Category: Uncategorized
Austin Vernon on the IRA (from my email)
I’ve thought about this some, but honestly some of the subsidies are so mind bogglingly large that I find myself constantly going back to read the rules to make sure I’m not getting it wrong.
So I think the first thing is that the law is not fiscally sustainable because the subsidies are large and uncapped. I would expect it to quickly get into the trillions over the ten year period without adjustments.
One example is that with all the adders, solar panels get a $26/MWh subsidy when using the production tax credit. Lazard says solar can cost as little as $24/MWh in the best spots in its latest release. So it will spark a boom and all kinds of inflation in the solar supply chain, while also favoring utility scale solar over distributed solar since distributed is more hamstrung by regulation so the impact isn’t so dramatic. The process of selling these tax credits can be pretty complicated, though there are provisions to make it slightly easier in the bill. So the finance industry should earn a lot of new business.
Most attention has gone to the factories, but batteries already made sense before the IRA and you can see this in pre IRA announcements. So I think a lot of those factories would have happened, anyway. Car makers like to have their suppliers local and with batteries being such a big portion of cost there was no other way to do it. And naturally these factories are going near car manufacturing regions like the southeast or the upper midwest. There is no reason to ship batteries further than necessary.
Solar panel factories are a different bag of worms. I think we would have gotten more module assembly and possibly more polysilicon. That is because most of the module weight and volume is low value stuff like aluminum or glass that is expensive to ship. And we have restrictions on using Chinese polysilicon from the Uyghur provinces. But wafers and cells would have been slower to come over. Also some module assembly might have been in Mexico instead of the US. Of course these factories are going to states with lower labor costs where it is easier to build, which happen to be Republican. Another wrinkle with solar factories is that they depreciate at an extreme rate. Usually they are obsolete after 2-3 years and need to shut down. So there is a real possibility at the end of the law that you see a massive drop in solar deployment because the inflated supply chain will have to rationalize to non-subsidy conditions and then our factories will not have the revenue to upgrade to the next generation. That will then kill the supplier ecosystem, etc. So the earlier the subsidies get ratcheted down to prevent the boom-bust cycle, the better for long term health. It may also be like the wind PTC a decade ago where things collapsed after lapse of the subsidies and they brought them back.
Hydrogen also has crazy subsidies similar in magnitude to the solar PTC, especially because you can stack the solar PTC on top of the hydrogen one. Who knows where that will show up. But it will be frothy. We should be able to tell how crazy these were because I imagine few other countries will be so generous and we’ll be able to see what use cases happened here that made sense nowhere else. Hydrogen is the lazy answer to decarbonization problems and there is almost always a better way. Free of subsidies hydrogen demand would probably fall because refining lighter fuels like gasoline and diesel is the main use case. I’m optimistic about hydrogen and CO2 feedstocks for chemicals on longer horizons, but the US is the last place they make sense because of our inexpensive natural gas.
So overall you have inflationary/budget pressure on the negative side while support could be relatively bipartisan at the national level because of a climate/economic development alliance. I don’t think local and state will align as well. Probably there will be more local bans if people are building solar to mostly farm subsidies. And state utility regulators and ISOs might resist further solar+wind deployment where the natural gas lobby is strong (you could rename IRA “natural gas demand destruction bill”). The sweet spot would be solar + wind directly powering local industry by providing things like process heat (sorry geothermal!).
Here is the Substack of Austin Vernon.
Monday assorted links
1. What happens to your returns? (New Yorker)
2. “The hobby of “collecting” had the highest average IQ.”
3. Is there a new accent developing in Antarctica?
4. How one man created a multimillion-dollar resale market for Buc-ee’s snacks (Texan throughout).
5. More Heidi Williams (and others) on speeding scientific progress, and the co-authored (various luminaries) Nature article is here.
6. One take on the roots of China’s current problems. And “Also a widely published poet, his [Gewirtz’s] achievements echo the polymath scholar-officials in the Chinese tradition, including major historian poets from Ban Gu (32–92 CE) through Ouyang Xiu (1007–72 CE) and beyond.” Link here.
Which businesses mix the classes best?
