Wednesday, January 28, 2015

Savings gluts, bubbles, and the state

A common term in macroeconomics for the last many years has been captured in the phrase "savings glut." An example is Martin Wolf in his book The Shifts and the Shocks, cited in this post by Brad deLong.

The idea is that there are people saving significant portions of their income: thrifty people in Asia, people looking toward their retirement in countries with aging populations (some of them also in Asia), and wealthy people everywhere.

And what do you do with your savings? For you as an individual saver, it may feel like you're just putting your money "in the stock market" or in the bank. But collectively, the reason we savers get a return from the stock market (or, in the old days, from the bank), is that the money one way or another found its way into the hands of companies who could make use of it in their businesses, and make more money, some of which found its way back to you.

In any kind of glut, you've got too much of one thing, relative to how much there is of something else. In a savings glut, the thing there's too much of is savings. And what's in short supply? Things to do with those savings that will earn a decent return - or rather, that will earn the sort of return the savers think they're entitled to.

Two obvious candidate explanations for this involve aging populations and wealth inequality.

Tuesday, January 27, 2015

And so it begins ... (Day 1 - Jan. 5th)

The take-away impression from my first day in Cuba has been sensory overload.

The airport in Santa Clara is too small for there to be a jetway into the terminal. They wheel up a set of stairs and you walk from the plane out into the sun, the heat, and the aroma of tropical vegetation burning, which sets off childhood memories from the half year we lived in Peru.
On the tarmac at Aeropuerto Abel Santamaria in Santa Clara
The two-hour drive from the airport to our hotel outside Cienfuegos is an overwhelming array of things to see. Fields of sugar cane and banana trees, with palms sticking up here and there, and mountains in the background. The two-lane highway we're on serves equally well for our bus rolling along at 50 mph, for bikes, for bikes carrying two people, for old, smoke-belching Soviet cars, for horse-drawn carriages, for tractors, with or without a farm implement or a wagon full of people in tow, and for pedestrians.
No, these aren't fields of sugar cane, but they do capture the sense of small fields, with livestock scattered around.
Along the drive we keep passing settlements that don't seem to connect to anything. It seems like too many people for the farmland around it, but not near enough to a city for the residents' work to be tied to the city.
A settlement glimpsed from the bus on the way from Santa Clara airport to Cienfuegos

Friday, January 2, 2015

Happy 2015!

This is a sort of grab-bag check-in on my perennial concerns with energy and the economy.

First, some tempered optimism, then bringing some energy perspective to an otherwise reasonable conventional view, and lastly a sampling of just what a range of views there is out there.

The optimism comes from a piece in Grist about changes in bidding rules at ISO New England, the independent system operator that decides which power sources to buy from for the New England market.

In the New England ISO, some renewable sources have been bidding in at $0/MWh. That is, they’re confident the actual price at which the market clears will be positive, so they’ll get paid for the power they sell, but since their “fuel” cost is zero, they want to make sure that they get chosen.

The ISO has implemented a rule change that allows sources to bid in at negative rates: take the electricity I’m producing, and I’ll pay you.

Why on earth would anyone bid negative? Because these producers are eligible for “renewable energy credits,” but they only receive those credits if their power is actually bought. So they’re willing to pay the system operator to take their power, and they’ll still make money on net because of the credits they receive.

And not only have there been negative bids, there have even been periods when the market-clearing price has been negative.

The article concludes, “Within the next year or two, New Englanders are going to enjoy cheap, dispatchable renewable energy, something VSPs said was impossible. It must be a Christmas miracle.”

But it’s not that simple, because of the role that those credits are playing in the whole scheme.

Tuesday, December 16, 2014

The corporatization virus

Someone posted to our faculty discussion list this article about the president of Rensselaer Polytechnic, with her $7 million in compensation and her imperious manner.

A colleague observed that, “It's all too familiar. The corporatization of American Higher Education is, of course, only one part of the corporatization of everything, including -- perhaps most shamefully -- American politics.”

I agree, and I worry that part of why this “corporatization of everything” is happening is that, from the perspective of social evolution, corporatization has high “fitness.”

Corporatization has a built-in advantage over its opponents, which is that it can pay its foot-soldiers well. In an environment where money is not just treated as a useful tool, but celebrated as a marker of success and even virtue, that’s a really powerful advantage.

Note that when I say that corporatization is “fit”, I don’t mean that it’s “good.” In biological terms, a thing is “fit” if it survives better than other things, but that says nothing about whether it’s good. The very concepts of “good” and “bad” make no sense in an ecosystem, which simply is—or isn’t.

A thing may be so good at outcompeting everything else that it ends up destroying the basis of its own existence. But the thing itself is neither good nor bad; until it undermines itself, it’s simply fit.

In human economies, fitness is similarly just about a thing thriving relative to others, but unlike in ecosystems, we do have notions of “good” and “bad.” And while I agree with my colleague that the results of corporatization are generally bad, that’s hardly an uncontested position.

One of the cleverest tools of the corporatization virus is that it reaches into our psyches and changes the very standards by which we decide whether a thing is good. We’ve come to equate “profitable” with “good,” and the more we do that, the more we relinquish our ability to think about what we really want.

It’s like a tree that changes the chemistry in the ground around it so that nothing else can grow.

Saturday, September 20, 2014

Say what?

There's a controversy in Jefferson County, Colorado, over efforts by the school board to alter the curriculum for the Advanced Placement US history class. Conservatives are concerned that the new curriculum from the College Board presents a negative view of the country.

