Population is a killer for Global Warming. Good news, Kinda.

The world's out of control human population growth is something that few people want to talk about loudly because it sounds so very insensitive. But the increase in world population at nearly exponential levels is non-sustainable and multiplies all issues of sustainability: exhausting natural resources, pollution, etc. Estimates are that world population will grow to between 9m and 11m by mid century and then slowly decline.

Source: OurWorldInData

The problem with increased population is a double whammy. Not only are there more people, but the footprint of each person should raise dramatically as more people enter the middle class (or higher). Countries like China and India that have burned only 2 barrels of oil per person annually, can be expected to move up their consumption to 4 or 5 times that, more in line with the USA. People that eat lower on the food chain, rice and corn, can be expect to start eating beef and pork which takes 20 to 30 times the resources to produce. 

But, a new study, published in the Lancet, has found that fertility rates since 1950 have dropped faster and further than anyone expected. (See the BBC article by James Gallagher on this study.)

The low fertility rates in developed countries means that their populations should start shrinking (without net immigration). In 1950 women had an average of 4.7 children in their lifetimes, a rate that is now half at 2.4! Fertility rates less than about 2.1 result in a decrease in population (excluding net immigration). Many of the developed countries, like the UK with 1.7, have less than 2. Japan has 1.3. With fewer young people to work, the aging retired population becomes a bigger and bigger burden on the economy. It will take decades for the change in fertility to work through the population levels. 

Economic development has long looks at the use of population to improve the overall economy; more people could/should result in more things produces and a bigger economy. However, per capita economic development can be significantly improved by reducing the number of children. If the economy increases at 5%, but population also increases at 5%, then the per capita income remains the same. China reduced the rate of population growth, and that contributed dramatically to the improved per capita income and the rise of the middle class. I just saw stats talking about the percent of Chinese in extreme poverty at about 1950; more than 90% of the population lived in extreme poverty (currently a purchase-power-parity of $1.9 per day). By 2018, only about 1% of Chinese are in extreme poverty.  Controlling their population was a big contributor to China moving to surpass the USA in terms of economic power (GDP of more than $23T vs $19.5T for US). (Of course their single-child policies have caused many other problems and has recently been relaxed.) 

China and India represent about 35.7% of the worlds population with 1.4B and 1.34B, respectively. China has stomped on the brakes for decades; India has only tapped on the brakes. China's growth rate is only 0.39, while India's is 1.2. US is 0.71 and Japan is -0.23.

So, a big sustainability question, is first to stop the increase in population world-wide and regionally. But should sustainability initiative actually champion the reduction of world population. One way or another we need to get back to the carrying capacity of Mother Earth.  When you look at Earth over-shoot day, which has moved to August 1, it becomes graphically clear how much we are depleting the earths resources to live beyond our means. Stated differently, about 212 days into the year, we exhausted the renewable resources provided by the earth (and sun), so the resources consumed in the remaining 153 days of the year are depleting resources. In 1987, overshoot day was December 19th; in 2000, overshoot day was November 1.

This is the same as your annual salary paying all your bills until August 1 (58% of the year), and then you have to borrow money to pay for the rest of the year. Each and every year, you have to borrow more because the overshoot day keeps moving earlier in the year. Non-sustainable issues like overshoot are cumulative, and compounding. Not only do you owe the cumulative total of all the borrowing, but the interest keeps growing at an expanding rate using the magic of compounding.

We need to get our overshoots (and deficits) under control, and start to make the magic of compounding work for us, not against. Getting countries (and world) population growth under control is probably the most important factor in sustainability, and ultimately, the health and wellness of our plant. It's pretty important, as well, for those things that have become accustomed to living on this planet.! 

Growth is always good? No matter the costs!

Saving can be hugely benefiting to all. But it doesn't show up in increased sales and higher GDP.
A bigger, newer SUV is always better...
Hmmmm?

http://www.theguardian.com/sustainable-business/2015/jun/10/good-natural-malignant-five-ways-people-frame-economic-growth?CMP=share_btn_tw

Taxes, This is No Laffing Matter.

Taxes, This is No Laffing Matter...

A general Republican philosophy is that cutting taxes will lead to increased investment, increased economic growth AND ultimately to increased tax revenue to the government. Empirical evidence, including the article(s) discussed here bear only part of that out. True, true and not necessarily true. Reducing taxes does increase the private sector investment and it does increase economic growth. The end result of this does not necessarily result in more money for the federal government. It depends.

In the midst of this debate is the Laffer curve. It is a visual approach to killing the golden goose. As the government taxes more and more, the people/companies start working less and less. If the government taxes at 100% it is very reasonable to expect zero output and zero tax revenues. At what point, then do you raise taxes so high that you kill off the productive and entrepreneurial spirit. At what point does the increase in taxes cause the government revenues to actually go down because people actually produce less, take more vacations (move to another country or lie/cheat about their taxes).

Here’s a great video about the famous Laffer Curve. But the source within it is what got me and a lot of other people thinking.

Video on Laffer Curve:  http://www.youtube.com/watch?v=ayad5mbSSrU (5:52 min, Dr. Groseclose)

This video has the following description:

Published on Sep 9, 2012. If you raise taxes does it automatically follow that you'll raise more revenue? Is there a point at which tax rates become counterproductive? UCLA Economics professor, Tim Groseclose, answers these questions and poses some fascinating new ones.

And it references an article/research by Romer & Romer (2007, 2010) to establish the “hump” of the Laffer curve at 33%. Unfortunately, that’s not what the article by Romer & Romer say.  Here’s the actual article (draft) and a great discussion about the video & the article by EconoCat (Penny Wise & Euro Foolish).

