 Welcome, everybody. This is the session on... I tweaked it a little bit. The schedule says energy prices. I made it broader for energy policy, but I will have a section just on energy prices within this. Okay, so energy policy, the reason I'm giving this lecture is I wear several hats. One of the things I do is I'm the senior economist with the Institute for Energy Research. So if you're into energy stuff and you want to get a free market energy perspective but yet that's also supplemented with real statistics, in other words, so it's not just generic, hey, the government's gonna screw things up. I mean, we do say that. The government's gonna screw stuff up, but we also give real accurate statistics. Okay, so if you want that kind of stuff, go to instituteforenergyresearch.org. I don't know if I had that listed anywhere in this presentation. Okay, so that's partly what I'm doing here. So everything I'm gonna be saying to you is consistent with Austrian economics, but also I think there's probably a lot of empirical facts that may surprise you. Certainly, I can't speak for other countries, but the United States for sure, the attitude, the viewpoint you get is that we're running out of energy. Oh my gosh, and clearly free markets lead to disaster, and that's why we need all these top-down controls in order to keep things running smoothly. And as we'll see, that's not true at all. Okay, so again, I don't know what's the story is with the Roman numerals and my PowerPoints, but in any event, this is the outline of what we're doing in case you want to pace yourself mentally. Okay, so here's just some facts. Now, all this stuff comes from, I don't know how well you can see this in the back, the sources, energy, the master resource, the author is Robert Bradley. Some of his books or at least one of his books is down in the bookstore. Okay, so if you're interested in this stuff, you want to leave through it and see what's available. The interesting little tidbit about Robert Bradley is he got his PhD with Murray Rothbard as his chair, and it was an odd situation because Bradley was at some school that you could have outside professors be on your dissertation chair or be on your committee. And so since he was a huge fan of Austrian economics that he sought out Rothbard, so he's one of the few people that can say that. So in any event, a lot of these charts early on in this presentation are coming from Bradley's work. So you can see here, it's just showing you the drop. So what Bradley was trying to get across here is to show different ways of approaching the idea of is energy becoming more or less plentiful? And so he's saying if you use the criterion of how many labor hours for the average worker are necessary to obtain a certain unit of energy, then clearly you can see how it's come way down over time. So let me just do gasoline so you understand how this chart's working. So the idea is how many minutes would the average worker have to work in order to earn enough pay to go then buy a gallon of gasoline at those current market prices? And so you can see back in 1920, you'd have to work a little over a half an hour just to earn enough pay to go buy one gallon of gas. And that has come way down, you know, over time. And then similarly with electricity, the metric there, you say how many minutes would you have to work to buy one kilowatt hour of electricity? And again, you can see that's come way down. So it's different ways of measuring scarcity. And what this title energy, the master resource, is a play off of Julian Simon's work, if you're familiar with that. Okay, so because Julian Simon is the ultimate resource talking about human ingenuity. Right. So what Robert Bradley was trying to do was get away from the Malthusian mindset that's after Thomas Malthus, the idea that, Oh my gosh, there's finite resources. Humans keep breeding like rabbits. What are we going to do? And so Julian Simon was very optimistic. If you don't know that name, you should at some point go become familiar with him. He did a lot of great work on this area. Julian Simon famously bet Paul Ehrlich about the direction of commodity prices. And so that's a if you're not familiar with that and you're interested in energy, go look that up. It's just type in Simon Ehrlich is E-H-R-L-I-C-H. And go look that Ehrlich Simon wager or something like that. You'll get it and go read that read up on that. It's a pretty interesting episode in the history of energy policy in terms of free market optimism versus Malthusian pessimism. So Julian Simon was saying that no, actually the ultimate resources human ingenuity or the human mind. And so Bradley was, you know, he's doing a spin on that with energy, the master resource to try to show you need energy and everything. And Bradley was saying, instead of worrying about Oh, we're using up everything, these finite supplies, instead look at it that human ingenuity. So long as it is in the institutional context of private property, free markets, free floating prices. Don't worry this stuff historically has always gotten better, at least over a long enough time span. Here's another way of looking at that mindset that may surprise you until you become familiar with this data. So people will often talk about Oh my gosh, we're running out of oil and they'll compute and say like how much how many years left of oil does earth have? And so certainly either the implicit and often the explicit lesson we're supposed to draw from that is the market is burning up stuff too quickly, decentralized market forces are not taking into account future generations, firms are very short-sighted, they're just trying to make a quick buck and we need to just shift to conservation. The government needs to put in place all sorts of regulations and other sorts of taxes and whatever to encourage us to husband or store our resources because clearly the market left to its own devices would use up everything far too quickly and our grandkids wouldn't have anything