The catch-22 for opponents of health care reform: more health insurance economics

The public option is looking more in trouble by the day – just yesterday, it was rejected by the Senate Finance Committee – which means I need to hurry up and get in the rest of what I wanted to say about health care. In particular, I wanted to finish eviscerating the quagmire of absurd arguments against the public option before it’s all over and everyone stops caring.

We’ve all heard the fuss over a “government takeover of healthcare,” which, as I’ve explained before, makes no sense. The public option is just that: an option. The government adding itself to the list of insurance providers can only provide more choice, not less.

The Senators must have been reading my blog, because I haven’t heard much of the “public option equals government takeover” argument of late. Now, the argument is more subtle. The public option would not be a government takeover today, but rather would lead to a takeover down the road by running private insurers out of business – in the words of Sen. Orin Hatch, the public option is “a Trojan horse for a single-payer system.”

Of course, this raises a serious question – or rather two. First, would it really lead to a single-payer system (government option is the only choice)? And second, even if it did, why would that necessarily be a bad thing?

Coming from a capitalist, the first argument makes little sense. If the market always produces the best solution, and the government is always inefficient and corrupt, how could a government run health insurance scheme run the supposedly superior firms out of business? The “magic of the market” is that the better option always wins.

Opponents of reform counter that the government would compete unfairly, allowing the government program to undercut private insurers on price. Of all the premiums private insurers collect, 15-25% go to sales and marketing and administrative costs – after all, they have to pay actuaries to estimate customers’ health risks so they can figure out how much to charge and who to exclude. These costs would be unnecessary for the government program. And of course, private insurers also need room for profits. In other words, government competition would be unfair because it can provide better service at a lower cost.

The obvious question at this point is, why is that a bad thing?

In fact, health care economics suggests that a single-payer government program should be the only option. Insurance works by pooling risk – there’s no money selling insurance to sick people, but if you pool enough people together paying premiums, most of whom are NOT sick, the healthy people essentially fund the sick. The more people you have in a risk pool, the lower the chance that a catastrophe to any one person will threaten the solvency of the overall pool, and the lower premiums you can charge.

Now, you may counter that all industries benefit from scale. Wouldn’t this argument justify the government taking over all industries? That WOULD be socialist!

Well, no. Unlike industries that transform raw materials into finished goods, profitability in the insurance industry is not technology-driven. Insurance companies are in the business of math – estimating and betting on risk. Whereas a factory can invent technologies that allow it to produce more stuff at lower cost, there’s no technology that enables you to squeeze another unit of math out of a dollar of cost.

If the goal is to provide as many people as possible with access to health care, there are only two ways to increase the amount of coverage you can provide for a given premium: reduce overhead costs or increase the size of the risk pool.

A single-payer system wins on both counts. A government program whose goal was to cover everyone would not have to hire actuaries to figure out who was too risky to cover, nor would a single-payer system need sales and marketing. A single-payer system would also create the largest possible risk pool, achieving the highest economic efficiencies. Sure, you’d be paying for it in taxes, but because of these efficiencies, the amount of the tax would be less than what you (and your company) currently pay in insurance premiums; your take home pay would therefore increase by more than your taxes.

Reform opponents are caught in a catch-22. If they’re right about the absolute efficacy of markets, then private insurers will easily be able to reform themselves and out-compete any lumbering and inefficient government-provided option. But if opponents’ fears are founded, and the public option would inevitably run the private companies out of business, that begs the question – if private health insurance can’t provide the same or better service than the government at a given price, why should health insurance be a private industry in the first place? If the government option turned out to be better, well then there’s no reason to bemoan the demise of private insurance. And there’s even a safety value: if insurance companies were all driven out of business, and the government option grew inefficient and corrupt over time, some clever entrepreneur should inevitably emerge to take on the government and steal its customers, making a tidy profit. What this proves is that a government insurance program can never leave you worse off.

So why do “free market” conservatives oppose expanding people’s choice so vehemently? My thinking is that conservatives aren’t so much in favor of free markets as they are opposed to anything that would make existing businesses have to work harder to earn their keep. If you increase business’s costs or competition, that might actually force them to innovate, and that would be, well, CHANGE.

Related posts:

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There's no money in selling insurance to sick people: more reasons free markets don't work in health care

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Are Sarah Palin and Martin Feldstein closet universal health care supporters?

Banks don't work in free markets either: bank regulation and the role of government (Part 1)

In past posts here and here, I’ve argued that health insurance can’t function in a free market. Today I’m turning my attention to banks.