I haven't seen the curriculum, so I can't say whether I think the curriculum is good or not. Personally, there are parts of my country's history of which I think reflect some of the better strains in human nature--the Marshall Plan, the treatment of Germany and Japan after World War II, and the women's suffrage movement, just to name a few. There are other episodes which, while they should be studied and understood, are hardly shining moments to look back on with satisfaction.

But the school board's goal here is pretty clearly problematic:
As currently outlined, the proposed panel in Jeffco will be charged with ensuring the course is aligned to Jeffco Public Schools’ standards, and is factual and taught without bias. But the panel is also supposed to make sure materials do not “encourage or condone civil disorder, social strife or disregard of the law,” and instructional materials “present positive aspects of the United States and its heritage.”
Is the American War of Independence a good thing, or a bad thing? Because how do you study that without noting that it involved civil disorder, social strife, and disregard of the law? What about the civil rights movement? That came about because there was social strife, has as one of its central tactics a disregard for certain laws, which in turn resulted in civil disorder, partly as a result of the folks in charge not wanting to change the laws and practices to make them fair.

I understand that history is an inherently contentious subject. There are different ways of understanding the past, and which of those interpretations you go with has a lot to do with how you understand the present. So if we look at how this school board thinks the past should be taught, what do we learn about how they view the present?
School board member Julie Williams, who sponsored the proposal, said people have misinterpreted what she’s trying to do. She said she’s not trying to eliminate the facts of U.S. history but shares the concerns conservatives nationally have outlined – that AP History casts some parts of history in a negative light, such as the bombing of Hiroshima and slavery.
With Hiroshima, I get that there's a positive case to be made: horrific though the bombing may have been, it saved the lives of many US military personnel who would have died in a conventional assault on the Japanese home islands, and it may even have, on balance, reduced the number of Japanese dead by shortening the war, and that in terms of extent of damage, the destruction at Hiroshima and Nagasaki wasn't significantly different from the effect on other Japanese cities that had already been fire-bombed. So I would have an issue with a history curriculum that didn't raise those kinds of arguments. Though I'd also want students to discuss the negative aspects of the decision.

But slavery? "Conservatives nationally" have concerns "that AP History casts some parts of history in a negative light, such as ... slavery." Is there a positive light to be cast on slavery? Would Ms. Williams care to let us in on what that positive light is?

Lady, we fought a civil war over this, and the side built around the idea that slavery was good -- they lost.

Or at least I thought that's who lost, but there have been more and more incidents that make me wonder whether that's true.

Anyway, I think Ms. Williams has shown us which side of that war she would have been on. And I guess she would be happy to be able to invoke her proposed standards to be able to cast the civil rights movement as a bad thing.

But it's depressing. How are we supposed to have a meaningful discussion about anything if we can't even start from a common understanding that slavery was bad? How are you supposed to share a democracy with people who pine for the days when it was legal to own other people?

Sunday, June 22, 2014

Stop calling it insurance

My sister sent me a link to an op-ed by Henry Paulson, which got me thinking about an old pet peeve of mine, which is the framing of climate-change policy as a matter of insurance, as for example here.

It’s an understandable temptation. With insurance, you pay a modest amount each year so that, in case something bad happens, you’ll be OK. With climate change, the idea is that we should pay a modest amount each year (take actions that cost the economy something) so that we’ll be OK.

But insurance isn’t actually what we’re talking about, and I wonder if thinking about climate policy in terms of insurance misleads us in a dangerous way.

The key is the difference between insurance and risk reduction.

Insurance doesn’t reduce the chance that a particular bad thing will happen. Instead, it puts together a bunch of people who are vulnerable to that same bad thing, but whose risks are (to some extent) independent, or uncorrelated. What that means is that one person having a bad year doesn’t make it more likely that someone else is also having a bad year.

When you have those two properties—a bunch of people with the same kind of risk, and their risks being independent—an amazing thing happens, which is that the risk for the group as a whole basically goes away.

Say each of you has a house worth $200,000, and you each face a small chance of your house burning down, something like 0.1% (a one-in-a-thousand chance). For you as an individual, the cost of fire will almost certainly be $0. But there’s a small chance that it will be $200,000. But for the group of you, the average cost of fire is right around $200.

As an individual, the only way you can prepare financially for fire is to have an extra $200,000 stashed away. If that’s beyond your means, then you have no way to prepare financially. But as a group you can each pay a mere $200 per year. When someone’s house burns, they’ll still have the emotional loss and the inconvenience of having their house destroyed, but they can be sure that they will be financially protected. Premiums from the people whose houses didn’t burn this year provide the means for financially compensating the few whose houses did burn and nobody in the group faces any financial risk at all.

But remember that the insurance doesn’t reduce the risk that houses will burn. What it does is ensure that when a bad thing happens, you’re not financially ruined by it.

Climate change isn’t like that at all.

Wednesday, June 4, 2014

My last joke

I know how lame it is to tell people about “this dream I had last night,” but bear with me.

I was in a hospital or clinic, and was sent to one room and another and so on, and finally back to a bed where I’d been before, and I was in my hospital gown and everything, and there was a nurse moving around the bed as she fussed with various necessaries. And a few feet beyond the foot of the bed and to the left there was a man in a lab coat holding a clipboard.

He indicated that there was some paperwork on the table by the bed that I needed to fill out. And I don’t remember if they told me, or if it was in the paperwork the man had pointed to, but that’s when I realized that I was being put to death.

At first it was more like a medical thing, like when you have a pet put down for its own good, but then it morphed and it was more like an execution.