·         Romer & Romer article: http://elsa.berkeley.edu/~cromer/RomerDraft307.pdf

·         EconoCat Discussion of the Groseclose video on Laffer Curve: http://econocat.wordpress.com/2012/11/04/not-the-laffer-curve-again/

Note that Romer and Romer’s  research does not include the Great Recession since it was written in 2007 based on statistics from prior years.

First, there is no evidence, certainly not in this article to suggest that 33% is the hump in the Laffer Curve. But Groseclose is right in that we, and our friends from other countries, seem to be discovering the hump. He says that his text book from (early) college thought the hump might be at 70%. I’ve always seen it drawn very symmetrically at 50%. Intuitively, 50% certainly works as a cutoff point; once the government wants to take half of whatever I make (in profits), I really become less motivated to make more.  Plus, at that level, the disruptions to the economy (and the deadweight costs) become huge and disruptive... France, trying to institute a 75% top-end tax bracket (personal) has obviously failed, in more ways than constitutionally; actors, for example, simply move to another country (in Europe, where the tax rates are a paltry 50% or less). See Fouquet and Katz (2012).

At low rates of tax, say 5% to 15% there is typically very little disruption to the market (or economy). It doesn’t typically change investments to make otherwise good projects unprofitable, or significantly disrupt “normal” behavior. Probably 20% to 25% is more disruptive to a market (or the economy).

The findings of Romer & Romer (2007) do strongly suggest that tax increases do reduce economic output (and vice versa).  There doesn’t really seem to be a direct tie of this output to the government revenues. The evidence strongly suggests that increasing taxes with the explicit purpose of long-term debt reduction works pretty well. Short-term change in the tax levels  (to help through recessions and such) appear to be far less effective.

Ahah. The 2010 article that is the final version published by Romer & Romer (2010) looks much more readable with the graphs in place within the article. It seems a little stronger on the impact on output (GDP) from tax cuts. But it still does not take any steps to directly address the Laffer curve concepts of government revenue. As well, there is no indication, if each of the tax change occurs before the hump, or after it.

More on Taxes

One of the issues that I have with the whole Laffer curve thing, is effective rates, marginal rates and tax-code rates. The very high earners pay less than 30% income tax rates. It’s the middle and upper-middle class that get wacked with the highest tax rates.

We could easily have the tax code simpler, straight forward and at lower rates and still generate more income/revenue to the government.  Laffer curve or no laffer curve. Also, not all taxes are created equal; and a big influence of the full impact of taxes is what’s done with the money raised.

It should not take the average person 20 hours to a week or more to do taxes. The costs associated with incomprehensible tax codes are huge.

No matter what you think is the “hump” in the Laffer curve, everyone everywhere has to appreciate that there is no tax rate that will solve our federal deficit. It the optimum (short-term or longer-term) is a little low, or a little higher, that still doesn’t make much difference in the federal deficit. At some point the out-of-control spending has to be addressed. At some point, the federal deficit has to be meaningfully reduced.

The Elephant in the Room, is NOT Tax Revenues…

One way to reduce the deficit is through growth. One is through increased tax revenues (this debate). One is through spending cuts and controlled fiscal discipline. The first two are closely tied obviously; and it depends somewhat how effective the government spending is as to how impactful that increased tax revenues are to the overall economy.

There’s no solution ever, however, without controlling spending. The out of control healthcare costs will (Medicare, Medicate and private) will bankrupt the nation within a decade or two. Check out the Debt Clock to get an idea of what our really deficit is; when you consider the unfunded mandates the US owes. The unfunded mandates of Social Security, Federal Drug program and Medicare are about $122T, fully 7 times our current GDP. The deficit we are always talking about ($16.4T) is only 1 times our GDP ($16.3T).

·         US Debt Clock: http://www.usdebtclock.org/

The problem is that the unfunded mandates are growing at a very fast rate, and they will continue to do so until/unless we address them. This is so non-sustainable that you don’t know whether to laugh or to cry. And, at this time, we have a lot of elected leaders fiddling in Rome – I mean D.C.

Check out the article by Hall & Knab (2012) entitled Social irresponsibility provides opportunity for the win-win-win of Sustainable Leadership.

It’s too bad we didn’t get a good, clear indicator of the hump in Laffer’s Curve. It would help settle the tax levels for countries, a point that only the foolish and the French would attempt to exceed. Then government could focus attention on the really important issues at hand and start to aim for sustainable practices.

Anything else would be, well, irresponsible.

References

Hall, E., & Knab, E.F. (2012, July). Social irresponsibility provides opportunity for the win-win-win of Sustainable Leadership. In C. A. Lentz (Ed.), The Refractive Thinker: Vol. 7. Social responsibility (pp. 197-220). Las Vegas, NV: The Lentz Leadership Institute.
(Available from www.RefractiveThinker.com, ISBN: 978-0-9840054-2-0)

Fouquet, H., & Katz, A. (2012, December 29). French court says 75% tax rate is unconstitutional. Bloomberg. Retrieved from http://www.bloomberg.com/news/2012-12-29/french-court-says-75-tax-rate-on-wealthy-is-unconstitutional.html

Romer, C. D., and Romer, D. H. (2007, March). The macroeconomic effects of tax changes: Estimates based on a new measure of fiscal shocks. University of California, Berkeley. Retrieved from:  http://elsa.berkeley.edu/~cromer/RomerDraft307.pdf

Romer, C. D., & Romer, D. H. (2010). The macroeconomic effects of tax changes: Estimates based on a new measure of fiscal shocks.  American Economic Review, 100(3), 763-801. doi:http://dx.doi.org.ezproxy.apollolibrary.com/10.1257/aer.100.3.763