There’s talk resurfacing of bank executive pay restrictions, and unsurprisingly, the Wall Street Journal is of the view that executive pay had nothing to do with the banking crisis. The Journal piece is not without its merits, but it falls victim to basic conservative platitudes the crisis dismantled – the fetishizing of individualism and unquestioning belief that self-interested markets are always self-correcting.

The argument against regulating bank executive pay follows two main thrusts:

1. Ignorance of risks led to the banking meltdown, not compensation. “Bank CEOs held about 10 times as much of their banks' stock as they were typically paid per year. Deliberately courting risk would have put their own fortunes at risk.” Lehman’s Richard Full, for example, reportedly lost $1 billion. In fact, banks whose executives owned more stock did worse than those with less stock. Since executives did worse when their incentives were ostensibly best-aligned with their banks’ long-term interests (stock price performance), compensation could not be the root cause of the problem.

2. Regulations impede the ability of the market to reward good ideas and punish bad ones. Capitalism is inherently about giving a variety of ideas the chance to compete, so regulating pay prevents companies from experimenting with different methods of compensating their employees and rewarding those with the best ideas.

The first argument’s basic assumption is that owning a bank stock does, in fact, align executives’ incentives with the bank's long-term interests. There are a few reason that's wrong. First, when bank executives don’t have to hold onto their stocks over the long-term, they are able to cash in on short-term profits. Richard Fuld might have lost $1 billion when Lehman went bankrupt, but he had still cashed in on $350 million in the eight years before its collapse – a nice cushion from which to gamble on your company’s future.

Free marketers will, of course, argue as they always do that if you just left the market alone, it would work its magic and solve all these problems. If executive pay was really such a detriment to performance, smart investors would buy shares of the poorly performing firm, correct the incentive structure to improve management decision-making, and reap the profits. Therefore, compensation cannot have caused the crisis.

The problem is that “smart investors’” do not actually share the long-term interests of the company – nor can they in a free market. Rather, their incentive is to buy stock and flip it for a quick profit to reinvest in hotter opportunities.

Traditionally, capitalism meant direct investment in relatively durable and illiquid assets such as land and factories. An industrialist who invested millions of dollars in factories and equipment could not easily sell those assets, and therefore would take care to manage them well to increase their value over the long-term.

But as capital markets have grown more liquid, investors’ interests have become increasingly short-term. The rise of electronic exchanges has reduced transaction costs and made it cheaper to cash out of investments, while sophisticated statistical techniques have made it easier to find the highest-return short-term opportunities in which to reinvest the profits. It’s a “keeping up with the Joneses” mentality – the easier it is to buy and sell stocks, the less satisfied you are with your current investments’ returns, and the more you ask yourself, “could I be getting a better return elsewhere?” $1,000 invested in a company earning a respectable 8% a year is $1,000 that could be invested in a company earning 10%. That’s how hedge funds work – identify the hottest short-term gainers, then cash out and use the profits to buy next quarter’s short-term gainer.

The evidence bears this out. Since 1960, the average holding period of stocks has fallen from 100 months to just 9 months; in 2007, this was 5.8 months for Citigroup, and a remarkable 2.5 months for Lehman Brothers. In other words, while investors in 1960 gave management 8 years to produce acceptable returns, today’s CEO earns shareholders’ wrath after less than one.

In such an impatient environment, there’s enormous pressure on CEOs to manage the company to hit quarterly numbers, regardless of the company’s long-term best interest. Miss analysts’ earnings targets, and the stock price goes down. If shareholders’ demands for higher returns aren’t met, they can easily sell their stock in favor of a company whose CEO is willing to oblige their impatience, driving down the more prudent firm’s stock price – and with it, the CEO’s pay. If I’m a shareholder in a “plain vanilla” bank earning respectable returns, but see other banks generating huge profits on exotic financial products, I’m going to demand that the CEO get in on the bonanza no matter the risk – after all, I can cash out after 9 months.

Theoretically, a CEO should have the discipline to ignore short-term stock price dips in the expectation of a long-term rise – provided, of course, that the CEO can keep his job long enough to realize those returns. And that’s the other half of the problem – as shareholders have grown more demanding, they have shown increasing willingness to fire CEOs over shorter performance periods. According to consulting firm Booz Allen Hamilton, CEO turnover increased 59% from 1995-2006, with “performance-related turnover” jumping an astonishing 318%. The fact that banks do worse when their executives own more stock actually proves the crisis was tied to compensation: to maximize pay, executives felt they had to push the stock price up as high as it would go as quickly as possible before they might get fired or jump to another company.