left. So one way of seeing why that's just totally wrong, that whole approach is look at this. So year end 1944, the way they calculate oil reserves, there were 51, so the unit here is billions of barrels. So there were 51 billion barrels they knew about the end of 1944. From 45 to 2003, the reason this is then in 2003 is this is just the the addition that you know Bradley's book that I grabbed this from because he had the stuff nicely. If we updated it to current numbers, it would be the same basic story. So from 45 to 2003, humanity used 917 billion barrels of oil. Okay, so that right there might be odd to you that they used 18 times as much oil as the humans knew about back in 44. And then if you say, okay, now snapshot of the end of 2003, how much oil reserves do we know about who we located that we're you know confident we could go get if we had to. And now it was up to 1.266 trillion barrels. Okay, so again, they used 18 times more and ended up with 25 times more than they had back in 44. So clearly what's going on here? It's not that, you know, Henry Kissinger struck a deal with Martians and we brought in all this oil from a different planet, right? That's not he was dealing with the lizard people, but that's a separate issue. No. What's what's going on here is when they talk about how much oil is left or whatever the resource in question is, they are using a very narrow technical definition that that's important, you know, it's in the industry, they have varying definitions of like oil reserves or known reserves versus resources or potential resources. So there's very, there's specific definitions they have that mean very particular things to people in that field. And again, just to give you an idea of the distinction. So like if they if they have seismologists and stuff go out and they've located they maybe drill some test wells and they have various types of equipment and systems they can use to get a pretty good idea of Oh, yeah, we just hit there's this big deposit in this area. And we estimate, you know, if we started developing it, we could extract such and such number of barrels over the course of two decades of operation or whatever. That's one particular thing. Whereas if it's more saying, well, looking, you know, at this part of the ocean, I bet you if we really pumped in a bunch of resources and exploration, we could probably find such and such. That's a much more ambiguous and vague idea that they really haven't found direct evidence of it being there, but just knowing what they do about how the earth works and so on, they're extrapolating. So there's different estimates like that. So when they're talking about reserves and how much oil do we have left at current rates of consumption? If it's a if it's a small number, you know, just meaning like 20 or 30 years or whatever, that that means oil that they really have located and are quite sure they can get an oftentimes what the definition means is, at current market prices, what would be profitable to recover? Okay, so one way of, hang on, let me see if I do it. Okay, yeah, let me do it. I'll walk through this slide and then I'll give you the more abstract theoretical position. So the question is, are we going to run off oil in terms of just the physical supply of it? No, of course not. Right. So in terms of again, this was circa, well, based on year 2000 consumption rates. And I think this data was about 2003 is when he ran these numbers and generated this chart. So at that point in terms of what's called crude oil reserves, humans had about 40 years left of oil using that metric. If you broaden the definition to what's called crude oil resources, it was 70 years. If you included heavy oil and oil sands, which back then was more theoretical, but now in our times is actually being brought into into production, or at least it was, you know, when oil prices were higher, like in Canada, they have that they call tar sands and some applications was 115 years, you bring in shale oil, which again, back when Bradley made this chart that was more theoretical. But now, as you're familiar with horizontal drilling, what's called fracking, this stuff is now becoming much more of a reality. It was depending on how you measure either 450 or 75,000 years, depending again on the level of abstraction. And then if you what's called agricultural oils, it's basically inexhaustible for all practical purposes. OK, so what this is saying is it would never be the case that at some future point, humanity is going to literally use the last barrel of crude oil that's available on planet Earth. That's not going to happen. What could happen is as the as the supply of oil goes down, the market price goes up and at some point it might just be uneconomical that it would be it would make more economic sense to switch to some other resource. OK, so when I say will we run out of oil and I categorically answer no, that by itself is not optimistic or pessimistic. It's just saying that that's not the right way to think about the problem. All right, so by the same token, if we if you were on some plant, we if all the oil were just this big pool that we knew about, we knew the exact depth and everything in the volume of oil that was in this pool and we could calculate it perfectly. You could run through the numbers. It's called Hotelling's rule. And so it's like the word hotel and then LING is the way this guy's name Herald Hoteling. If you want to go Google that and look it up, you can see he walked through the logic of how would you establish equilibrium pricing for a finite resource. And in that baseline case, even if we knew the exact amount and just consumed it, he showed that the market price would rise with the rate of interest, right? Because the idea is an equilibrium. You're going to keep drawing out barrels only to the point at which you wouldn't sell a barrel today if you thought the market price a year from now would be higher, you know, would rise enough to more than compensate you for the