Saturday, November 29, 2008

Wind & Collective Action

There is an article in the NY Times that tells of an interesting application of Mancur Olson's Logic of Collective Action. Ranchers in Wyoming are forming wind energy associations. Here is an explanation of the incentives for these new associations:
Mr. Stumbough felt the ranchers were at a disadvantage when dealing individually with wind developers. The developers, in most cases, know more than landowners about the value of the wind and the transmission lines that will carry it.

[ . . . ]

"Mr. Stumbough said: “I thought we could use collective bargaining strategies to maybe have a little more leverage in negotiating with wind developers. If we could all get together and work together cooperatively and do some cost sharing and maybe share some of the profits, I think it’s going to be a benefit to everybody.”"
Cost and profit sharing represents collective goods for the associations.

Note also the information problem suggested in the first paragraph. This reminds me of Hayek's The Use of Knowledge in Society. The individual landowners face a personal knowledge problem of wanting to discover the value of leasing their property for wind energy production. The associations are voluntary means of dealing with this problem. The relative values of resources in different uses are also emerging in prices for leases as well as prices for the electicity produced by wind turbines.

This situation also looks like it involves the information asymmetry often described as a source of market failure. But, the association's seem to me to be a market answer, in this case, to this supposed market failure. Thus, it is an illustration of why I am skeptical about information asymmetry as a legitimate source of market failure.

There are a couple of things in the story that concern me from the perspective of economic understanding or economic literacy. One is the caption under one of the photos:
Strong winds in southeastern Wyoming have forced landowners together to improve bargaining position.
Nothing, and especially not strong winds, have FORCED Wyoming landowners to form these associations. These are voluntary associations; not forced associations (i.e., they are not organizations such as unions are).

The second is the implied suggestion there is something wrong with secret deals:
That has made it easier for wind developers to make individual deals and insist that the terms be kept secret. The developers’ cause has not been hurt by a 10-year drought’s impact on agricultural families’ finances.
I would think there would be something wrong in secret deals if they involved force, but surely a landowner and an energy company can ethically make a voluntary agreement that includes secrets as long as no harm is done to the person or property of others.

You can learn about some of the specifics involved in forming the Slater Wind Energy Association here.

If you've read Olson's Logic, perhaps you would comment on the way in which the number of members is related to the formation of these associatons.

Wednesday, November 19, 2008

The Ant Colony

So you notice that your income has shrunk, you may even have lost your
job. So you decide to trade in your gas guzzler for a small vehicle and
even reduce your monthly car payments, if you have such. And in other
realms of your life, too, you may be making adjustments to cope with the
general economic downturn. You cook at home instead of eating at your
favorite restaurant; you do not purchase that pair of shoes you would have
otherwise, etc., etc.

In short, you are acting prudently, tightening your belt, as the saying
goes, in the face of the widespread economic contraction. Never even mind
why the contraction occurred--some of it could actually have come around
simply from people changing their preferences and behavior. (Instead, of
course, it happened because the government has been abandoning its proper
role as the protector of our rights and like a rouge referee, has been
inserting itself into the game for decades on end!)

But now that the results of such bad government have hit so many of us,
you are taking steps to deal with them. Ah, but no such luck. Instead of
making it possible for you to deal with your reduced resources, instead of
letting you make the budgetary adjustments you can make within the context
of your own life circumstances, the politicians are insisting that if you
refuse to spend the big bucks on those Detroit gas guzzlers, for example,
they will tax you and hand over what they have extorted from you to the
car makers, never mind your prudent choices. In time the savings you
thought you could garner from your good sense and discipline will have to
be shelled out in extra taxes so as to bail out those who aren’t getting
your business any more. Instead of insisting that those who make the big
cars and whatever else that’s no longer in demand in the market place make
their own adjustments, tighten their own belts, etc., the politicians
insist that they continue to be paid as if nothing had happened, no one
changed his or her purchasing behavior, as if the economy continued to be
in fine shape.