And even if the CEO does keep his job, remember, it’s the shareholders who write top executives’ compensation packages. Since shareholders’ incentive is to maximize short-term returns, they will always construct compensation packages that encourage short-term behavior. Thus, except in the rare cases that a company is owned by buy-and-hold shareholders, a publicly-traded firm in the absence of government regulation can never have a compensation plan aligned with its long-term interests.

I’m not the first person to point out problems in shareholder capitalism. After all, it was John Maynard Keynes who remarked, “It is generally agreed that casinos should, in the public interest, be inaccessible and expensive. And perhaps the same is true of Stock Exchanges.”

What I think it is important to realize is that the current proposed pay reforms don’t go far enough, because just targeting bankers doesn’t change the fundamental incentive structure underlying how decisions at companies get made. The problem isn’t the bankers themselves – it’s with the people who choose the bankers and design their pay packages in the first place: the shareholders. The aim of regulation shouldn’t be to mandate how companies pay their employees, but rather to prevent company’s shareholders from cashing out too easily. I’d suggest a 70% capital gains tax on stocks held less than 3 months, 60% for stocks held less than 6 months, and 50% for stocks held less than a year. (Obviously not scientifically chosen numbers.)

Free market types would fire back that such taxes would hamper investment by making it more expensive. This is nonsense. Except during an initial or follow-on public offering, buying a stock is not investment – it’s speculation. Buying stock during an IPO gives the company capital with which it can buy equipment or finance other investment activity. By contrast, when I buy stock of a publicly-traded company, I’m buying it not from the firm, but from the previous owner of the stock – the company sees none of that money and does not benefit from my stock purchase. I’m only speculating that the price of stock will rise in the future. The vast majority of stock market transactions thus serve no social purpose.

Of course, if you go back to the beginning of the post, there were two arguments, and free marketers still have the second one left untouched – that is, the importance of allowing losing investments to fail. Some level of risk-taking is good for the economy, sometimes even big risks that are likely to fail but could produce breakthrough innovations. What if the government had told investors not to invest in risky ventures like the PC or the Internet? The best way to reduce bad risk-taking over the long-term is to allow investors to experiment and learn through failure; government regulation, on the other hand, will reduce appetite for good and bad risks alike.

It’s a formidable argument. Experimentation and failure is the lifeblood of the economy – and of society – so anything that risks stifling innovation should be looked on with extreme scrutiny.

The answer is coming in a subsequent post, so check back soon.

Related posts:

WSJ inadvertently supports case for health care reform: do you want to trust your health to profit and loss?

There's no money in selling insurance to sick people: more reasons free markets don't work in health care

Visualizing the "costs" of cap-and-trade

With health care reform drawing close to its climax, the debate over global warming legislation is about to heat up. Given the scientific consensus on global warming, the main arguments won’t center as much on the science as on the supposed economic costs of the bill. That’s according to Nobel-winner Paul Krugman in today’s New York Times.

Predictions of economic doom are all wrong, says Krugman. For one thing, we can achieve big greenhouse gas reductions simply by eliminating waste; according to McKinsey, investments in energy efficiency spurred by cap-and-trade will save the US economy $700 billion by 2020 (or about $636 per family per year).

Even once the low-hanging fruit is gone, the costs of fighting global warming will be small – by 2020, about the cost of a postage stamp per day. By 2050, the cost will rise to about 1.2% of income, but we will also be 80% richer by then, so we’ll barely notice the impact; in 2009 terms, that’s about $603 per household – or $1.65 per day. Hardly the predictions of an “economy-crippling tax.”

Now, my general position is that it’s a bad strategy to argue your case using facts and figures. People’s perceptions of whether a number is large or small, expensive or inexpensive, depend on a reference point for evaluation, so it’s easy to manipulate those perceptions by shifting the reference point (for example, restaurants know that adding an expensive menu item will increase profits even if no one buys it, simply because items that were previously the most expensive appear cheaper by comparison, so people by them).

Moreover, for the layperson who hasn’t seen the math behind the figures, it’s impossible to figure out which side’s figures are correct. I say cap-and-trade will cost $160 per year, you say it costs $1,200. The numbers promoted by industry may well be manipulated with faulty assumptions, but unless I check the model, there’s no way to tell; thus, I believe whichever number supports my existing point of view. Throwing facts and figures around reduces the debate to he-said-she-said.

