Month: April 2008

Ahem:

At a time when the world’s top climate experts agree that carbon emissions must be rapidly reduced to hold down global warming, Italy’s major electricity producer, Enel, is converting its massive power plant here from oil to coal, generally the dirtiest fuel on earth.

Over the next five years, Italy will increase its reliance on coal to 33 percent from 14 percent. Power generated by Enel from coal will rise to 50 percent.

And Italy is not alone in its return to coal. Driven by rising demand, record high oil and natural gas prices, concerns over energy security and an aversion to nuclear energy, European countries are expected to put into operation about 50 coal-fired plants over the next five years, plants that will be in use for the next five decades.

Here is the full story.

A loyal MR reader requests coverage:

On mainstream versus "fringier" economic schools of thought (and schools themselves too if you like); and on different schools of thought generally, and your take on them; where economic theory is at present.

Here is me on Sraffa and the neo-Ricardians and also post-Keynesians and the Cambridge capital debates.  The Austrians I cover all the time.  Here is my post on what is new and essential in economics.  Overall I don’t believe in schools of thought for modern economics.  Think of the notion of a school of thought as a brand.  The whole point of the internet is to break down branding into the evaluation smaller units, including individuals and their very particular ideas, even doing cite counts paper by paper.  Why move toward more macro branding in that kind of environment?  You can think of trustworthy bloggers as another means of branding and also as substitutes for schools of thought.

Today I see neuroeconomics and personality psychology as two frontiers, plus economic history, but I wouldn’t call any of those schools of thought, nor should they be.

Here is the Post obituary.  Here is Houthakker at scholar.google.com, most of all on consumer behavior and conditions under which revealed preference is a coherent theory of individual behavior.  Here is another obituary; not only did he serve on the CEA twice but he was selected by the Pope as Knight Commander with Star in the Papal Equestrian Order of St. Gregory the Great.

A large share of the special green issue of the NYTimes Magazine was closely tied to economics.  I find this encouraging.  Here is one interesting bit:

…demand response has become one of the most powerful
green techniques for protecting the nation’s overtaxed power grids. When
a blackout looms, utilities call a small coterie of demand-response firms. These
firms prearrange for major users of electricity – factories, shopping
malls, skyscrapers – to shut down all nonessential electricity in exchange
for payments, often totaling tens of thousands of dollars each year. It’s
expensive, but far less so than a blackout that cascades across the country….ConsumerPowerline controls 300 huge buildings in
New York alone, where hastily brokered turnoffs by Macy’s
and major hotels prevented the spread of a 2006 blackout in Queens
– a blackout that lasted for more than a week – into Manhattan.

Paul Krugman writes:

You might say that this is my answer to those who cheerfully assert that human ingenuity and technological progress will solve all our problems. For the last 35 years, progress on energy technologies has consistently fallen below expectations.

It’s worth noting that if we had to build today’s energy infrastructure working under the current regulatory and NIMBY burden, it probably could not be done.  So it shouldn’t be surprising that building a new energy infrastructure is proving so hard.  There’s a reason why many of us think deregulation is a big issue and it’s not because we want to see people poisoned by Chinese botchagaloop.

Megan McArdle gives one bottom line, referring to Paul Krugman’s somewhat pessimistic column.  I would say that China has been massively productive but not so much in producing commodities.  That means the demand for commodities has gone up much more rapidly than the supply.  You could imagine an alternative universe in which China grew by figuring out ways to produce oil, copper, and rice much more cheaply.  Of course that’s not what happened and it is relatively easy to see why not.  Following some good policy changes, Chinese growth has been driven by a massive rural to urban migration and yes we are talking about hundreds of millions of people.  It’s plastic basketballs that have become cheaper, not the products of farms.

The mere addition of labor inputs to urban areas doesn’t, in the short run, help you produce commodities more cheaply.  Think of the Solow model where K and L have gone up lots but the rate of generating new ideas is only slightly higher.

When all those new Chinese engineers and scientists are at the peak of their creative powers, this relationship will reverse itself and commodities prices will plunge.  But it’s quicker to produce another toy than to bring about a new Green Revolution, so in the meantime commodity prices are very high.  I give the current price trend another ten or fifteen years or so to run.  Eventually high commodity prices will seem permanent and then the bottom will drop out.

We’ve never had a rapid and successful migration of hundreds of millions before, ever.

Who knows, maybe I’ll try to get to them all.  Here’s the first:

What impact will algorithmic game theory have on economics?

I’d start by asking: will game theory pure and simple have (further) impact on economics?  And I’d say basically "no."  The common concepts and tricks of game theory are invaluable but we already have those and I don’t see any more coming down the pike.  Algorithmic game theory will address problems internal to game theory and within that context it will flourish.  Finding equilibria, and discriminating among multiple equilibria, are otherwise very difficult problems and AGT is a natural way to crack those nuts.  So AGT will have continued practical applications in computer science and problems of engineering.  But it won’t much affect how most economists think about the world or do their research.

As for NBA analysis, I’ll just say that a) Boston is still an odds-on favorite, b) No one ever really told us what happened to Andrew Bynum, and c) Even though Phoenix probably won’t make it, the Shaq trade was very clearly a good idea and all you doubters should offer up mea culpas.