Suchergebnisse

On August 25 the huge oak tree in front of our house dropped a large branch during a microburst from a storm. Later that night, it rained and rained and rained. The tree punctured our roof in multiple places, crashed through a bedroom window, and even managed to pierce the internal ceiling of two upstairs rooms. The rainwater eventually found its way to our lower floor, which we noticed by the multiple drips and small puddles from the living room ceiling. A few days later huge hunks of plaster fell in that space. An old crack in our basement foundation also seemed to expand and allowed water into our storage areas for the first time in 32+ years of living in the house. It's been a trying five weeks:
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This post was motivated by a conversation with Eric Lonergan. It began with a simple question: what should be the interest rate paid on reserves? I answered that according to theories I'm familiar with, reserves should earn the "natural" rate of interest, which I defined as the sum of population and productivity growth. So, assuming 2% "real" growth and 2% inflation, reserves (and government debt more generally) should be yielding around 4%. I think it's fair to say most people did not find my answer very satisfying. So I thought I'd take a moment to explain how I arrived at it. I want to do so in the context of a model economy. Let me describe the model first. We can discuss its limitations and possible extensions later on. Consider an economy where people live for two periods; they are "young" and then become "old." Let N(t) denote the population of young at date t. Assume that the population grows at (gross) rate n; that is, N(t) = nN(t-1). In this "overlapping generations" model, the population at date t is given by N(t)+N(t-1). Individuals in this economy generate y units of perishable output (goods and services) when they are young. I'm going to treat y as fixed over time. This implies that the RGDP at date t is given by N(t)y and that the RGDP grows at rate n over time (there is no productivity growth). In what follows, I label n the "natural" rate of interest. Suppose that people only value consumption when they are old. This poses an interesting economic problem. The young can produce goods that the old value, but the old have no way of paying for these goods. Private credit markets don't work here. The cooperative solution is very simple: the young should "gift" their goods y to the old. If everyone followed this cooperative protocol, then the young of generation t would consume (in their old age) c(t+1) = N(t+1)y/N(t) = ny. That is, by following this protocol, it's as if the young "deposit" their income y in a savings account that generates a (gross) real yield equal to n, the "natural" rate of interest. Since private competitive markets cannot be expected to implement this socially-desirable outcome, what other mechanisms might be employed? In small communities, reciprocal gift exchange seems to work quite well. In the present context, the young look after their parents, expecting their children to return the favor, and so on. Larger communities need to rely on other mechanisms. In the present context, a PAYGO social security system that taxes the young y and pays the old ny would do the trick. The same outcome could be achieved through monetary exchange. Suppose the government lets all individuals open a central bank money account. The government creates (out of thin air) M dollars and credit the accounts of the "initial old" with M/N(0) dollars. Assume that M is kept constant over time. The old are expected to spend these dollars on a competitive spot market, where goods exchange for dollars at price p(t). The equilibrium price-level is easy to derive in this example. At any date t, we have N(t-1) old people collectively holding M dollars. These M dollars will be spent (the old have no reason not to) on the goods available for sale, N(t)y. The market-clearing condition here is M = p(t)N(t)y at every date t. Because both M and y are constant, and because population N(t) is growing at rate n, it follows that the equilibrium price-level p(t) must be falling at rate n. So, if we interpret M as "reserves" in this model economy, then reserves yielding the natural rate of interest would be consistent with economic efficiency. If reserves yield zero nominal interest rate, then efficiency requires some deflation. But the same outcome is possible if reserves were to yield a nominal interest rate n in a zero-inflation rate regime. This result continues to hold for more general preferences. Suppose that people care about consumption when young and old. Then the young will only want to consume a fraction of their income. That fraction will depend on (among other things) the real rate of return they expect on their retirement savings. As it turns out, the so-called "Golden Rule" allocation requires that money/bonds yield the natural rate of interest. Is this a good place to start thinking about Eric's question? It may be a good place to start, but we don't want to stop here. The analytical framework above is "bare bones." Among other things, my analysis implicitly assumes that there is no difference between reserves and government treasury securities. Does this matter? If it does, the reasons need to be spelled out. What modifications to the simple model above would imply that to meet a given social objective, it is desirable to have reserves yield less than treasury securities? In reality there is duration risk. But why does the Treasury issue bonds with different maturities in the first place? Moreover, why are these bonds purposefully rendered illiquid (for example, by discouraging the Fed from monetizing the entire bond issue or, at least, from setting up standing purchase facilities?). The answers to these questions are not immediately obvious to me. But they may be to you! 