So I’m here to show you why it doesn’t matter which side’s numbers are correct: either way, the costs of fighting global warming are imperceptibly small.

The worst-case scenario is an analysis by the National Association of Manufacturers (NAM), a special interest group opposed to cap-and-trade. Their estimate is not realistic – the model assumes the cost of carbon permits is $159 per ton in 2030, more than twice the Congressional Budget Office’s estimate – but let’s go with it.

Here’s what the worst-case impact of cap-and-trade on GDP looks like:

I had a hard time labeling the graph because there was so little space between the lines. Business as usual GDP will be $23,802,000,000,000 in 2030. In the worst-case scenario, it’s $23,231,000,000,000. That comes out to a whopping 0.15% reduction in annual GDP growth. Does that really sound like a high price to pay for averting the potential collapse of civilization?

Even that figure is undoubtedly too high. Cost projections for past environmental regulations have always overestimated costs because they can’t predict technological innovations inevitably spurred by the reforms. According to BusinessWeek:

These [cost] estimates are notoriously unreliable, however, because it’s very difficult for economic models to take into account innovations that might occur as the result of a cap on carbon emissions. In fact, the reassuring lesson from history is that new regulations, such as the 1990 rules on acid rain, usually spur enough clear ideas to both reduce costs below predictions and deliver greater benefits.

In this way, making things harder on business in the short-term actually spurs economic growth. For a party that claims to believe in capitalism, Republican opponents of cap-and-trade sure seem pessimistic about American entrepreneurs’ ability to rise to the challenge and innovate as we always have done.

By contrast, climate change models typically underestimate future global warming, for two reasons. First, scientists are continually discovering new positive feedback loops that amplify global warming, which previous models didn’t account for. For example, as CO2 warms the climate, melting permafrost releases methane (an even more powerful greenhouse gas than CO2), causing more warming, causing more permafrost to melt, and so on. Second, most of the figures you see cited in the media are “middle-of-the-road” estimates that assume governments will take action to reduce CO2 emissions; without cap-and-trade, the impacts will be much worse than models project.

In other words, any time you read about global warming, you should assume the damages from global warming will be much greater, and the costs of solutions much less, than whatever the article suggests.

Has anyone estimated Gchat’s effect on GDP? I’m sure it’s much larger.

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Has right-wing hysteria claimed its first life?

Some shocking news: according to the AP, a US Census worker was found hanged in the Kentucky backwoods, possibly by right-wing radicals:

MANCHESTER, Ky. (AP) -- A U.S. Census worker found hanged from a tree near a Kentucky cemetery had the word ''fed'' scrawled on his chest, a law enforcement official said Wednesday, and the FBI is investigating whether he was a victim of anti-government sentiment.

The law enforcement official, who was not authorized to discuss the case and requested anonymity, did not say what type of instrument was used to write the word on the chest of Bill Sparkman, a 51-year-old part-time Census field worker and teacher. He was found Sept. 12 in a remote patch of the Daniel Boone National Forest in rural southeast Kentucky.

Lest we forget, here's what Rep. Michele Bachmann, a conservative Republican from Minnesota, said about Census workers back in June:

There’s great concern that’s being raised, because now ACORN has been named one of the national partners, which will be a recipient again of federal money, and they will be in charge of going door to door and collecting data from the American public. And that’s very concerning, because the mother lode of all data information will be from the Census. And of course we think of the census as just counting how many people live in your home. Unfortunately, the Census data has become very intricate, very personal, a lot of the questions that are asked. I know for my family, the only question we will be answering is how many people are in our home. We won’t be answering any information beyond that, because the Constitution doesn’t require any information beyond that.

If the Census worker's death was indeed a murder, had the murderer listened to Michele Bachmann's warning? Was he afraid that the Census worker was a socialist ACORN employee out to collect his sensitive personal information for a black president's government? Did he think his "very personal" Census information might be used to determine his "level of productivity in society" if he should ever go before a death panel, or that data on his race could be used against him by a president with a "deep-seated hatred for white people or the white culture"? With all the vitriol over ACORN from Bachmann and Beck, it's not hard to make the leap from Census worker = ACORN = fascist, and decide to take matters into your own hands. After all, Michele Bachmann has advocated armed, violent resistance against the government before:

I want people in Minnesota armed and dangerous on this issue of the energy tax because we need to fight back. Thomas Jefferson told us, “Having a revolution every now and then is a good thing,” and the people – we the people – are going to have to fight back hard if we’re not going to lose our country. And I think this has the potential of changing the dynamic of freedom forever in the United States.

