Month: February 2021

Lynne Kiesling and Vernon Smith on Texas electricity

How can the resilience of ERCOT’s grid be improved without resorting to costly regulatory mandates that may or may not yield benefits? ERCOT could implement clear market rules requiring natural gas generators to have firm supply contracts in order to be certified as an eligible resource for emergency conditions. Plant owners have incentives to do so because they would have market access under high-price conditions where their performance would more than compensate them for the insurance cost of fuel security.

ERCOT can also take advantage of Texas’ deregulated retail market structure to incentivize more customers to reduce consumption in return for bill savings, creating demand flexibility. Using digital devices and automation to send prices to residential devices would allow consumers to reduce their demand during extreme stress and high prices. Similarly, the Texas market design is well-suited to increasing battery storage, which has been made increasingly economical due to innovation. Batteries enable households to choose to self-insure against outage risk, and when interconnected in their local distribution grid, they can serve as resources to provide energy or grid services to others.

Here is the full opinion piece, via Kurt B.

Sunday assorted links

1. Those new service sector jobs: “I’ve helped over 3,000 clients plan elaborate marriage proposals. The most expensive proposal so far was on a private island and cost over $100,000.”  And West Palm hotel book butler.

2. The mRNA path to fighting malaria.

3. “At the time of writing it looks as though the European Football Championships, originally to be played across the continent, will be held solely in England, a neat metaphor for this confusing year.

4. John Cochrane fiscal theory of the price level draft.  And Arnold Kling responds on inflation.

5. Rachel Glennerster’s brother on immortality.

Seatbelt Now or Wait for Airbag?

Should you take a less efficacious vaccine or wait for a more efficacious vaccine? The individual and social incentives are in conflict. For society as a whole it’s typically much better if everyone takes the less efficacious vaccine sooner. We show one example of this in the supplementary material to the Science Paper with details under different scenarios in a forthcoming paper but the intuition is clear. Herd immunity is herd immunity. In the final analysis what you care about is not your chances of overcoming the disease if challenged (the vaccine efficacy) but your chances of overcoming the disease if challenged times the probability of being challenged. Herd immunity means pushing the latter number close to zero which is more important than modest differences in efficacy rates.

What about at the individual level? If you have a choice, it’s clearly better to get the more efficacious vaccine, especially since both vaccines are free (the price system has its advantages in clearing markets). But if you have to wait for the more efficacious vaccine, the choice isn’t obvious. Many people in Europe aren’t taking the AstraZeneca vaccine in the hopes of getting an mRNA vaccine later but I think that is a mistake. Don’t fail to wear your seatbelt today because your next car may have airbags. I’d be happy to take the AstraZeneca vaccine today, if only the government would let me.

Moreover, there is little reason to believe that you can’t follow-up the J&J or AstraZeneca vaccine with a mRNA vaccine at a later date.* If we will be taking multiple SARS-COV-2 vaccines over the next 10 years, as seems likely, it really doesn’t matter much which one we get first.

Do yourself and your society a favor by getting whatever vaccine is available.

Everything in this post applies even more strongly to a country making decisions. Buy the vaccine with the earliest delivery date! And don’t forget to consider the Gamaleya, Sinovac and Sinopharm vaccines.

* Multiple shots of adenoviral vector vaccines such as AZ may become less efficacious overtime as people’s bodies recognize the vector.

Following the science? — the show so far

As the pace of recovery quickens, and most balance sheets continue to look decent, it seems increasingly obvious that $1.9 trillion is too much to spend.  We are spending at least $1 trillion too much, with very little investment to show for it, and $1 trillion is a lot of money.  Heaven forbid they should make part of the stimulus dependent on future macroeconomic variables, which is what science would suggest.

New CDC school opening guidelines fail to “follow the science.” School reopening is a big, big issue. Overall the blue states are not doing well on it, and the Biden administration is hurting rather than helping.

Vaccine distribution is doing better, with 2.4 million doses distributed per day by the end of this last week.  I am less sure how much that is above the previous trajectory.  At least originally, Biden was boasting of aspiring to doing one million doses a day, so the presidential grasp of detail is not what pushed us over the edge here.

Those are arguably the three most important issues at the moment, and the overall performance level is not great.

The AstraZeneca vaccine still is not approved, with no sign of an FDA budge in sight.  Canada approved it last week, so now there are more than fifteen nations on board.  The new data on its performance are quite strong, even for a single dose.

Biden will be appointing an FDA head, but I haven’t heard talk of reform in spite of major and ongoing failures, and some in process reforms in the UK.  Is it even permissible to raise the topic of “the deregulations we need”?

The $15 minimum wage idea seems doomed to fail, in any case it was obviously worse than an “indexed by state” approach, even if you hold the Dube-ous view of minimum wage economics.