This is just one of thousands of results of the mixed economy, the
welfare state, in which your individuality is abolished and you are
treated as a member of some ant colony or bee hive. You will be
conscripted to be part of it all, never mind how sensibly you may figure
out to deal with the fiasco. No, you will not be allowed to use your good
sense, virtue, and occasional luck to address the economic mess the
politicians, bureaucrats and their rent-seeking clients produced. These
folks were the ones who prevented the realization of the free market and
instead created a top-down, planned or managed arena of wealth

Monday, November 17, 2008

Elections the Venezuelan Way

"In recent weeks he [Mr. Chavez] has begun threatening to use the military against his own population in states where his municipal and gubernatorial candidates are defeated. On a trip to the state of Carabobo last week, for example, he told voters, 'If you let the oligarchy return to government then maybe I'll end up sending the tanks of the armored brigade out to defend the revolutionary government.' Just as troubling are the president's declarations that in states where his candidates are not elected, he will withhold federal funding."


F.A. Hayek:
"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design." [The Fatal Conceit, p. 76]
I guess few economists understand this. After all, the models economists rely on assuming complete knowledge. Even the "tools" they use, such a benefit cost analysis, presume that an economist, or perhaps two or three working together, can come to know enough to calculate the benefits and costs of public expenditures and public policy changes. Instead of attempting to "demonstrate" how little they know, they attempt to demonstrate how the complete knowledge models of a static world can help people and governments make better decisions in a real world of adaptation and evolution. Few economists seem to think the world they study is a world of adaptation and evolution.

Friday, November 14, 2008

The Loss Of Individual Liberty

"All that the nation's founders understood two centuries ago about the imperative of limited government, all that we learned from the long struggle between collectivism and free markets during our own time--all this could soon simply evanesce.

We are being asked to unlearn what we know, to surrender the virtues that can only be acquired in conditions of freedom, and to become a lesser people than we are. The land of the free and the home of the brave could soon be transformed into the land of the dependent and the home of the infantilized.

I may not have seen it at the time, but Milton Friedman was right. The challenge for this generation is to keep our liberty. And the challenge is now upon us."
Earlier in Mr. Robinson's piece he tells us of a conversation over dinner with Milton Friedman which includes this:
I had just re-read God and Man at Yale, the 1951 book in which William F. Buckley Jr., denounced the leftist attitudes he had encountered among the Yale faculty and administration as an undergraduate. Buckley singled out the department of economics as the most collectivist department on the campus. "Today," I said, "nobody would call the economics department at a major university 'collectivist.'"

Academia as a whole may have continued its long, sorry wobble to the left, I continued, but the economics profession had proved an exception, moving the other way. Departments of economics across the country now grasped the importance of free markets. "Mises, Hayek, Stigler and you," I told Friedman. "You've transformed the intellectual climate. You've won."
I suspect it is not true that economics departments across the country have not wobbled to the left. Efficiency economics abounds, and the conceptual framework of economics is static rather than dynamic, and as such, I believe efficiency economics is very far from the economic lessons taught by Hayek and Mises. I suspect that most of economics today falls prey to Hayek's The Fatal Conceit "that man is able to shape the world around him according to his wishes." Isn't this fatal conceit, after all, the conceptual nature of any discussion that involves the role of government as correcting market failure?

I do agree with Mr. Robinson that it would be a good thing for many of us to decide now is the time to work to save the idea of individual liberty.

[HT: Instapundit]

Sunday, November 09, 2008

Hyperion Power Generation

What is this a picture of? Is it a picture of our nuclear energy future?

Apparently, HYPERION POWER GENERATION is already taking orders for shipment. Here is some of Hyperion's promo from it's web page:
Small enough to be transported on a ship, truck or train, Hyperion power modules are about the size of a "hot tub" — approximately 1.5 meters wide. Out of sight and safe from nefarious threats, Hyperion power modules are buried far underground and guarded by a security detail. Like a power battery, Hyperion modules have no moving parts to wear down, and are delivered factory sealed. They are never opened on site. Even if one were compromised, the material inside would not be appropriate for proliferation purposes. Further, due to the unique, yet proven science upon which this new technology is based, it is impossible for the module to go supercritical, “melt down” or create any type of emergency situation. If opened, the very small amount of fuel that is enclosed would immediately cool. The waste produced after five years of operation is approximately the size of a softball and is a good candidate for fuel recycling.