This is a developing story, so it's too early to rush to conclusions, but it does sound bad. What's certain is that this should be a wakeup call to politicians and pundits that their fiery, conspiracy theory-supporting rhetoric has consequences beyond its cynical usefulness in rallying their bases -- there are legitimately crazy people out there, and inflammatory politics can inspire them to do legitimately terrible things.

How is Peyton Manning Like Global Warming?

Peyton Manning put on a show on Monday Night Football this week, beating the Dolphins despite just 15 minutes of possession, but can he keep it up? The graph below shows Peyton’s touchdown passes from 2004-2008:

Eyeballing the graph, the conclusion seems obvious: Peyton’s skills are in a steady decline. With all the time he spends doing hilarious commercials, his prowess as a quarterback is cooling off.

Of course, the problem with this graph is that it omits the full record of Peyton’s career. Here’s a more accurate graph covering a longer time range:

When you look at Peyton’s full career, it’s clear that the apparent drop off in touchdowns from 2004-2008 does not represent a long-term trend of declining skills. Rather, 2004 was a (then) record-setting aberration from an otherwise steady trend of consistent, excellent performance. If you start with the year before or after 2004, the long-term trend is apparent. But by “cherry-picking” 2004 as the starting point for my analysis of Peyton’s career, I can make it look like he’s on the decline.

I’m writing this because the sleight of hand I pulled in fabricating Peyton Manning’s imminent demise is a standard tactic used to promulgate a common misconception about global warming (most recently appearing in yesterday’s New York Times): that global warming stopped in 1998.

To show how this trickery is done, here’s a graph of global temperatures since 1998, as recorded by NASA:

2005 is slightly warmer than 1998, but it looks as though temperatures are relatively flat. Plus, 2008 is cooler than 1998, so you could conceivably argue that the earth has cooled since 1998. But you’ve seen with Peyton Manning how cherry-picking an outlying year can distort a long-term trend, so let’s see what happens if you start from the years on either side of 1998.

Starting with 1999, the trend looks like this:

Do you see global cooling? Neither do I. Similarly, starting from 1997, you get this:

In both graphs, the warming trend is immediately obvious, and in both cases, 2008 is warmer than the starting year. Go back another ten years to 1988, and the trend is even clearer:

The reason 1998 is a bad year to start any analysis of temperature is that 1998 saw the strongest El Nino on record, which pushed temperatures far above the long-term trend. (El Nino is Spanish for “The Nino.”) Just like Peyton Manning’s touchdown explosion in 2004, 1998 was an exceptionally hot year on top of an existing warming trend. Similarly, 2008 is a bad year to end a climate analysis because it saw a strong La Nina, pushing the annual temperature below the trend. If you start with an aberrationally hot year, and end with an aberrationally cool year, you artificially understate the warming trend.

Global warming hasn’t stopped since 1998. Rather, by choosing your starting and ending years carefully, you can create the appearance of a break in the long-term trend, but it’s only an illusion. To get the full picture, I’ll leave you with an image of temperatures since recordings began in the late 1800s:

The graph is full of periods of steady or cooling temperatures, but they are always followed by even greater warming. Are you really willing to take a chance that 2008 will be any different?

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Obama speaks on global warming: What you need to know to be certain that global warming is real

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Obama speaks on global warming: What you need to know to be certain that global warming is real

President Obama is speaking at the unprecedented UN Climate Conference today. It’s great to see a US President taking a stand on the great issue of our time, but inevitably the Glenn Beck crowd will be out with the usual talking points. “It’s been cooling since 1998!” (It hasn’t.) “Climate change is natural!” (Not this time.) You may even hear these arguments from your friends. So I thought it would be helpful to outline the case for global warming, and explain why it’s so bulletproof.

Surprisingly, it can be hard to argue back to climate change deniers, because anyone who cares enough to actually defend the position that global warming is not real has likely spent time amassing an array of talking points to muddy the waters - talking points that have been repeated and reinforced by Beck, Jim Inhofe, and others. It's nearly impossible to prepare for all of them; some will likely stump you, and some sound so scientific that doubt may even begin to creep into your mind.

Don't let it. The problem with climate change denial arguments is not only that they're wrong, but that they are plain illogical – climate deniers suffer from a cognitive bias called the “Dunning-Kruger effect,” a lack of self-awareness that prevents them from seeing their errors, so don’t let their false confidence fool you. Thus, you don't have to understand the complex science of climatology to speak intelligently on global warming - as long as you know four key facts and have a basic grasp of logical reasoning, you can make a bulletproof case that no skeptic can answer.