There is also this:

The emergency facility — a vestige of the Trump administration that was open for only a month in summer 2019 — is being reactivated to hold up to 700 children ages 13 to 17.

By the way, arrests of unaccompanied children at the border are up 50% this month (WSJ).  So this problem isn’t going away.  Is science being used to structure the incentives properly for these migrants?

That issue aside, immigration is the one policy area where there has been major sustained improvement, and where those improvements are likely to continue.

As far as I know, there is no immediate plan to eliminate or lower the Trump tariffs on Chinese goods.

The (non-scientific) belief in a new era of cooperation with Europe, including in opposition to China, already lies in tatters.

I don’t know if the American military should have bombed Syria, but I do know that it did and I suspect our government also does not know if it should have, not really know in the scientific sense.

I do get that the Biden administration “feels more scientific” to you, and it has the demeanor of a proper establishment, and it offers experts much higher status, and it does not encourage yahoos to storm the Capitol, for which I am very grateful.

But the rather obvious evidence here is that the scientific record is already quite poor.

Singapore sentences of the day

Singapore has developed a “globally inter-operable” standard based on blockchain technology to facilitate cross-border verification of health documents, such as pre-departure COVID-19 test results, said Minister-in-charge of the Smart Nation Initiative Vivian Balakrishnan on Friday (Feb 26).

Speaking at the Committee of Supply debate for the Prime Minister’s Office, Dr Balakrishnan said that these notarised pre-departure test results will be available on the SingPass mobile app. The Government will also look into extending this to vaccine certificates.

Here is the full story.  Of all those sentences and catch phrases, perhaps “Committee of Supply” is my favorite.

Saturday assorted links

1. Douglas Murray on Greg Clark.  By no means do I agree with Greg on everything, but he is one of the finest economic historians in the world.

2. Markus’ Academy and its influence (Bloomberg).

3. The peaceable kingdom? (photos)

4. Redux of my November take on how Covid risk might rise once we are partially vaccinated.

5. Profile of Assaf Razin at 80.

6. Christie’s will auction Beeple (NYT).

Single-Shot and First Doses First

The FDA panel voted unanimously to authorize the J&J vaccine. Good. Note, however, that the single-shot J&J vaccine is quite comparable to the first dose of the Pfizer and Moderna vaccines. Yet, few people are demanding that J&J be required to offer a second shot at all, let alone in 3-4 weeks (What about vaccine escape! How long does immunity with a single-shot last! What about the children!). It really is scandalous how these objections to a single-shot have disappeared. This is evidence of what I call magical thinking–an undue focus on the clinical trial design as having incantatory power.

Why did J&J focus on a single-shot? Was this because of “the science”, i.e. something unique about their vaccine? No. J&J focused on a single-shot vaccine for the same pragmatic reasons that I favor First Doses First.

J&J representatives said they chose to begin with the single shot because the World Health Organization and other experts agreed it would be a faster, more effective tool in an emergency. (emphasis added).

My view is that it would be good if the J&J vaccine was followed by a booster–perhaps of some other vaccine–but that it’s individually fine and in fact socially beneficial to get more people protected quickly by delaying the booster for at least 12 weeks to when vaccines are less scarce. I don’t currently see a reason for thinking differently about the Pfizer and Moderna vaccines.

Is all that extra money trapped in high asset prices? (no)

That is the topic of my latest Bloomberg column.  Here is one bit:

The hypothesis is that a lot of this new money got funneled into asset price markets, rather than being spent on goods and services. Measured rates of price inflation for consumer goods have remained stubbornly below 2%.

This view is misguided. First, dollars are not “trapped” in one sector of an economy, unable to be spent in other areas. If for instance equity prices are very high relative to food, people will sell equities and buy more food, or otherwise adjust and bring the prices back to proper levels. The experience of hyperinflation in Weimar Germany and Venezuela shows that it is not possible to keep price increases “bottled up” in particular sectors. They spread through the entire economy very quickly.


…recent price-earnings ratios are only modestly above their historic values. That may be a reason to be cautious, but it is hardly a sign of suppressed inflation. Bond prices are high, but real interest rates have been falling for centuries. And the European Central Bank tends to pursue tighter monetary policy than does the Fed. Europe often has very low interest rates, including sometimes negative nominal rates.

To see why the huge increase in bank reserves did not result in inflation, consider that there has been a considerable decrease in U.S. excess bank reserves over the last five years. No one claims that this has been accompanied by a massive deflation, whether in securities markets or elsewhere. Once that point is conceded, it’s possible to see why higher levels of reserves are not necessarily inflationary.

For an alternative point of view, you can read Arnold Kling.

UK to fast track drug trials

Drugmakers will be offered fast-tracked approvals for innovative medicines in the UK as ministers seek to build on the country’s world-leading approval of a Covid vaccine and attract life sciences companies to invest post-Brexit.