A
little-noticed act from last year has helped to facilitate Republican Gov. Jeff Landry's
request to increase efficiency in how Louisiana handles its natural resources, including
the possibility that tens of billions of dollars will be spent more wisely over
the coming decades.

The new law changed, as of last
month, the name of the Department of Energy and Natural Resources by adding the
"Energy" designation. It also added some structure to it that will provide some
guardrails for a request by executive
order Landry made last week to reorganize natural resources functions from
three separate affiliated agencies and over a dozen independent commissions
into the defined functions of the department.

This law empowers Landry to solicit changes from
the department, with the first report due at the end of the month and all
wrapped up by the end of July. Likely some legislation will come forth concerning
this for the year's regular legislative session to begin Mar. 11 and to end
Jun. 3. Likely many of the entities listed in the order will be folded into
DENR management, the new law and text of the order suggests.

Output from the reports could improve administration
in a number of ways. For example, largely useless entities like the Climate
Initiatives Task Force, which produced
little in value and mostly poor policy recommendations with little scientific
merit while heavily politicized, can
be put out of its misery welcomed by citizens and taxpayers.

Other functions could benefit from streamlining.
The entities involved are governed by boards that, at best, could be made entirely
advisory, or perhaps eliminated entirely. One of the most prominent is the State Mineral and Energy
Board, whose main functions involved leasing of state lands for oil and gas
development, transferring those leases, and managing activity on others. Most
of its 11 members are appointed by the governor with Senate confirmation (the
governor and secretary, or their designees, also are members), required only to
have some connection to the energy industry, and who serve concurrently with
the governor. It uses DENR resources to do its job.

Landry hasn't made membership changes to that, perhaps
because it may face a radical overhaul as a result of his order. The majority
of states conduct these affairs within their DENR-equivalent agencies, although
some follow Louisiana's model in having appointed boards – even as often
representatives of government agencies solely comprise or make up the majority
of members – and a very few, including the large producing states of Oklahoma
and Texas, elect members. It would make more sense for the secretary, whose
department already determines tracts to be leased or transferred and
recommended parameters pertaining to that, to decide on deals and other matters
rather than political appointees.

Yet the biggest impact to the state and its
taxpayers that could come from these changes would be the consolidation of the
Coastal Protection and Restoration Authority into DENR. At present, CPRA exists
as an arm of the Governor's
Office of Coastal Activities that provides for CPRA administrative leadership.
Its board, comprised of appointees from various statewide elected and cabinet
officers and the Legislature plus regional planning agencies, provides for the
planning and execution of the coastal master plan, last updated in 2023, and
the annual plans derived from it, along with general oversight of protection and
restoration projects undertaken through CPRA.

Unfortunately, this structure has proven itself
susceptible to an ethos of climate alarmism, as
evidenced in the last two master plans. Regrettably, in formulating funding
priorities totaling $50 billion the reports rely upon the most pessimistic scenarios
driven by alarmist-based models, not by actual science. This approach can distort
the projects chosen and their priorities, risking the spending of billions on
things low in actual priority or even unnecessary while neglecting projects with
higher real payoffs, to the detriment of industry, residents, and taxpayers.

Folding governance of CPRA into DENR certainly
could encourage following the science to a higher degree and dispensing with
politicized fad and fashion that currently influences project choice, priority,
and spending decisions, both in sorting out the annual plan and in construction
of the next master plan due by 2028. The current model with its track record of
not preventing bad assumptions behind projects forwarded to the Legislature for
funding argues that a fresh approach only can improve matters, much
as this displeases the politics-as-usual crowd.

Landry is right to pursue these reforms that promise
better performance for fewer dollars. The sooner his administration can formulate
these and the Legislature acts upon them, the better for Louisiana.

What was I doing 10 years ago? I thought I'd look through my photoarchive from 2013:

The post Human Rights and Natural Resources Workshop appeared first on Völkerrechtsblog.

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