Monthly Archives: June 2014

Doubts on Solar

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Timothy Taylor finds a study by Charles R. Frank, Jr. that tries to assess the cost of solar’s lack of reliability. Taylor quotes Frank:

we estimate that it would take 7.30 MW of solar capacity, costing roughly four times as much per MW to produce the same electrical output with the same degree of reliability as a baseload gas combined cycle plant. It requires an investment of approximately $29 million in utility-scale solar capacity to produce the same output with the same reliability as a $1 million investment in gas combined cycle.

Good Sentences, Bad Sentences

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1. From Edward Conard:

The key to accelerating the recovery is not to generate unsustainable consumption, as Mian and Sufi propose. Rather, we must find sustainable uses for risk-averse savings

Mian and Sufi make a big deal over the fact that consumer spending fell in places where housing prices fell. Conard suggests that this is because consumers in those areas were spending at an unsustainable rate, based on capital gains in housing that disappeared.

2. From Alex Ellefson:

Laplante said he expects all 50 states to require software engineering licenses within the next decade, and possibly much sooner.

Not surprisingly, most software engineers endorse this. [UPDATE: from the article “The licensing effort was supported by nearly two-thirds of software engineers surveyed in a 2008 poll.” Commenters on this blog dispute that most software engineers endorse licensing. They may be correct.] But it is really, really, not a good idea. Bad software may be created by coders. But its cause is bad management. The typical problems are needlessly complex requirements, poor communication in the project team between business and technical people, and inadequate testing.

I would favor licensing for journalists if I thought that it would keep incompetent stories like this one from appearing. But I don’t think that would work at all.

The pointers to both of these are from Tyler Cowen.

Room for a Regulatory Arbitrageur?

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Matthew Mitchell and Christopher Koopman write,

Startups in the craft brewing industry face formidable barriers to entry in the form of federal, state, and local regulations. These barriers limit competition and innovation, reducing consumer welfare.

If this is correct, then it should open up opportunities for regulatory arbitrage. An existing craft brewery that has licenses and regulatory know-how could market the products of start-up breweries.

Rognlie > Piketty

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Matt Rognlie writes,

[If house values continue to rise], Piketty (2014) will be right about the rise of capital in the twenty-first century. But the mechanism is quite distinct from the one proposed by Piketty (2014) (a better title would be Housing in the Twenty-First Century), and it has radically different policy implications. For instance, the literature studying markets with high housing costs finds that these costs are driven in large part by artificial
scarcity through land use regulation—see Glaeser, Gyourko and Saks (2005) and Quigley and Raphael (2005). A natural first step to combat the increasing role of housing wealth would be to reexamine these regulations and expand the housing supply.

Pointer from Tyler Cowen, who writes

Piketty’s mechanism of accumulation, as laid out in his book, is simply the wrong mechanism for understanding growing inequality, both theoretically and empirically.

That would appear to be the correct post-mortem on Piketty.

Private Cities

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Mark Lutter makes the case for them.

What if…there exists a system of governance that could provide an alternative to the morass of public interest which stagnate change in cities today? What if these cities could not only provide local public goods, but also institutional change to jumpstart economic growth? I argue that private cities could do just that.

Pointer from Don Boudreaux.

I am puzzled as to why we have not seen more private cities emerge. You would think that large investors, developers, or venture capitalists would try them if there were a profit opportunity. Some possible answers:

1. Cities must emerge naturally. You really cannot start a good city from scratch.

2. It is too difficult to acquire the land to start a private city.

3. Existing governments will not allow private cities the freedom to operate.

Kimberly Strassel on RtG

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She writes,

The authors are clear that politics, not principle, needs to drive conservative policy. Nowhere is that clearer than in the chapter by former Bush Treasury official Robert Stein on tax policy. A summary: Marginal tax rates are no longer popular because they don’t give much to the middle class. Republicans instead need to embrace redistribution and lard the tax code with special, conservative-approved handouts for said middle class—namely a giant tax credit for children, similar to that proposed by Utah Sen. Mike Lee. (The book has many more tax-credit suggestions, too.)

I think that the authors of RtG ought to reflect on such criticism rather than reject it outright. Whatever you think of each tax credit individually, they are not even compatible with one another, much less a coherent package.