Casual restaurant chains, like Olive Garden and Applebee’s, have the largest positive impact on cross-class encounters through both scale and their diversity of visitors. Dollar stores and local pharmacies like CVS deepen isolation. Among publicly-funded spaces, libraries and parks are more redistributive than museums and historical sites. And, despite prominent restrictions on chain stores in some large US cities, chains are more class diverse than independent stores. The mix of establishments in a neighborhood is strongly associated with cross-class Facebook friendships (Chetty et al., 2022).
That is from a new paper by Maxim Massenkoff and Nathan Wilmers. Via Scott Lincicome.
What have I been thinking about lately?
Robin Hanson asked me this question at lunch last week, and due to the general raucousness of the occasion I didn’t get a chance to answer. So here is my list of recent questions:
1. How much did the British colonial welfare state for Ceylon in the 1930s help that country and its later social indicators?
1b. How much did it matter that Ceylon was a Crown colony and not part of the Raj?
2. Why has Thailand done considerably better than the other major Buddhist economies?
3. Why are there so few liberal or even technocratic voices in Sri Lanka politics?
3b. How is this consistent with Sri Lanka doing so well on so many social indicators?
4. Why does Qatar seem (at least to me) so much more aesthetic than Dubai?
5. What is the correct Straussian reading of all those 2017 Saudi (and other) demands made on Qatar?
6. To what extent will the developments of the next twenty years favor nations with a lot of scale?
7. Ecuador seems to be moving backwards on the political front, including violence, corruption, and electoral problems. In the smallest number of dimensions possible, why exactly is this happening?
8. What is the equilibrium, given our current trajectory on drug policy and the rising number of drug-related and also opioid deaths?
9. When generative AI models become better and smarter, how many more people will be interested in incorporating them into their workflows? Or will most of this happen through a complete turnover of companies and institutions, happening much more slowly over time?
10. Music delivery and distribution mechanisms have changed so many times? But what exactly will or could succeed music streaming? When it comes to the economics of music, have we reached “the end of history”?
11. What exactly does one learn that is special when traveling to places that are not at all on the cutting edge?
12. Which exactly are the political economy principles governing the allocation of green energy projects in the IRA?
There are more.
Sunday assorted links
1. Lev Aronian has good taste in movies.
2. On Solenoid, Cărtărescu, and Bucharest.
3. Alcohol is bad for you (above small doses).
4. China fertility fact of the day.
5. 4.5 hour Jolly Swagman conversation with Stephen Wolfram.
6. Daniel Cohen has passed away (in French).
*Travels with Tocqueville Beyond America*
Again, that is the new book by Jeremy Jennings, here is another excerpt:
These grave misgivings [about travel] have persisted. “I have been reading books of travels all my life,” Jean-Jacques Rousseau wrote, “but I have never found two that gave me the same idea of the same nation.” Those who “travel best,” he added, “travel least,” and, in Rousseau’s opinion, they travelled not by coach but on foot. Others have agreed. Writing at the end of the eighteenth century, Xavier de Maistre (brother to the more famous Joseph) resolved only to journey for forty-two days around his own room, “safe from the restless jealousy of men.” “We will travel slowly,” he wrote, “laughing as we go at those travellers who have visited Rome and Paris.” Heading north, Maistre discovered his bed. On this view, one travelled best by moving hardly at all. In the nineteenth century, John Stuart Mill displayed a similarly dismissive attitude. “In travelling,” he wrote, “men usually see only what they already had in their own minds.”
From another segment of the book:
Gustave de Beaumont not only travelled to America with Tocqueville but accompanied him on trips to England and Ireland and to Algeria. No one was better able to assess how Tocqueville travelled. Tocqueville’s way of travelling, Beaumont wrote, was “peculiar.” Everything was “a matter for observation.” Each day Tocqueville framed in his head the questions he wanted to ask and resolve. Every idea that came into his mind was noted down, without delay, and regardless of where he was. For Tocqueville, Beaumont continued, travelling was never just a form of bodily exercise or simply an agreeable way to pass the time. “Rest,” Beaumont wrote, “was foreign to his nature.” Whether or not his body was actively employed, Tocqueville’s mind was always working. Never could he undertake a walk as a simple distraction or engage in conversation as a form of relaxation. The “most agreeable” discussion was the “most useful” discussion. The worst day was “the day lost or ill-spent.” Any loss of time was an inconvenience. Consequently, Tocqueville travelled in a “constant state of tension,” never arriving in a place without knowing that he would be able to leave it.
Recommended, buy it here.
Saturday assorted links
1. “The US suburban vacation – one of my favorite things about this business.”
