Lessons from 2017 Hurricane Forecast

NOAA has just released its forecast for this year’s hurricane season, predicting that there is a .45 probability that it will be stronger than last year.  The forecast from Colorado State and North Carolina University are not that pessimistic, although all three could be considered similar given a reasonable margin of error in probability estimates.

However, more is known about Atlantic hurricanes, El Ninos, and surface water temperatures.  And, with almost three decades of forecasting, it would be reasonable to assume that models used would by now reflect fewer differences and that the forecasts would reflect a consensus.  The fact that differences remain is instructive when it comes to forecasting climate change.

The climate system is far more complex and contains more uncertainties with the factors producing hurricanes being a relatively small set of variables.

Climate is a chaotic system, meaning that it is non-linear and essentially unpredictable.  The father of chaos theory, Professor Edward Lorenz of MIT, according on a 2011 issue of the MIT Technology Review demonstrated that “the dream of perfect knowledge founders in reality.”  He demonstrated that small changes in simulation mattered a great deal and that “the imprecision inherent in any human measurement could become magnified into wildly incorrect forecasts.”

Climate scientists, along with many others, know this but pretend that chaos theory doesn’t apply to their climate forecasts.  In doing this, they are manifesting what Frederich Hayek called the fatal conceit and the presumption of knowledge.  In his address accepting the Nobel prize, he said, “If man is not to do more harm than good…, he will have to learn that in this, as in all other fields where essential complexity of an organized kind prevails, he cannot acquire the full knowledge which would make mastery of the events possible. … The recognition of the insuperable limits to his knowledge ought indeed to teach the student of society a lesson of humility which should guard him against becoming an accomplice in men’s fatal striving to control society… “

A healthy dose of humility and acknowledging the limits to our state of knowledge would allow us to better understand the climate system and more importantly what we can do about the risks associated with climate change.






Red Team EPA’s Endangerment Finding

The foundation for existing EPA regulations controlling greenhouse gases, primarily carbon dioxide—CO2—is the agency’s Endangerment Finding that was issued following the 2007 Supreme Court decision that greenhouse gases could be considered pollutants under the Clean Air Act (CAA) and that EPA could regulate them if it found that they endangered human health and the environment.  In 2009, EPA did exactly that. A challenge that followed was rejected by the DC Court of Appeals that found the “Endangerment Finding … (is) neither arbitrary nor capricious … and EPA’s interpretation of the governing CAA provisions is unambiguously correct.”

Although the appeals court decision appears to be an insurmountable hurdle to challenging since the Supreme Court has shown no interest in revisiting its 2007 decision, it is still being challenged even though Administrator Pruitt seems unwilling to initiate the rulemaking process to withdraw the Finding. And, based on commentary by environmental lawyers on the prospects for challenging the Finding and the procedures of the Administrative Practices Act, success is not certain.  However, the significance of the Endangerment Finding make the effort worthwhile.  Otherwise, a new Administration can undo the current regulatory rollback efforts that are now underway.

None the less, the Texas Public Policy Foundation (TPPF) has filed a petition with EPA challenging the Endangerment Finding claiming that “in its rush to regulate greenhouse gases in 2009, the Obama Administration missed an important step. It failed to submit the greenhouse gas endangerment finding to the Science Advisory Board for peer review, as required by statute, and that violation is fatal to the endangerment finding”.

In addition to challenging on the basis of a procedural flaw in issuing the Finding, it would be prudent to also attack its very foundation.  In issuing the Finding, EPA concluded, based on of peer-reviewed research, from the Intergovernmental Panel on Climate Change, the U.S. Global Climate Research Program, and from the National Research Council, that there was compelling evidence that carbon dioxide emissions endanger public health and welfare by warming the planet, leading to extreme weather events and increased mortality rates.

Last month, Steven Koonin, a well respected physicist and former Under Secretary of Energy in the Obama Administration wrote in the Wall Street Journal proposing that climate science be subjected to a “Red Team” exercise.  As Dr. Koonin wrote, “The national-security community pioneered the “Red Team” methodology to test assumptions and analyses, identify risks, and reduce—or at least understand—uncertainties. The process is now considered a best practice in high-consequence situations… .