delay in time, right? So the idea is an equilibrium, absence, exploration costs and stuff like that. The spot price of oil would have to rise along with, you know, along with the rate of interest, right? So if the interest rates five percent, you could sell, let's say, oil right now selling for $100 a barrel. You could sell it today for $100 or you could leave it in the ground, wait a year and it rises to $105 a barrel and then you sell it for that, right? So if the interest rates five percent, you would be, you know, that would balance things out. But if the interest rate were ten percent and it was like that, then you would just sell it today and if the interest rate were only three percent, then you'd leave it in the ground and the oil would appreciate five percent if you could sell it next year for $105, right? So that's the kind of logic he was using just in that real simplistic case, assuming away exploration costs and things like that, that it would have to, the price would rise over time to compensate you for the time value of leaving the resource in the ground and not getting that cash today and then letting it out at interest, okay? But the point is when you start thinking through the logic of that, you can see it would never be that you would literally use up the last amount of the oil today, right? As the resource diminished, even if it were all under perfect certainty, then the market price would keep rising and so over time humanity would shift away into other ways of getting that kind of energy as opposed from that particular source. So just walking through that logic, again, that doesn't, that could spell disaster, right? The idea could be, oh my gosh, what if, you know, what if we only had a swimming pool size left of oil on planet Earth? Everything I just said would still be true, just right now the market price would be astronomical and it would be astronomical times 1.05 or whatever next year, okay? So that wouldn't mean things were great, it would just mean the market has built-in incentives to enforce conservation, right? So what, what this logic blows up is the naive view that, oh markets don't take the future into account, we're not thinking about future generations. Well it's true, when you go to the gasoline station and fill up your car, you're not thinking, whoa I just put in eight gallons, that's eight fewer gallons for my grandkids, uh-oh, that's true, you're not, you're probably not thinking like that, right? But market prices implicitly make you take that into account, just like market prices in general, you know, in terms of the Misesi and idea of consumer sovereignty and how market prices steer resources into their most valued uses, that's what the price tag is doing, it's like a signpost saying this thing is valuable, other consumers are willing to pay for the use of this resource and other lines and so exercise care when you use this thing, well it's the same thing if if it really were the case that we were using a lot of oil in the present, so that there's less for future generations, implicitly oil companies, you know, having their finance people and whatever making projections would think the market price 50 years from now was going to be a lot higher based on our projections of world development of resources and consumption rates and what have you and so if they thought that the market price was going to be a lot higher in the future, they would slow down their pumping today, right? Again, not because they care per se about making sure our grandkids can drive but because they care about profit. Okay, uh, same sort of thing here with North America in particular, the amount of coal resources they have is really pretty high in terms of just conventional metrics and so you can see how these numbers play out. Okay, another thing again just to sort of combat the the conventional wisdom, I think a lot of people get this idea that things just keep getting worse and worse over time and pollution is choking our cities and what have you but according to all kinds of standard measurements and this is stuff that the EPA puts out so the the EPA for foreigners is the Environmental Protection Agency it's an agency of the U.S. federal government so they have what's called six criteria air pollutants and you can see just how much those things have come down over time so this is showing from the Greens 1970 the blue is 2002 and you can just see the drops in these things. Now, admittedly somebody who is an interventionist is going to would look at this and say right that's because of all the the federal regulations on pollution or whatever the free market wouldn't have done that and that's sort of a counterfactual we can't say what would have happened in the alternate universe where the EPA or whatever didn't put these regulations in place but again at the the broader point is environmental quality you can think of it as a good among other possible things and so as a society gets richer it can afford the luxury of having cleaner air. Now again we can argue about in the real world how would that result happen if there's imperfectly enforced property rights it's it's not as obvious how would that happen but the point is in terms of the technology and resource supplies clearly the richer you are the more productive your workers are you can afford to use production techniques that put less smog in the air for example right you can afford to do that whereas if you're a poorer country the trade-off becomes more serious where it's like oh geez do you want more people to be hungry versus or to not have electricity at night versus having air that doesn't have as much soot in it and so on and certainly empirically over history the freer capitalist countries are the ones that tend to be cleaner whether you're talking about air quality river quality so on compared to the other ones the soviet union you famously had rivers and so on that were just really filled with all kinds of toxic waste from factories because the