2. Mark Skousen on gross output measures. And founding engineer & founding designer for building a LLM-augmented digital reader (job ad).
3. Identified flying objects, not flying.
4. Air Genius Gary Leff blogs Beenie Man.
5. A closer look at political bias in ChatGPT.
6. James Buckley, RIP, at 100 years old. He was the fourth of ten children.
Sebastian Bensusan on Argentina dollarization
Great to see an article on dollarization! Two things that were not mentioned”
Argentina is already substantially dollarized. Absolutely nobody saves in pesos, so the amount of USD needed to “dollarize” the economy is much smaller than you’d think.
The difference between convertibilidad (90s) and dollarization is less stark than what you’d expect. If it happens:
1. Peronists will win elections again and will likely try to undo it (Zimbabwe undid it).
2. If dollars are in bank accounts, the government can simply steal everybody’s dollars. This is effectively what happened during el corralito. People had USD denominated accounts and those were forcibly converted to peso, and then devalued from 1:1 to 3:1, effectively evaporating 2/3s of everybody’s savings.3. So, the mechanics of a future dollarization matter greatly in making this following sentence from your article true:
But that was a mere promise, and the promise of convertibility was broken rather spectacularly
Because bank deposits are always promises and USD-denominated Argentinian bank accounts would also be promises that would eventually be broken.
Here are some ways to dollarize that would be future-proof:
1. Allow Argentinians to own and transact locally usinn American or foreign bank accounts that are outside of the government’s jurisdiction. This is effectively what parts of Venezuela’s economy have been doing via Zelle.
2. Crypto
Are these two practical? TBD!
Emergent Ventures winners, 28th cohort
Anup Malani and Michael Sonnenschein, Chicago and Los Angeles respectively, repeat winners, now collaborating on a new project of interest.
Jesse Lee, Calgary, to lower the costs on developing safe and effective sugar substitutes.
Russel Ismael, Montreal, just finished as an undergraduate, to develop a new mucoadhesive to improve drug delivery outcomes.
Calix Huang, USC, 18 years old, general career development, AI and start-ups,
Aiden Bai, NYC, 18, “to work more on Million.js, an open source React alternative,” and general career development. Twitter here.
Shrey Jain, Toronto, AI and cryptography and privacy.
Jonathan Xu, Toronto, currently Singapore, general career support, also with an interest in AI, fMRI, and mind-reading.
Viha Kedia, Dubai/ starting at U. Penn., writing, general career development.
Krishiv Thakuria, entering sophomore in high school, Ontario, Ed tech and general career development.
Alishba Imran, UC Berkeley/Ontario, to study machine learning and robotics and materials, general career development, and for computing time and a home lab.
Jonathan Dockrell, Dublin, to finance a trip to Próspera to meet with prospective venture capitalists for an air rights project.
Nasiyah Isra-Ul, Chesterfield, VA, to write about, promote, and create a documentary about home schooling.
Sarhaan Gulati, Vancouver, to develop drones for Mars.
And the new Ukrainian cohort:
Viktoriia Shcherba, Kyiv, now entering Harris School, University of Chicago, to study economic and political reconstruction.
Dmytro Semykras, Graz, Austria, to develop his career as a pianist. Here is one recent performance.
Please do note there is some “rationing of cohorts,” so some recent winners are not listed but next time will be. And those working on talent issues will (in due time) end up in their own cohort.
Thinking about God increases acceptance of artificial intelligence in decision-making
Artificial intelligence (AI), once merely the draw and drama of science fiction, is now a feature of everyday life. AI is commonly used to generate recommendations, from the movies we watch to the medical procedures we endure. As AI recommendations become increasingly prevalent and the world grapples with its benefits and costs, it is important to understand the factors that shape whether people accept or reject AI-based recommendations. We focus on one factor that is prevalent across nearly every society: religion. Research has not yet systematically examined how religion affects decision-making in light of emerging AI technologies, which inherently raise questions on the role and value of humans. In introducing this discussion, we find that God salience heightens AI acceptance.
That is from a recent paper by Mustafa Karatas and Keisha M. Cutright. Speculative yes, but worth speculating about. Via the excellent Kevin Lewis.
