Thursday, May 30, 2013

Do economists make better policies?

A blog of Bridge Environment, updated most Thursdays

John Taylor, creator of the Rule

Two weeks ago, I wrote about the economics of fiscal stimulus and how the current debate surrounding it looks a lot like an environmental policy debate. Though we face a fundamental trade-off between the risk of future debt weighing the economy and that of current austerity stunting growth, these trade-offs have not been directly addressed. I suggested that we might have a more productive debate about fiscal stimulus policy by highlighting this trade-off with an emphasis on uncertainties and how we would like to address them. The current debate, though, looks a lot like the dysfunctional negotiations we have over most environmental policy issues.

What is surprising about the dysfunction around fiscal stimulus is that economists often do a better job. One of the pleasures I had in going back to school to study economics after a career as an environmental scientist and policy adviser was the chance to experience an entirely different academic culture. Ecologists are often driven by field observational or laboratory skills, with statistics and mathematical modeling relegated to simple approaches or specialists within the field. My own math skills were what made me stand out as an ecologist and environmental scientist. At the same time, despite some general platitudes towards conservation issues, most academic ecologists keep arms-distance away from environmental policy processes. I raised concerns about the inability of ecologists to provide effective advice under these circumstances as a graduate student, and in 2003 in a letter published in the journal Frontiers in Ecology and the Environment and believe my observations and suggestions are still relevant today.

In contrast, though many academic economists focus on theoretical work and stay away from policy matters, there are well-respected academic economists at the very top echelons of policy-making (e.g., the Federal Reserve Board plus typically at least two Cabinet-level positions in the White House) and public commentary (e.g., Paul Krugman of the New York Times). Also, whereas my math skills are well beyond those of most ecologists, they only barely keep me afloat among my economic colleagues.

No doubt as a result of these two characteristics, economic policy debates generally do a better job of addressing fundamental trade-offs and acknowledging uncertainty than environmental debates. The public is often only vaguely aware of the details. Take the Taylor Rule as an example.

            it – πt – r*t = aπt – π*t) + ay(yt – y*t)

This rule calculates an interest rate goal (nominal interest, it, minus inflation, πt, and an assumed/targeted real interest rate, r*t) for the Federal Reserve based on the degree to which inflation (πt) and economic growth (yt) are matching targets (π*t and y*t, respectively). The adjustment-rate parameters, aπ and ay, establish the responsiveness of the policy to divergences of inflation and economic growth rates from goals.

Don’t worry if the equation looks Greek. The concept is this: interest rates are adjusted down if inflation is low, economic growth is weak, or some combination of the two; and up if the opposite conditions hold. This rule was proposed as a way of setting monetary policy objectively and dispassionately, and has benefits both in terms of stabilizing policy choices and making them more predictable for people and industries affected by these choices. Interestingly, the equation specifies a general framework rather than a specific policy. In particular, policymakers must choose target levels for inflation and growth, and adjustment rates for how to respond to being off-target. Sound like rocket science as applied to fisheries? It should. The principles are identical. Monetary policy was not an area I studied in depth, but I was always curious whether analysts had explored the implications of different policy choices within a Taylor Rule. From a cursory scan of the literature, it seems that most work has focused on whether interest rates should respond more to inflation or growth deviations, rather than a comprehensive analysis of the costs and benefits of more or less responsive policies in general.

Regardless, the existence of this rule and its widespread use and sometimes direct application when the Fed considers its monetary policy choices serve as evidence that economists really do a better job of informing public policy debates than ecologists and environmental scientists.

To improve the situation for the environment, the necessary changes are pretty obvious and yet far from easy to enact. We need whole groups of trained environmental scientists in decision-making positions. We also need an environmental science field that elevates its quantitative skills so that more ecologists are proficient with highly technical statistical and mathematical models. These changes will not be easy to enact because, unlike the field of economics where academics are recognized and rewarded for their efforts to understand and address the nuances of real-world policies, ecologists still mostly work in ivory towers. Until the profession changes to better-reward ecologists for working on and publishing results from detailed policy analyses, there they will stay.


For more information, read our other blog posts and visit us at Bridge Environment.

Thursday, May 23, 2013

Better late than never, optimum yield redux

A blog of Bridge Environment, updated most Thursdays

I am currently in Florida attending the North American Association of Fisheries Economists’ Biennial Forum. Yes, there are enough fisheries economists in North America that we can talk, three at a time and with 15-20 minutes each, for three days straight!

Ray Hilborn of the University of Washington gave our plenary address yesterday morning. He made two interrelated points. First, he argued that our fisheries are influenced by environmental fluctuations in unpredictable ways, and thus need what he called robust policies. Second, he argued that we currently “lose” a lot of potential food, jobs, and income by underfishing many fish stocks.

I challenged him on these points, pointing out that his measure of “loss” was diversion from a policy (maximum sustainable yield) that was rarely in fact sustainable. I argued that robust policies come with a cost and perhaps the foregone yield was serving that purpose. Regular readers of this blog will recognize these points from previous entries. He acknowledged the possibility that we were gaining robustness, and responded by advocating for a systematic review of what we are actually getting from our fisheries, so that foregone food, jobs, and income would be acknowledged and designed to meet other objectives. On this point, we both agreed.

Following his talk, there was a panel discussion on economics and catch-limit setting rules under US fisheries law. The panel discussed the current systems for setting quotas and generally complained that they all look pretty similar when in fact they could and should be meeting the specific economic, social, and ecological needs of each fishery.