people running the show really wanted to push industrialization but that was important to them they didn't care so much about the welfare of the people who happen to live downstream from certain factories okay so let's talk very quickly about oil prices that was the title of the the talk I was given um so here when it comes to oil price I'm going to say some stuff on this but I think the caveat is in order one time I was talking with this this investment guy came in he was getting a briefing from the guy I was working for at the time and the the guy said something like he was yeah oil prices you know he said the oil market's really irrational and we kind of just took that he goes and what I mean by that is I've lost a lot of money in that market all right and so so I thought that was that was a pretty cool guy but he drove a nice car too but the point is that yes there's lots and I've thought that so you can have theories about what's going to make oil prices go so this particular drop I mean so this is right when the financial crash happened so you know why was oil going up here so much at the time people were blaming speculators and things like that I actually went and testified before congress and I always see when people bring that sometimes I'll go give a talk somewhere and the the moderator will introduce me and say Dr. Murphy has testified several times before congress and I'll get up and explain and say they didn't listen to a word I said don't worry about it but there they were talking about speculators doing that and it's there was if you're in the Q and A if you're curious I could talk more about that there was a lot of reason to think that it wasn't speculation per se there weren't the telltale signs you'd see but then why did it go way up and then crash ex post we can certainly make sense of all that stuff but not too many people saw those things coming in the same thing here this drop right there I'll talk a little bit about some of the things that may have been involved but you know did I know two months before that that was going to happen no right and I don't think the very many people did know that if they did then they would they would be billionaires right because they would just bet the other way around but let me just give you some examples of what's going on one thing that people here would probably be interested to know is the I think the Federal Reserve did play a lot or a big role in this so here with this chart showing you the blue line is the crude oil prices so this was the huge run up and then it crashed when the you know right before the financial crisis kicked in and then the red line is the it's basically the balance sheet of the Fed right so it's the total assets held by all Federal Reserve banks so you can see the red line it was pretty short boom it jumps way up when Bernanke more than doubled the Fed's balance sheet in a short period of time then it comes up so here's one of the Q this is why I guess Q's QE2 and then here's QE3 and then this is when the tapers you know kicks in and then so they've been holding pat for a while now so you can see you know just kind of eyeball on the chart it does kind of look like once the Fed stopped inflating that's when oil collapsed right so with a lot of this stuff I'm not saying to you that this you know this flattening of the Fed's balance sheet caused oil to fall that much that that seems out of proportion but to the extent that when the Fed kept pumping in money and investors didn't know exactly when it was going to stop right that was the point of QE3 was that it was open ended they didn't say the Fed's going to buy such and such trillion dollars worth of assets and then stop no with QE3 the Fed said we're going to keep buying 85 billion a month until the economy gets better right that was that was part of the logic of it was to say that you know they thought the mistake we made with QE1 and QE2 was that there was a an endpoint so the markets just absorbed the announcement and priced everything accordingly and then moved on and we lost the bank for our buck there or the bank for a trillion bucks and so they were saying with QE3 let's not let them know when it's going to end because we really want to convince these people the dollar is going to go down in value so spend money gosh darn it right that these these idiots keep holding on to their money but I don't think no do get rid of it and so that was part of the logic of QE3 so when they finally announced okay we are ending it that was new information so it's not completely crazy to us to think that that's if they're what if commodities kind of were high because people were hedging against inflation right in other words that's that's a classic thing you would do if you're unsure of central banks actions in the future there's liquidity sloshing around what do you do with it you don't want to necessarily invest in corporations because the underlying economy is terrible well one thing is you might go into commodities and so it's not crazy that commodity prices you can see how low they were here oiled down to 40 then it bounced back up and then it crashed again so this rise here it's not crazy to think a lot of that might have been just a response to all of the liquidity that central banks were pumping in so that's that's one thing but another sort of real factor and I'm curious to see how many people are aware of this so there was what's been called the shale boom in us output so this is us oil output the index here there the y-axis here is an index so the idea I set is so this is 2007 equals 100 okay so the idea is this is not like barrels of oil this is measured in setting the 2007 value to 100 just to see so the idea is if you go back to like the early 70s it was like 80 percent higher us output was 80 percent higher than it was as of 2007 and now look at how much has come up just in the last eight years all right you can see that us crude output has gone up by about 80 percent or more than that so like