The UK’s medicines regulator will become independent of EU pharmaceutical rulemaking when Britain quits the European Medicines Agency at the end of the year, which means companies will need to apply separately to register drugs.

With ministers eager to try to refashion the UK as a post-Brexit hub for global life sciences, companies with drugs that promise to treat unmet medical needs will be offered help through the development process, including manufacturing, according to three people familiar with the situation.

Under the so-called Innovative Licensing and Access Pathway, companies are set to be offered the same rolling review of data that speeded approval of the Pfizer/BioNTech Covid-19 vaccine ahead of the rest of the world.

Here is more from Sarah Neville at the FT, via J.

Friday assorted links

1. How much is the Tuskegee history still a factor?

2. Biggest archaeological findings of 2020? (an impressive list, recommended)

3. Should your company’s name or streaming service have a “+” on the end? (NYT)

4. Seven-volume book series of the complete works of Hilma af Klint.

5. Bloomberg profile of Janelle Jones, chief economist at the Department of Labor.

6. How Scott Ross recorded all of the 555 Scarlatti sonatas for harpsichord (NYT).

Market Design to Accelerate Vaccine Supply

Market design to accelerate COVID-19 vaccine supply is my new paper in Science, co-authored with Camilo Castillo, Michael Kremer, Eric Budish, Susan Athey and others. We make three vital points. First, governments invested much less than our group advised. We spent trillions on fiscal support and maybe $20 billion or so on vaccines, far too little. Nevertheless, the 3bn courses we have (conservatively) in 2021 capacity is worth on the order of $17.4 trillion or $5800 per course. If advance market commitments moved us from 2 billion to 3 billion courses then they were worth 2.4 trillion dollars. I feel pretty good about the work we did to encourage Operation Warp Speed and other advance purchases.

Second, it’s not too late to do more. If we could get an additional billion courses in capacity online by July 2021 that would speed up vaccination in high-income countries by 1.4 months and in the world by 4.3 months. A few months might not seem like much but that speed-up is worth half a trillion to the world economy. If we could get additional capacity online by April it would be worth a trillion dollars.

You might think that getting more capacity online by April isn’t possible but you can do a lot for a trillion dollars. Moreover, we can increase capacity not just by building more factories but by using the doses we have now more wisely. Low-dose syringes, for example, can increase supplies by 20%. I think the health authorities know this now (although they should have been prepared) but even at this late stage almost everyone is under-estimating how much it would be worth spending to get 20% more vaccine capacity. Similarly, going to half-doses is equivalent to doubling the number of Moderna and Pfizer factories. Even if we did half doses for the young alone, that’s a big increase in supply. We calculate that additional capacity is worth $576 to $989 per annual course, far higher than the price.

Third, we also give advice on how to structure contracts. Buying doses isn’t optimal because companies can just agree and put you to the back of the queue. Optimal rewards and penalties are very difficult to implement, especially when optimal penalties could bankrupt firms many times over (because the social value of vaccines is much greater than the private value.) So it’s much better to subsidize capacity with an option to buy doses at a discount produced from that capacity–this is similar to what Operation Warp Speed did with Moderna and Novavax.

Finally, here’s a fourth important point I haven’t made earlier. We suggest procurement auctions to surface prices on necessary inputs. Ordinarily, an increase in demand to a final producer such as a vaccine manufacturer is transmitted along the entire supply chain through the signaling and incentive mechanism of prices. When final goods prices are limited socially or by law, however, the supply chain can become dis-coordinated. Capacity contracts could be fulfilled, for example, and the producer could yet claim an inability to produce because raw materials are in short supply. Thus, we need a mechanism to coordinate supply chains.The US Defense Production Act is one such mechanism. An alternative procedure that may work more quickly is to organize procurement auctions for all the inputs and complementary goods required for vaccine production. The advantage of a procurement auction is that it can attract and incentivize firms globally, firms that are well beyond the reach of the DPA.

Read the whole thing and the appendix with details on methods and calculations.

My Caribbean podcast with the excellent Rasheed Griffith

One hour, fifteen minutes, almost all of it about the history and culture and economic future of the Caribbean, here is the audio.  It starts with Rasheed interviewing me, but later becomes more of a back-and-forth dialog, covering Cuba, Trinidad, Barbados, the best music from Jamaica, why Haiti has failed so badly, whether the Caribbean will be Latinized, and much more.  This one is pretty much entirely fresh material and I enjoyed doing it very much.

Rasheed is from Barbados, he is a very recent Emergent Ventures winner, and more generally his podcast focuses on the role of China in the Caribbean.  Newsletter and some prestigious podcast guests coming soon!

Here is Rasheed on Twitter.