Their argument warmed my heart at the same time that it left me keenly frustrated. I started working on national-level fisheries in 1998, and my mantra was this: fisheries are fundamentally uncertain, we need robust policies to address the associated risks, robustness comes at a cost which might be some foregone food, jobs, and income, and we should use the existing legal mandate to customize the catch rules for each fishery to account for specific economic, social, and ecological needs. I made this pitch to most of the fishery management councils across the country, to the government fisheries agency, and to numerous fishing and conservation groups. Despite much effort on my part, I didn’t have much success making national level change, nor even in incorporating this approach into my own work as a fisheries stock assessment biologist. There was simply too much inertia and pushback. Therefore, it was heartening to hear a group of well-respected scientists discussing these same issue 15 years later, albeit frustrating that it took so long.

If we are going to have better success this time around, we need to confront a situation that hasn’t changed much in 15 years. First, let’s be clear about where the problem lies. Is it the law or its application? The law is quite good, and has been since 1996. It sets optimum yield as a primary goal for catch setting policies. Optimum yield is defined to incorporate the need for food production, recreational opportunities, and ecosystem protection. Specifically it is supposed to based on maximum sustainable yield, as reduced by relevant economic, social, and ecological factors.

One could take argument with restricting optimum yield to lie below maximum sustainable yield (and Dr. Hilborn did) based on the argument that it may be ok to drive one stock to relatively low levels in order to take advantage of more opportunities from a co-occurring fish stock. However, managers in certain regions of the country had a history of selecting quotas higher than what their scientific advisers recommended. The 1996 revision of the US fisheries law was designed to stop this abuse. Moreover, the idea of driving some stocks to low levels presents two practical problems. First, it potentially sets up incentives to drive these stocks to levels so low that their ecological role is reduced or eliminated, and could cause a stock collapse. Dr. Hilborn argued that stocks usually eventually rebound, even after their abundance drops to low levels. However, he also pointed out that reduced fishing pressure was often necessary for this rebound to occur, and that certain stocks, for example New England cod, have not rebounded. Second, the idea that we can reduce certain species to very low levels in order to exploit others rests on a view that the ocean is primarily a fish-producing device. There is precedence for such policies on land, where natural ecosystems are heavily modified in order to farm it for food production. I personally like the fact that the ocean is still a wild environment, albeit a stressed one. I’d like to keep it that way and know I am not alone.

Dr. Hilborn also brought up concerns that the current law requires overfished stocks to be rebuilt within 10 years if doing so is biologically feasible. The origin of this policy is like the one restricting optimum yield: certain fisheries managers abused rebuilding plans by avoiding current sacrifices and putting off recovery nearly indefinitely. There is a legitimate problem with current rebuilding systems, though. They are used for two incompatible purposes: tracking the overall performance of fish stocks and flagging fisheries that need immediate attention. Rebuilding plans are required of fisheries that are overfished, defined as a level that jeopardizes the capacity of the fishery to produce maximum sustainable yields on a continuing basis. In practice, most stocks use an overfished threshold equal to about half of the level that would produce maximum sustainable yields. Conservation groups like having a hard definition like this as a way of tracking national-level fisheries management performance. However, for this purpose, multiple categories would be more appropriate, for example above optimum yield levels, below maximum sustainable yield levels, and in between these two.

The second purpose, identifying urgent management needs, is complicated by the existence of evolving catch limit systems, many of which now automatically scale back fishing to some degree if there are signs of depletion. Regarding this purpose, one simple change would be extremely useful: defining overfished in terms of optimum yield instead of maximum sustainable yield. Doing so would make it clearer that an overfished designation represents a failure to achieve the objectives of a fishery. This change in perspective makes a dramatic operational difference. As long as the catch rules are designed, enacted, and enforced in a way that is thoughtful about the degree of robustness necessary to account for environmental fluctuations and produce the preferred mix of performance, the policy would not be considered a failure just because a stock happened to drop to low levels. On the other hand, if stocks dropped in ways that brought the catch rules into question, either because of performance or new information, a stock would be deemed overfished and its entire management system would be revisited. This process would be far more comprehensive than a rebuilding plan but not much extra work.

With the exception of that one small suggestion for change, the current law is sound. The real problems are with its implementation. It is true that virtually all stocks have the same definition for optimum yield. It makes no sense that the mix of objectives would be the same for industrial-scale offshore fisheries in arctic waters and small wooden boat nearshore fisheries in the tropics because they are influenced by such different economic, social, and ecological factors. I made this argument repeatedly in my work 10-15 years ago, without much success. Hopefully the time is right to make it again now.

The challenges we face are not much different from 10-15 years ago. The process of designing effective catch-limit rules is a long-term planning exercise, which will not be seen as a priority for managers who are usually focused on crises. An even greater challenge is the need to educate decision-makers about the trade-offs they face when designing control rules. To do this right, we have to have effective communication among experts in biological and social science in ways that are knowledgeable of and responsive to policy wants and needs. This is a big part of what we are trying to do at Bridge Environment. We are not alone this time, though. With broader interest and increased resources to tackle these issues, we can achieve meaningful improvements in long-term US fishery management strategies. Let’s hope the interest and resources are there.


For more information, read our other blog posts and visit us at Bridge Environment.