None of the evidence here is new, but it's helpful to put it together this way to show how simple the case for global warming really is. So here we go...

FACTS

When I say "fact," I mean it in the scientific sense, "that which is observed." These are the raw observations that no research scientist disputes.

Fact #1: Global temperatures have risen by about 0.8 degrees C (1.4 degrees F) since records began, with the ten warmest years on record all occurring from 1997-2008. This is not disputed.

Fact #2: CO2 is a greenhouse gas; a basic physical property of CO2, repeatedly measured and confirmed since the 1890s, is that it absorbs and emits infrared (heat) radiation, so CO2 in the atmosphere traps heat from the sun. This is undisputed.

Fact #3: CO2's concentration in the atmosphere has risen by 35% since the Industrial Revolution, and is now at its highest level in at least 450,000 years (measured in bubbles of air trapped in ice cores). CO2 measured at the Mauna Loa observatory in Hawaii shows an uninterrupted increase since records began in 1959. This is undisputed.

Fact #4: The amount of extra CO2 in the atmosphere matches almost exactly with the amount released from fossil fuels (minus the amount that would be taken up by natural carbon sinks). That sounds like a big claim, but miners, drillers, factories, and utilities are, after all, businesses who keep careful records of the fuel they burn, so it's relatively easy to measure. So we know with 100% certainty that the extra CO2 comes from human emissions. This is undisputed.

(If you need further proof, the CO2 released from fossil fuels contains only one isotope of carbon, C-12, because the radioactive C-13 and C-14 atoms found in "natural" CO2 have, in fossil fuels, all decayed over millions of years; sure enough, as you’d expect if the extra CO2 was coming from fossil fuels, the concentration of "natural" C-13 and C-14 is steadily declining.)

So we know for certain that humans are adding significant amounts of CO2 to the atmosphere, that CO2 is a heat-trapping greenhouse gas, and that temperatures are rising. The logic is inescapable. If you’re a lawyer in a monkey trial, to logically prove that humans are NOT causing the observed increase in temperatures, you would need to prove both of two things:

First, you need to show how it could be possible to pump more of a known greenhouse gas into the atmosphere WITHOUT temperatures increasing. How can the earth absorb more energy from the sun without its temperature rising?

Second, if CO2 is not causing the observed warming, you need to show what IS. Long-term global temperature change is only caused by an external forcing that causes either more energy to come in from the sun, or less energy to escape back into space; absent a forcing, there’s no temperature change. We know that temperatures are rising, so if it's not the greenhouse effect causing that increase, what is?

The first question regards the sensitivity of the earth's climate to changes in CO2, which requires a scientific background I don't have. If you're interested in learning more, check here and here.

The second is easier to deal with, as long as you can read a graph. The most common alternative to greenhouse gases is the sun. Solar activity, the argument goes, is correlated with past climate changes; therefore, the sun must account for the global warming we see today. The problem is, solar activity has decreased since the 1970s, just as global temperatures have risen the most. So while the sun may have caused PAST climate changes, it cannot be causing TODAY’S.

Remember, a climate skeptic must answer BOTH claims to have a credible point.

But what about the evidence FOR global warming—is there a smoking gun? Well, there are several, but here’s one that involves no complex calculations, correlations, or models. As it turns out, greenhouse gas-induced warming has a telltale signature, based on how different layers of the atmosphere heat up. If you imagine the earth and its atmosphere as a person covered by several blankets, there are two ways the person can get warmer: either more heat comes in from the outside (i.e. you turn up the heat in the room), or less heat escapes through the blanket (i.e. you throw another blanket on). If you crank the heat up, the extra heat passes through all the blankets, heating them all up. But if you throw another blanket on, you trap more heat in the lower layers, and the top blanket doesn’t warm up much.

That’s basically how the atmosphere works. If the increase in global temperatures were due to more energy coming INTO the earth (i.e. the sun was getting hotter), you would expect to see warming of ALL layers of the atmosphere. But if warming were caused by greenhouse gases trapping more heat, you’d expect to see warming of only the lower layers of the atmosphere where the heat was being trapped. When you look at the data, what we actually see is that while the lower atmosphere (the troposphere) is warming, the upper atmosphere (the stratosphere) is actually COOLING. That’s the smoking gun, proof that global warming is definitively caused by extra greenhouse gases, which we know to be from human activity.

Questions? Think I’m an idiot? Leave a comment and I’ll respond or send you a link to the appropriate source.