Argentina should dollarize
Here is my Bloomberg column on that topic, here is the trickiest point:
Another concern, more significant, is that dollarization would be a huge upfront cost to the government of Argentina: Someone would have to actually come up with all the dollars to serve as currency. Keep in mind, however, that the economy of Argentina would also be acquiring a valuable asset — namely, dollars. The net cost should be zero; realistically, acquiring the dollars should prove a net positive. Argentina’s government needs to invest in the future of its citizens, and introducing a stable currency is one of the best ways to do so.
Dollarization might involve major fiscal adjustments, if only to accumulate the dollars to make it work, and that could bring chaos to Argentina politics. That is a real risk, but it has to be weighed against the political risks of continuing hyperinflation. At least dollarization offers some chance of eventual success.
I would add that the government of Argentina cannot and should not forsake all public sector investment. Think of dollarization as a relatively high return form of such investment. As for whether using the euro would be better, I think the ties of the Argentina elites to Miami banking are sufficiently strong that the dollar is clearly more focal, even though the EU trades with Argentina more than the U.S. does.
Friday assorted links
2. Sweden is near the top for wealth inequality (ho hum).
3. School vouchers in Arizona and elsewhere (NYT).
4. State opens commercial fishing on the Kuskokwim River to one person.
5. Prenda and the evolution of home schooling.
6. What do the vexillologists have to say? (NYT) Most of all, about Utah.
7. Una galleta pequeña de Argentina (with subtitles).
8. More on India and female labor force participation (WSJ).
When does the quality premium disappear?
I have been pondering the world of classical music once again, mostly because of two new releases. One is the late Beethoven string quartets by the Calidore Quartet, and the other is a six-CD Chopin box by Jean-Marc Luisada.
The most striking feature of these recordings is that they are as good as any in the case of the Beethoven, and top tier for the Chopin (yes I have heard Rubinstein, Horowitz playing Chopin live, Cortot, Dinu Lipatti, Bolet playing Chopin live, I know how to spell Krystian Zimerman, as for the Beethoven the Busch Quartet, Quartett Italiano, Alban Berg, Gewandhaus, Danish Quartet, and much more!)
A second striking feature of the status quo is that hardly anyone seems to have heard of these performers. Luisada has a Wikipedia article, but there don’t seem to be full-length profiles of him. The Calidore Quartet has a slightly longer Wikipedia article, but again there is no serious coverage of him on line. Hardly anyone has heard of them, and their releases will at best sell a few hundred copies.
I don’t think any people deny the quality of these offerings, though they may disagree on the exact nature of the superlatives to offer. The point is that few people care. Furthermore, few people care that few people care.
Still, I wonder…can there be other markets where there is so much quality available that the quality premium goes away? Note that in these equilibria, most customers are not listening to the very highest quality products, rather they may choose the products associated with greater celebrity (which typically are still very good though not the very best).
If all goes well in the world (ha), is this where ideas markets end up?
How about markets for Sichuan food? How many people really care about the very very best ma la?
Clearly the 18th century was very different. Adam Smith and David Hume were much, much better than virtually all of their contemporaries, and they reaped a high quality premium, at least in terms of fame, influence, and longevity.
What exactly makes the quality premium go away or dwindle?
Do we prefer a world with a lower quality premium, yet is such a world also bound to disappoint us morally?
Thursday assorted links
1. McCartney and Starr will re-record “Let It Be,” along with Peter Frampton, Mick Fleetwood, and Dolly Parton. Can we have Carnival of Light now, please?
2. Ecuador is deteriorating (NYT).
4. Massive influx of Chinese into ride-hailing jobs.
5. The story of Ozempic (NYT).
6. A directory of Date Me docs. What are the meta-lessons from these?
That was then, this is now — the culture that is Swiss edition
Tocqueville’s notes on the Swiss constitution confirm the poor impression he had quickly formed. There were cantons, he remarked, but no Switzerland. In most of these, he continued, the majority of people lacked any sense of “self-government”; the Swiss habitually abused freedom of the press; they saw associations much as the French did, as a revolutionary means rather than as “a slow and quiet way to arrive at the rectification of wrongs”; they had no sense of the benefits derived from “the peaceful and legal introduction of the judge into the domain of politics”; and, finally, “at the bottom of their souls the Swiss show no deep respect for law, no love of legality, no abhorrence of the use of force, without which there cannot be a free country.”
That is from Jeremy Jennings, Travels with Tocqueville: Beyond America, a new and excellent book that I will be covering again soon.