about 90 percent just in the last seven or eight years I'm just curious did is that common knowledge or are you guys did you know that okay these guys are smart all right well the people watching this online you guys didn't know that did you all right okay so again and this is incidentally by the way if if you're curious I can later I can show you the the specifics some people are saying oh look at all these right-wingers are complaining about the Obama administration look how much oil output's gone up if you break this down in terms of federal land like production on federal lands versus state and in privately held lands it's it's like the other way around in other words production on federal land has not grown nearly as much in effect depending on what time period was it was stagnant and it's the production on state and and privately held land that's gone through the roof all right so this is a this is an aside okay but in any event this is when people talk about the fracking boom and that's a little bit inaccurate it's not merely fracking is uh hydraulic fracturing it's a certain way of injecting water or see like into the rocks and splitting it open and then you get the oil out that way but it's also horizontal drilling is the other innovation so it's techniques they they knew about for a long time but it just it became economical and just all of it came together in the last several years where it really made sense to go ahead and unravel that also just as an aside there's a lot of Austrian trained analyst financial analysts who are concerned about this thinking it's unsustainable that it was largely built on cheap credit from the Fed and things like that so I'm not necessarily saying that this is a permanent feature but certainly we're trying to understand why have oil prices come down so much I think this has a big part a big thing to do with it also because this was not many people saw this coming right even big fans of the free market in the early 2000s had no idea that us output was going to be this much higher that that short into the future okay so let me now just talk about some general points about government energy markets in this area there's a lot of claims about market failure I talked a little if you went to my economics of the stateless society I talked about this idea of a natural monopoly and electricity and natural gas so there the I they're trying to justify why we need regulation in these markets and so they'll say things like like just delivering electricity to homes and and businesses if you just had a purely free market that would be inefficient because then every competing firm would have to build its own power lines and that would be crazy and so it's kind of like the first firm to get to market is going to have this huge advantage because there's a huge hurdle you'd have to get over so they're going to have this whole zone of being able to charge monopoly prices that's a natural monopoly and that's why we need government to come in declare one firm to be the monopolist but then regulate it right so there's lots of problems with that I'll just mention two of them one is that then there's no incentive for the regulated monopolist the so-called utility company to watch its costs right if what the regulators are saying to the producer of electricity is you show us your costs and then we'll let you charge that plus a little markup for profit well then why would you ever you know control your costs there's no reason to do that you have no competition all right so that's one problem another is that the prices tend to be based or set politically the government wants to make it look like they're giving cheap electricity to people they're going to resist rate hikes and so in particular they're not going to be fans of charging different amounts based on the the traffic or the use load and so what that means is in times of high demand prices are not going to rise to balance supply and demand right they're not going to charge whatever the market will bear that sounds awful that sounds like cutthroat capitalism let's just oh because people want to use a lot of electricity you're just going to jack the prices up that's horrible that that's the mindset but then what that means is okay so when it's really hot outside everyone's run their air conditioner certain neighborhoods are told your power's out you're going to have what they call rolling blackouts or sometimes they call them brownouts where to save the grid certain areas are just told you're going to have we're going to arbitrarily ration your electricity today between the hours of such and such that happened I was living in Chicago after I left undergrad I was spending a semester there and I was trying to save money on rent so I was living in a pretty shady area and we got hit several times during that summer with rolling blackouts they weren't telling the politically connected rich neighborhoods that oh you're going to lose your power they were telling the neighborhoods of people that probably didn't even vote so that's what they were doing there so that never happens in the market right and under capitalism during the summer people drink a lot of beer and they eat hot dogs and stuff in the fourth of July Budweiser never says to its customers hey everyone limit yourself because you don't want we don't want to run out of beer right that never happens right you never have fireworks companies saying on July 3rd let's limit us you know only by two sparklers per family nobody talks like that they love when there's going to be big demand for their product or costume companies when Halloween's coming up they never say come on just one costume per household this is crazy we got to go ration it that's not what happens if they know demand's going to be higher they get ready for it right so this this idea that oh because it didn't rain much now we have to tattle on our neighbors and call a hotline and say this guy's watering his lawn he's not supposed to I mean this