Taking on the entire field of climate science would be a daunting undertaking and it is doubtful that Congress would set up a commission to do so.  Instead, petitioners should focus on just the foundation of the Finding which would be much more manageable and potentially more successful.  First, the assertion that carbon dioxide is a pollutant is vulnerable to a large body of science and the greening of the planet that has been taking place for decades.  Second, the contention that increasing levels of CO2 lead to temperature increases that cause extreme weather events like hurricanes and premature deaths is vulnerable to scientific facts and accumulating empirical evidence.  Hurricanes have not been increasing and claims of increased premature deaths are products of computer models that cannot withstand careful scientific scrutiny.

In 1993, the Supreme Court in Daubert v. Merrell Dow Pharmaceuticals established standards for the admissibility of scientific evidence in judicial proceedings.  The Court’s decision provides guidance that can be used to rebut EPA’s findings about CO2.  In particular, the Court stated, “in order to qualify as scientific knowledge, an inference or assertion must be derived by the scientific method.”  It went on to state, “Scientific methodology today is based on generating hypotheses and testing them to see if they can be falsified.”  The hypotheses that are the foundation for the Finding can be falsified as a Red Team exercise would show.

Professional Fakery

A major source of fake news and alternative facts is professionals who engage in political reality spinning while using their credentials as a source of legitimacy.  A recent example is the opinion piece in the Wall Street Journal by Alan Blinder, Princeton economist and former vice chair of the Federal Reserve and member of the President’s Council of Economic Advisors.

Blinder’s snarky assessment of the Trump tax plan, well it’s not a plan but a set of principles, is the work of political hacks; not that of a well respected academic.  Since the President released a one page summary of reform principles, Blinder must think that he is clairvoyant to divine the form legislation will take and the breakdown between winners and losers.  Since he is not clairvoyant, he relies on what he calls the “Republican Tax Cut Formula”.

Like all progressives, Blinder calls the proposal, which he translates into a plan, “remarkably regressive because it lowers the top tax rate from 39% to 35%, the corporate rate from the highest in the developed world to 15% and makes that rate apply to Sub-Chapter S corporations.

According to a report from Yardini Research the top 10% of tax payers, those with incomes over $100,000—hardly rich—pay 77% of federal income taxes.  The top 50% of tax payers pay a whopping 97% of federal income taxes, leaving the bottom 50% paying 3%.  How can reducing the top rate while also lowering the lowest rates be regressive?  Blinder must have an econometric model that makes it so.

The average corporate tax rate in developed countries is 22.5% while ours is 39% when state taxes are included.  This rate makes US corporations less competitive and creates an incentive to move investment offshore and keep foreign earning overseas.  It is estimated that US companies hold about $2.5 trillion overseas and untaxed. We live in a global economy, so making our corporations more competitive increases domestic capital investment, the route to increased productivity and job creation.  Blinder equates the change for Subchapter S corporations as a sop to hedge funds, real estate developers, and law firms—organizations that don’t have great public images.  The reality is far different than Blinder’s illusion.  According to the Tax Foundation, there are 24.7 million US corporations.  23 million are subchapter S which are subject to personal tax rates.  They are far more and far more diverse than hedge funds and others that the public scorns.

In his opinion piece, Blinder says “The system would remain complicated, unfair, and inefficient.  But the richest would pay much less.  Since legislation has not been written, how can he know this?  He doesn’t, it’s just alternative facts and fake news.

Republicans have a once in a generation opportunity to begin the process of putting our fiscal house in order since they control both the Congress and White House.  They realize this and also realize that picture could change next year.

That reality should give a sense of urgency to comprehensive tax reform.  The current tax code has 4 million words, which according to the Washington Times is seven times the length of War and Peace.  The Times also points out that 75 years ago the IRS 1040 had 2 pages and now it has 206.  Major reform that involves simplification is not an impossible objective.  Part of achieving it involves abandoning using the code to push industrial policy or other social objectives and for both political parties to work together.

Since entitlements represent two-thirds of federal spending, fixing social security, which Blinder didn’t mention, is an imperative.  The 1986 Bi-partisan Commission on Social Security represented a good start but it is clear that without another effort, both the national debt and deficit will continue to grow until our economic wellbeing is undermined.

People like Blinder and his colleague Paul Krugman should be using their professional talents and analytical rigor to address real fiscal problems instead of marketing partisan hobgoblins.