Tag Archives: california

TOO MUCH SUNSHINE

As we are battling unpredictable snowstorms here and there in Michigan, Californians are complaining there being too warm, too much sunshine. This is thanks to the severe drought that has been affecting the western United States for months on end.

The lack of rain, the warm winter is hurting a lot more than it may seem.

On the policy end, people are realizing that water supply is a real concern and would like to take matter into their own hands. Recently, “Thousands of farmers in drought-stricken California are rallying this week in opposition to regulations that have frozen water supplies across the state.” The Californian people have long wanted to slash their dependence on water supply from outside sources and increase their own supplies. Currently, the cities are purchasing water from wholesalers, but they are hoping to invest in regional water plant for themselves, in the near future. []

This drought not only affects the lives of Californians but also the economy as a whole.

Californian rep. mentioned that tens of thousands of people are looking at out of a job, “We’re probably going to have upwards of five, six, seven hundred thousand acres of farm ground that’s going to be out of production.”

Zoning out of the Californian region, this drought will have an impact on every single American by the way it affects the commodities.

“You’re not going to grow anything with zero water, whether it’s the lettuce that goes into your In-N-Out burger, whether it’s the tomatoes that you use for your salsa, whether it’s the nuts that you use for your health food — all of that gets impacted here,” Mario Santoyo, executive director of the California Latino Water Coalition, said.

According to Wall Street Journal data, this past month we saw the biggest month-over-month rise in food prices since September 2011, for everything from meat and poultry to dairy and eggs. There was also a report released Tuesday by the Department of Agriculture that said food prices are expected to rise 2.5 to 3.5 percent this year over 2013 levels.

Droughts, with its severe weather events, have longer lasting impact on the economy than on the land. When this drought is over and when the rain drops, Americans will have to embrace the fact that the commodities prices shot up and the commodities futures market has changed.

“California supplies nearly 90 percent of the nation’s strawberries, she added, which means that next year’s harvest could feel a big impact.” Yikes, I will miss those strawberries.

 

How Economics Can Save the Environment

During his presidency, Ronal Reagan helped introduce a “cap-and-trade” system to curb America’s use of lead-based gasoline.  Experts today believe that Reagan’s cap-and-trade system lead to a much more rapid elimination of lead-based gasoline use in the United States while saving the economy $250 million each year relative to a “command-and-control” system (under which the government explicitly dictates which technologies and energy sources can be used).  George Bush senior led a similar environmental revolution through the use of a cap-and-trade system, effectively reducing SO2 emissions in the 1990s.  Given its historical success, it seems logical for governments to continue using a cap-and-trade system to address today’s environmental issues.

Unfortunately, however, cap-and-trade systems are losing favor.  In the United States, even Republicans have “demonized their own creation,” leading to a reduction in cap-and-trade usage.  As a result, over the last 5 years, the United States has mostly switched to command-and-control systems, leading to less efficient, less swift, and more costly reductions in pollution rates.

Europe has also abandoned its cap-and-trade system.  In April 2013, Europe disbanded its cap-and-trade regulations on carbon emissions entirely.  According to European officials, the economic pullback has resulted in below-equilibrium production levels.  Consequently, firms are naturally emitting fewer pollutants than allowed by cap-and-trade issued quotas, leading to a reduction in quota prices.  With prices so low, quota trading has become inconsequential and essentially irrelevant.  As such, instead of focusing on renewable energy sources (Europe has a goal to obtain 20% of its energy from renewable sources by 2020), many European firms have reverted to the large-scale use of coal.

Interestingly, as prices have gone down, Europe has failed to reign in the supply of quotas made available to firms.  Failing to do so undermines the entire purpose of a cap-and-trade system, as keeping the supply of emission quotas constant fails to reduce emissions over time (and as technology improves, it naturally leads to a reduction in quota prices).  Ultimately, it seems that Europe’s failure to commit to a strong cap-and-trade system is what caused the system’s failure; by not reducing the supply of emissions quotas, Europe could not effectively control the price of emissions.

Fortunately, California is showing that there is still hope for cap-and-trade regulation.  After introducing a cap-and-trade system in 2013, California has decided to expand the program in 2014.  Like Reagan, California has seen success through cap-and-trade regulation, as evidenced by the state’s reduction in carbon emissions.  Auctioning off emission quotas has also helped California raise over $1 billion dollars in revenue, which has helped fund subsidies for renewable energy.  Indeed, California has seen so much success in its cap-and-trade system that as of January 1, 2014, California has partnered with Quebec to create the first international cap-and-trade system.

It is surprising to me that conservatives, typical proponents of the free-market system and the original supporters of cap-and-trade regulation, have abandoned such a historically successful system.  As Reagan and Bush senior made very clear, economics and the free-market system can be environmentalists’ best friends.  That said, I am comforted by California’s use of a cap-and-trade system, and I am hopeful that conservatives will get on board, partnering with one of America’s most liberal state (and Quebec) to bring economics and environmental policy back together.

 

To make more, you’ve got to pay more

It’s not always easy getting up for work in the morning. It certainly doesn’t get any easier knowing that an eight-hour shift in America, at the national minimum wage, is worth only $48. A forty hour week leaves workers with less than $300 in gross income. Then consider taxes, social security, health insurance and other expenses. The list goes on and on, and sure, raising the minimum wage looks tempting and beneficial on the surface. A California multimillionaire and conservative is planning to lead and fund an effort to raise enough signatures for a ballot measure. But bringing in $72 ($9/hour) or even $96 ($12/hour) for a hard day’s work isn’t going to solve all of our problems.

First, basic economic principles can point out a few issues that would arise in the labor market. As labor becomes more expensive, demand for it shrinks in the form of employment opportunities. For businesses offering minimum wage job opportunities, the question arises to either raise income or cut expenses. The most popular choice, without the risk of losing customers, is to decrease the size of the workforce. Low income Americans – the ones working hard in low-paying jobs to put food on the table – would be the ones losing their jobs. The lack of action from U.S. policymakers to this point is a clear indication of the fragile unemployment situation since the 2008 Recession and has prevented any upward movement in wages.

Imagine paying upwards of $40 for a case of beer, or writing a weekly rent check for $500 (yes, I said weekly) in return for a small room with shared common areas. Those prices may seem astronomical to the average U.S. citizen, let alone one struggling to afford the Dollar Menu. In other countries, in particular Australia, they are a reality. This Sydney Morning Harold article estimates the costs of living for an Aussie at nearly 160% of the American level. While I studied in Sydney, Australia last winter, I was very tempted to work for minimum wage – a whopping $16 per hour. With prices like those above, work never seemed so good – or necessary. Yet each trip to the supermarket left me wondering how people managed to live there.

Advocates for the minimum wage increase in the U.S. are optimistic that minimum wage workers will be lifted from poverty and cease their reliance on federal social welfare programs. Yet, with the inevitable decrease in availability of minimum wage jobs, coupled with the likelihood of cost of living going up, I’m not convinced.

”If you want to pay the same as what Americans are paying, then accept American wages.
You can’t have the low prices without the low incomes.”

The above quote from economist Stephen Koukoulas is a concise way to bear the bad news. To make more, you’ve got to pay more.

Featured Articles:

Blood, Michael, “California conservative multimillionaire supports minimum wage increase,” Associated Press. January 12, 2014.

Medina, Jennifer, “Conservative Leads Effort to Raise Minimum Wage in California,” The New York Times, November 13, 2013.

Williams, Ruth, “Rising Price of Living in Australia,” The Sydney Morning Harold, April 27, 2013.