Perfect for moderately-sized projects, Hyperion produces only 25 MWe — enough to provide electricity for about 20,000 average American sized homes or its industrial equivalent. Ganged or teamed together, the modules can produce even more consistent energy for larger projects.
Pretty neat hot tub, eh?

[ Hat Tip: Instapundit ]

Wednesday, November 05, 2008

Complex Order

F.A. Hayek:
"Despite. . .differences, all evolution, cultural as well as biological, is a process of continuous adaptation to unforeseeable events, to contingent circumstances which could not have been forecast. This is another reason why evolutionary theory can never put us in the position of rationally predicting and controlling future evolution. All it can do is to show how complex structures carry within themselves a means of correction that leads to further evolutionary developments which are, however, in accordance with their very nature, themselves unavoidably unpredictable."
[Fatal Conceit, p. 25]

Monday, November 03, 2008

Social Justice Virus

"Now, I'm not suggesting Obama intends to transform this nation into 1950s-era Soviet tyranny or that he will possess the power to do so. I'm suggesting Obama is praising and mainstreaming an economic philosophy that has failed to produce a scintilla of fairness or prosperity anywhere on Earth. Ever."
Yes, I agree. Since so many voters seem to be climbing on board Obama's bandwagon, I'm beginning to think social justice should be described as a virus.

Beware Aggregation

From CAFE HAYEK an illustration by Pietro Poggi-Corradini:
"Research on inequality usually keeps track of percentiles. So let's look at the following simple example. A society at the beginning consists of 10 individuals, 9 of which make 1 dollar and 1 who makes 10 dollars. Social scientists decide to keep track of the top 20%. So the top 20% makes an average of 5.5 dollars while the bottom 80% makes an average of 1 dollar. Now suppose that after 1 year there are now 8 people making 1 dollar and 2 people making 10 dollars. The top 20% now makes an average of 10 dollars. Dividing 4.5 by 5.5 this represents an 82% increase for the top quintile. The bottom 80% on the other hand sees a 0% increase in income. One would like to conclude that 'inequality has risen'. But if you were given a choice to live in a society like the earlier one with 9 people making the same income of 1 dollar and one very rich person making 10 dollars, or live in the latter society where less people make 1 dollar and more people make 10 dollar, what would you choose? A simple calculus of probability tells me that the latter society might be more appealing to most people."
I offer this just as another illustration of my warning to beware the stories told based upon aggregation.

Can We Keep It?

"“Well, Doctor, what have we got—a Republic or a Monarchy?”

“A Republic, if you can keep it.”"

Policy and Paradise?

One really has to ask the obvious question: If Obama’s economic policies work so well, why isn’t Detroit a paradise?

In 1950, America produced 51% of the GNP for the entire world. Of that production, roughly 70% took place in the eight states surrounding the Great Lakes: Minnesota, Wisconsin, Illinois, Indiana, Michigan, Ohio, Pennsylvania, and New York.

The productive capability of this small area of earth staggers the imagination. Virtually everything that rebuilt the industrial bases of Europe and Japan came from those eight states. Cars, planes, electronics, machine tools, consumer goods, generators, concrete - any conceivable item manufactured by industrial humanity poured out this tiny region and enriched the world. The region shone with widespread prosperity. People migrated from the South and West to work in these Herculean engines of industry.

The wealth, power and economic dominance of the region at the time cannot be overstated. Nothing like it has existed in human history.

Yet, a mere 30 years later, by 1980, we called that area the “rustbelt” and it became synonymous with joblessness, collapsing cities, high crime, failing schools and general hopelessness.

What the hell happened?

Obama happened.

Of course, not Obama personally but rather the same ideas that Obama espouses. What those ideas did to the Great Lakes states, they can do to the entire country.