stuff does really happen in California you know it really is the governor is on TV telling people when they can take showers I mean that's just absurd this is class I mean it would be a joke except it's it's happening for real okay also what you what you know more than other free market economists by virtue of your familiarity with Austrian economics is that all this issue of it's not just the incentives which is kind of generic free market stuff that I was just going over there but the more basic problem of of calculation right and so you you couldn't how how would someone running a utility company you know how would they know whether to to add more capacity to the grid you know that sort of problem you you couldn't know that without genuine market prices without entrepreneurial discovery and so all the problems of outright full-blown central planning apply even if you just try to do a piece of me and say well what if we just have central planning in the energy markets or the electricity markets incidentally I don't have time to get into it here but just as an aside some people will say oh didn't the deregulation surrounding Enron and what happened with California electricity markets didn't that prove that free markets don't work with electricity and no it's the exact opposite what they did there was in California they had limited deregulation but they allowed somewhat market pricing at the wholesale level but they still had the price controls at the retail level all right so if you wanted to just design a system that would cause huge bottlenecks and cause things to get screwed up that's a good way to do it where the people you know getting the electricity from the wholesale market those people could sell it to the highest bidder whereas when they then had to turn around and produce electricity and sell it to their customers they couldn't pass that through and so that was a low control price and yet their costs were were skyrocketing so that's guaranteed to cause havoc in the system and then is what happened okay let's see let's talk about cafe standards here this is a great example of unintended consequences so cafe stands for corporate I think average fuel economy and so there what this is in the U.S. it's regulations concerning vehicles and how much how many miles per gallon they get right or how many kilometers per liter for your weird Europeans okay so let's see here so there's various rationales for it they came in in the 70s and at that point the whole rationale was conservation you know oh my gosh we're going to run out of energy this was around the heels of the OPEC oil embargo and so the idea was mighty America we know we don't want those Arab nations bossing us around and so we have to wean ourselves from our dependence on foreign oil this is the kind of language they would be using and so one of the ways to do this was to force Americans to drive vehicles that were more fuel efficient right so that so that way we weren't as dependent on buying oil from OPEC nations okay so one of the things that happened then is you know there's various attributes of vehicles that the consumer cares about only one dimension of which is fuel economy in other words other things equal you would buy a car that had that had better fuel economy right because then you're going to save money on gasoline but that's not the only thing you care about you care about you know the size of the car how it looks all sorts of other things and so one of the things people would like is a car to be somewhat solid and so if you get into an accident you know you don't get destroyed and so to comply with the fuel economy standards one of the things that had to give was they made the vehicles lighter okay so in other words they didn't just put in fancy or new engines and then make the car get a lot more expensive one of the ways they dealt with this new constraint was to make the vehicle lighter because that was an obvious way to achieve the fuel economy standard and so taking that into account and looking at how much do they think vehicles became lighter because of the mandates and this is you know somewhat arbitrary how you're going to know that you compare it to the counterfactual universe but using statistics like that or modeling like that various estimates have said that between 42,000 125,000 traffic fatalities can be attributed just to the KFA standards all right so again the logic there is to say because these mandates were imposed the car manufacturers to comply with that one of the things they did was make the vehicles lighter so if you get into an accident and you're in a lighter vehicle you're more likely to be injured or killed and so because of that over the decades that adds up to the point of it's plausible that many tens of thousands of people were dead because of these mandates who otherwise would not have been dead okay let me spend a few minutes this last topic here and I'll leave time for one or two questions this issue of the social cost of carbon so the reason I'm spending time on this is this is my particular area of expertise with the Institute for Energy Research so this is goes hand in hand with the climate change debate and so what the social cost of carbon is if you're familiar with the work of AC Pagoo and negative externalities this is saying when you emit a ton of CO2 that's going to cause more global warming than otherwise would occur over time that's going to cause more damages on net to humans down the road and so today if we calculate the present value of those future damages that's some dollar figure that's the social cost of carbon so it's measuring the negative externality that's the idea okay so why is it important already this these numbers are being used in U.S. federal regulatory assessments right so they'll propose something like regulations on the energy efficiency of the fan in a microwave all right so you get so you're buying a microwave in your house the fan that that cools it off or whatever or the fan that's