What I’ve been reading

1. Kevin Donnelly, Adolphe Quetelet, Social Physics, & the Average Men of Science, 1796-1874.  The Belgian Quetelet was one of the pioneers of applying statistics to the social sciences, and he had a long-running and fascinating career obsessed with astronomy, crime, opera, jokes, and short essays, among many other things.  He developed the notion of an “average man” in a statistical distribution, the error curve as a distribution formula, and much more.  The concept and measurement of BMI comes from him as well.  Somehow he has become oddly underrated.

2. Ruth Goodman, The Domestic Revolution: How the Introduction of Coal into Victorian Homes Changed Everything.  Most books of this ilk are good either on the super-micro or super-macro scale, but this volume succeeds on both levels.  Under Queen Elizabeth I, London became the first place to move away from burning peat, wood, and dung in homes to burning coal.  How did that supercharge the later Industrial Revolution?  How did it matter for household chores and for that matter recipes?  Recommended.

3. Michel Foucault, Confessions of the Flesh, The History of Sexuality, Volume 4, published posthumously just now.  I only pawed through this one a bit, but it really didn’t seem so interesting.  I still think of The Order of Things, Discipline and Punish, and The Birth of the Clinic as Foucault’s best and most enduring books.

4. Jason L. Riley, Maverick: A Biography of Thomas Sowell.  I liked this book OK enough, and certainly read it with interest, but somehow it never brought Sowell to life for me (I have never met him), nor did it illuminate the work enough (what did Sowell claim about Say’s Law anyway?  And why?  Why is his book on late-talking children important for understanding his broader body of work?  Why was he so hawkish on foreign policy?  What might he have gotten wrong?).  The most interesting parts are about Sowell writing rebuttals to Arthur Jensen.

5. Ian Leslie, Conflicted: How Productive Disagreements Lead to Better Outcomes.  A good popular science book on exactly what the title promises: “In this book, we’ll learn from experts who are highly skilled at getting the most out of highly charged encounters: interrogators, cops, divorce mediators, therapists, diplomats, psychologists. These professionals know how to get something valuable – information, insight, ideas—from the toughest, most antagonistic conversations.”

The energy optimism of Austin Vernon

I’m pretty convinced that even with business as usual carbon emissions will drop like an anvil in most developed countries over the next decade.

Solar panels are getting so cheap, new plants will add many more panels than what their grid connection can handle. The industry refers to this as a high DC:AC ratio. You might have 300 MW of panels (DC) for 100 MW of inverters (AC). This means even when it is cloudy you are sending power to the grid at 100% of AC capacity. And you can produce at high output later into the evening. This makes solar firm power. In many ways this firm solar is more reliable than an analog fossil power plant. Most new projects also include batteries. They charge on DC so they can use some of the excess power during the day and then use the same inverter and grid connection to sell into the evening peaks. I’m not sure many people have fully internalized this change yet. Off grid folks have started doing it at a small scale, because it is cheaper to add more solar than buy more batteries to get through cloudy periods. You only need enough batteries to get you through the night.

Offshore wind is also going to be pretty incredible. The taller the turbine, the more reliable and predictable its power output. Onshore is limited by needing to truck the parts. Offshore is not limited and there are 10+ MW turbines coming out where onshore is usually no larger than 2.5 MW. It is technically challenging to keep going bigger, but some think it will go as high as 50 MW monster turbines. All three major US grids could have access to this resource. Instead of a 30% capacity factor for onshore, big offshore can be up in the 60% type numbers.

If you overbuild capacity, like using a high DC:AC ratio, there will be a lot of cheap DC power out there to use. Water electrolyzers to make hydrogen use DC. Hydrogen is a terrible vehicle fuel, but it is a good industrial feedstock. Eventually it may be converted to methane for use in homes and power plants.

If you do the learning curve math, any vehicle driving over 25,000 miles a year will be able to switch to electric and still be cheaper than running an existing, depreciated gasoline or diesel vehicle by 2030. There will still be lots of gasoline cars out there, but the average miles a gasoline car drives per year will drop a lot.

There is a lot of hoopla about ERCOT and what regulations and capacity should be. Unless most customers are exposed to real time incentives, any grid will always have periods of outages. Trying to get to 100% reliability only on the supply side is probably impossible and gets increasingly expensive.

Improvements in building heat, industrial, agriculture, and non-road transportation are harder for both political and technical reasons. Nuclear powered freighters, please! But cheap electricity and hydrogen would make them much easier to solve. You may have to live with ship and plane emissions or use direct air capture for those.

Part of me really believes we will be back to pre industrial CO2 concentrations somewhere between 2070 and 2100. There will be shortages of carbon as fossil fuel (soon to be a misnomer!) production rebounds and is stretched for use as material feedstocks. If that doesn’t happen, it will be a terrible slow growth tragedy.

That is from an email by…Austin Vernon.