Above all, they need to resolve the relationship between policy and gesturing. Their implicit assumption is that policy can serve as gesturing, and vice-versa. That is, if they propose tax credits for the middle class, middle-class voters will recognize this as a gesture toward them and respond favorably. On the other hand, when they make vague gestures in the direction of reforms of welfare programs, education, or licensing regulations, they expect those of us who are interested in policy to read into such gestures some specific proposal.

Sometimes, a particular policy becomes a widely-accepted gesture. For example, support for the minimum wage is considered to be a gesture in favor of workers. But overall, I am cynical about how much policy actually counts in voters’ decisions.

I am inclined to separate policy from gesturing. Politicians like Ronald Reagan or Barack Obama managed to make convincing gestures toward constituents who were not going to benefit from their policies. Meanwhile, as a policy proponent, the more you link your policy proposals to gesturing, the less you are able to stand on high ground.

Central Banking’s New Normal

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Tyler Cowen writes,

Were not these exit strategies supposed to be easy and painless? Maybe they are, except having no exit strategy is all the more easy and painless.

The title of his post is Will the major central banks evolve into mega-hedge funds? But perhaps the title should be, will the major central banks ever give up their mega-hedge fund activities?

In the wake of the financial crisis, the Fed has decided that credit allocation is too delicate and important to be left alone. The financial crisis did to the Fed what the 9-11 attacks did to national security agencies. I think that the chances that central banks will decide that they no longer need to behave like hedge funds are about as high as the chances that our national security apparatus will decide that they no longer need to treat terrorism as a major threat.

Solar Power Issues

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Richard Swanson, founder of a major solar power company:

Solar panels now account for less than half of the cost of a solar panel system. For example, installers spend a lot of time and money designing each rooftop solar system. They need to have a certain number of panels in a row, all getting the same amount of sunlight. A bunch of companies are automating the process, some with the help of satellites. One of the most exciting things is microinverters [electronics that control solar panel power output] that allow you to stick solar panels anywhere on a roof—it’s almost plug and play.

Read the whole short interview.

Failure Gets Rewarded

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Reihan Salam writes,

Yesterday, the Congressional Budget Office announced that it believes the bill will cost $35 billion over three years, ramping up to as much as $50 billion a year if its programs are made permanent. As, of course, they will be, meaning that this is an absolutely gigantic expansion of the VA.

The way capitalism works, if a private firm fails its customers, it goes bankrupt and someone else takes over. (Crony capitalism does not work that way, of course. Instead, you get bailed out.) When a government organization fails its customers, it gets a huge budget increase.

I guess the idea of selling the VA facilities to the private sector and instead giving veterans money to shop around for the best available health care is just too silly to consider.

Niall Ferguson on Networks and Hierarchies

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He writes,

European history in the 17th, 18th, and 19th centuries was characterized by a succession of network-driven waves of innovation: the Scientific Revolution, the Enlightenment, and the Industrial Revolution. In each case, the sharing of novel ideas within networks of scholars and tinkerers produced powerful and mainly positive externalities, culminating in the decisive improvements in economic efficiency and then life expectancy experienced in the British Isles, Western Europe, and North America from the late 18th century. The network effects of trade and migration were especially powerful, as European merchants and settlers exploited falling transportation costs to export their ideas, as well as their techniques and goods, to the rest of the world. Thanks to those ideas, this was also an era of political revolutions. Ideas about liberty, equality, and fraternity crossed the Atlantic as rapidly as pirated technology from the cotton mills of Lancashire. Kings were toppled, aristocracies abolished, and churches dissolved or made to compete without the support of a state.

Yet the 19th century saw the triumph of hierarchies over the new networks. This was partly because hierarchical corporations—which began, let us remember, as state-sponsored monopolies like the East India Company—were as important in the spread of industrial capitalism as horizontally structured markets. Firms could reduce the transaction costs of the market as well as exploit economies of scale and scope. The railways, steamships, and telegraph cables that made possible the first age of globalization had owners.

He argues that networks once again have gained an advantage, but he backs away from forecasting the demise of hierarchical corporations and states.