idea to the environment—global warming, in particular—and concluded that because of the externalities involved, sound policy should re-direct technical change toward clean technologies without delay, and also that optimal regulation with carbon taxes and research subsidies need not reduce long-term economic growth.

And you compare it to other economic analyses of climate change intervention, such as the Nicholas Stern report and William Nordhaus’ work. But could you give a quick primer on directed technical change and how you apply it to climate change?

Acemoglu: Sure. It’s useful for me to express it the following way, I think. The directed technical change idea really has two layers to it.

The first layer is sort of obvious to economists, but hadn’t really been developed and stated. It’s that just as we think all other factors go toward more profitable areas, investment in new technology and innovative activities also goes toward more profitable areas. I think in a micro sense, nobody would doubt this. We don’t talk of “technological change” in the abstract. We talk of technological change in the pharmaceutical sector, for example. We talk of technological change going after heart disease. We don’t just talk of broad technological change. And when we want to understand technological change for heart disease, we ask, What’s the market for heart drugs, beta-blockers, ACE inhibitors, statins or whatever?

So, that’s the most important part. Directed technical change was pushing this idea at the economywide level. Technology, either across sectors or across different types of factors—factor-augmenting or factor-substituting technologies—is also going to be determined by their profit incentives.

I first tried to develop these ideas in the context of inequality and skill-biased technological change. There the market size and the price effects, which you’ve mentioned, turn out to be quite important. If you want to understand how this works in a more detailed level, you need to understand how these market size and price effects work. They create countervailing forces, but one of them always dominates, and so on.

When we turn to the environment, I think the bigger picture insights seem to be more important. Market size and price effects come out in the context of the environment, and they’re in our paper, of course. But for purposes of our conversation here, I think I can do justice to the main ideas without getting into those details.

Essentially, the bulk of the literature in environmental economics has been about how we have to tax economic activity to slow it down so that we don’t damage the environment. If you think of a single-sector economy, with one sector that depends on coal, or on gas, that’s the only thing you can do: slow down that one sector. If you want to reduce carbon emissions, you just have to slow down that sector. Now, you don’t directly slow it down; you change its composition of factors, perhaps, but you can’t let that sector take off at a very rapid rate and still, at the same time, limit carbon emissions.

Our perspective was, well, the economy has several technologies; some of them are cleaner than others. How should we shift toward the cleaner ones? When you look at the climate science, there’s a lot of emphasis precisely on this and on questions such as, When is it that nuclear power will become economical? When will geothermal or wind or solar solve both their cost and their delivery problems?

Therefore, the perspective shouldn’t be, How can we slow down economic activity? Instead, it should be, How can we shift the composition of economic activity away from dirty technologies to cleaner technologies?

Now, that’s a very directed-technical-change-related question, but it already comes with a very important implication: The focus shouldn’t be on slowing down economic activity, but on changing its composition and changing the type of technological changes that the market generates.

Moreover, and importantly, we expect there to be a distinctive cumulative aspect to research. Different technologies often build on past successes in the same line of technology. So when you’re building a new car, you build on the past advances in car technology; you don’t as much build on advances in solar technology. In the same way as when you build new solar panels, you’re building on the previous solar panels, not on the diesel engine. What that means is that there’s going to be strong self-reinforcement in changing the direction of technological change. So when technological change shifts away from the dirty technologies that are so fossil-fuel-dependent to the cleaner technologies, it will also make it potentially cheaper to produce these innovations, these cleaner technologies, in the future.

That was the basic observation that I think was most important in the approach. And that’s the source of the more optimistic conclusions. Let me explain that in the following way. If you have a Nordhaus-type model—and I don’t want to caricaturize it, because Nordhaus in other work has considered richer models—but the seminal contribution that Nordhaus made in the early 1990s, for example, was sort of a neoclassical growth model used for the environment, and reducing carbons is reducing capital accumulation. In a model like that, parameters are going to determine how aggressive you should be in reducing carbon, but when you reduce carbon, you’re reducing GDP, you’re reducing growth.

The more optimistic aspect of our perspective came from the realization that if what you’re doing with environmental policy is “tax one sector, but subsidize another sector,” you might actually achieve in the long run quite successful growth, because the other sector is going to pick up the slack. If we have enough technological ingenuity—and that is an if, which I think we tried to make explicit in the paper—and can generate cleaner technologies that avoid the negative environmental consequences of coal and oil, then there is no reason for our economy not to grow at a healthy rate in the long run. So that was the optimistic part.

So in that sense, factoring in directed technical change made this conclusion much more optimistic relative to Nordhaus and, of course, more optimistic than Stern’s review, which was much more effective, and I believe rightly so, [in warning] of the potential dangers from climate change.

But on the other hand, it also made policy prescriptions much more proactive than Nordhaus and, in that sense, far more similar to Stern. And the logic of that relates very tightly to the directed technical change aspect. In the Nordhaus approach, it’s like a ramp-up thing: You don’t want to do too much because reducing emissions today is costly, while the future is discounted. If you can cut things in the future, why do it today? Now you can also add, “We don’t know where we’re going to go, so let’s go slowly,” a very gradualist approach.

But let’s think of the logic of directed technical change with cumulative research. The less we do on green technology today, the less knowledge is accumulated in the green sector, so the bigger is the gap between fossil-fuel-based technology and energy, and the cleaner energy, so the harder it will be in the future to close that gap. With more proactive, decisive action today, we already start closing the gap, and we’re making it easier to deal with the problem in the future.

Beezer here.  The main point is that somehow the government needs to keep subsidizing technological innovation in the clean energy areas.  Without this effort, and Acemoglu argues net GDP growth may be unchanged by the subsidy, it will become harder in the future to transition into cleaner energy systems because postponing initial innovation also postpones other innovations that always follow the initial discoveries.    It’s the old saw about when is the best time to plant a tree?  Now.   As almost always, hat tip to  Mark Thoma’s economist’s view for highlighting this interview.