in a a furnace they have federal standards on those regulations right you can tell Judge Napolitano that and ask him if that's in the Constitution I don't think it is but that's the kind of thing that federal bureaucrats are concerned about laying down specific regulations on the energy efficiency of these appliances for your home and so the idea is if they make it higher than the market otherwise would have so that the your microwave ends up using less electricity than if it just left untrammeled market forces they want to be able to come up with a why is that a good thing why is that good for society if people in washington make your microwave more electricity efficient and so one thing they come up with is oh well if you're using less power then that means coal-fired power plants don't have to burn as much coal to produce that extra electricity because we're conserving more now and so that spares the world from carbon emissions so where do they figure out how do we go from we've reduced X amount of tons of carbon dioxide emissions to a dollar figure they use this okay so that's why this concept is important and so in 2007 the white house issued this figures for the for the amounts you know in other words like a ton of CO2 in 2030 they were saying that's going to cost $52 and extra damages things like that all right so let me just I'm going to skip around here because we're running out of time but one thing you might be surprised if I took this from the white house's own working group presentation of their results they used three separate computer models one of them showed this is a green line down here so this is zero line this is some the loss to humanity from global warming GDP loss it's it's negative so a negative loss is a gain and so this is people have been don't know one of the three computer models they used and these were like reputable computer models as far as these things go one of them was showing humanity benefits up to three degrees Celsius of warming okay so you translate it into it was like by mid-century okay so one of the I'll say it again in plain English the white house use three or their team use three computer models to simulate this stuff and one of their own computer models showed that climate change benefits humanity on that up through about the year 2050 or so okay so in other words if if everyone we're just going to stop emitting CO2 on a dime like we would want to subsidize coal-fired power plants for the positive externalities right if we're going to use their logic all right so needless to say it's no exaggeration to say that message was not being communicated on the six o'clock news when this report was released right people are being told like every time you know there's a there's a storm or something oh this is climate the ravages of climate change as we speak when no even in their models nothing really truly bad kicks in until decades in the future in fact because it has to first of all overcome the hump of all the benefits if you're curious it's stuff like the more CO2 there is in the atmosphere it's it's boosts agricultural yields okay then that's like in greenhouses themselves like they might have higher CO2 concentrations even make plants grow better stuff like fewer old people are going to die in the winter if the winter is not as cold you know stuff like that so it's just putting in comments things like that to say well in other words if you thought that warming would unambiguously make humanity worse off that would mean just coincidentally humanity was at the exact perfect optimal temperature in the year 1750 you know what what are the chances that it was that knife edge result you see so there's stuff like that so but I mean here I'm conceding all this just for the sake of argument just to show on their own terms how there's stuff in here that's pretty surprising let me show you one other thing and then I'll take time for one question well here's here's something this is the estimates of the SEC so so this guy looked at the literature this was from a literature review and you could see so these dots here those are all point estimates of the SEC the social cost of carbon so you can see back in the early 90s they were here and as time goes on you see how they spread around if you asked physicists over time what was your estimate of the charge on an electron it wouldn't go like that you get what I'm saying or they say what's the mass of the moon it wouldn't be like well in 1700 we all cut those here nah we have no freaking idea that's not what they would do okay now you might so here what's going on it's not like there's guys in white lab coats who are going out and using equipment to go measure the social cost of carbon these things are all spitting out of computer simulations and they make you remember what they have to do one of the big variables is they're assessing the present value of damages centuries into the future so the discount rate you use on that is huge and just to show you how big that factor is forget that that's nothing there that okay these are the headline numbers they reported because they used it at a 3% discount rate using the exact same model the exact same computer simulations if you just said what if instead of discounting that future those numbers at 3% what if we use the 5% discount rate you can see what happens right like for the year 2010 it got cut into the third okay you can see the change so again the difference between this column and this column it's not that I went to the Heartland Institute's models no using the same White House's own report and just said if instead we're quoting this stuff at 5% discount rates this is what happens okay and so now you can see how much of this debate it has nothing to do with physicists and chemists telling us how clouds work it has to do with what discount rate are we applying to this stream of projected future damages okay so again just showing how arbitrary this stuff is okay so I'll stop there thanks everybody