Technological progress, government intervention and public reaction

While doing research for a couple of term papers last fall, I came across the realization that certain forms of government intervention in industries could drive results. My initial focus was on how regulation increased costs on the nuclear power industry that were not symmetric with the regulations of far more dangerous power generation methods. For example, in the US, no one has ever died from nuclear power generation, but this cannot be said for methane gas and hydroelectric dams. (The troubles of coal are often much explosive, but the indirect effects are much worse.) Through the papers, I argue that risk misperception is one factor that drives increased regulation and subsequently increased industry costs.

For the most part, I think that is true, but misperceived risk cannot be the only explanation. Mike Munger has noted a bootlegger and baptist analogy between the fossil  fuel industry and environmental groups during the latter half of the twentieth century as nuclear threatened to dominate the power generation market.

There is no doubt that nuclear has since been on the decline in certain Western nations, but not in many Eastern ones. Why is this the case?

Sovacool and Valentine(2010, 3804) find that six factors were key to the expansion of nuclear power in France:

  1. strong state involvement in guiding economic development
  2. centralization of national energy planning
  3. campaigns that link technological progress to a national revitalization
  4. influence of technocratic ideology on policy decisions
  5. subordination of challenges to political authority
  6. low levels of civic activism

Looking at this list, parallels can be made to a few modern regimes that have had large amounts of growth in the past 40 years.

Sovacool and Valentine also found that in that during the middle of the century, the nuclear energy industry in the United States became more decentralized, along with the energy sector, and certain aspects of the industry became politicized. This, coupled with a move of the industry away from its secretive military laboratories and into the public eye, allowed for challenges to political authority and high levels of civic activism to influence the future of the domestic industry. Collective and public actions undertaken considering these increased degrees of freedom allow for more institutional controls to be placed on the nuclear industry in line with public opinion. Therefore, decreased public acceptance of nuclear can be correlated with an increase of the social and political costs of nuclear operations, leading to an increase in monetary costs due additional regulations, ordinances, insurance, and etc.

However, South Korea has an opposite trend in costs. While costs for nuclear power generation have been increasing in the US since Three Mile Island, costs in South Korea have been steadily decreasing. I don’t have cost projections for China, but I have little reason to believe that costs are facing an upward projection given the rate of reactors being built. China also has an incentive to switch to nuclear given their air pollution issues.

France, and later on Eastern powers, found that by subverting public intervention and focusing large sums of capital towards one end goal they could achieve significant technological progress, and even energy security as an additional bonus. France has 58 reactors and produces 75% of its electrical output with nuclear. They produce this energy with practically zero carbon cost– that is not “net carbon costs” but actual. (Link to a future blog post explaining the difference.)

My question is: “At what cost?” When can governments subvert public opinion for public interest? How can they know difference? I am a strong advocate for nuclear power in a carbon constrained world, but can things be forced on citizens for the greater good? In the current American political atmosphere, I think both sides would say yes; though, they might have different ideas as to what “the greater good” might be.

The economist in me says that we should let the market take control and the most efficient outcome will be produced; however, as long as there continues to be regulations affecting costs, the outcome will be biased and possibly inefficient given other possibilities. Note that if it was a purely a market process, many renewables would have faltered from the start. I think basic research is a necessary component of any growing economy and for the advancement of scientific progress. There continues to be a lot of unknowns.

 

 

Comparative economic systems, thoughts

As I alluded to in an earlier post, no economic system is purely capitalistic or socialist– there are an infinite number of potential combinations (this is analogous to sociology’s proposal that no person is purely masculine or feminine). This is not to say that one combination can clearly be superior to any other; though, at any given time, there might be one system combination may produce more output than another. Furthermore, there may be other metrics than the dichotomy that I have just posited. Surely, there are numerous types of economic organization that we have long forgotten or have yet to discover.

Some systems, even a few currently in existence, fail to expand past their current boundaries because of scalability issues. We know that issues with moral hazard and adverse selection often lead to the downfall of interpersonal and interfirm relationships; at the very least, they can put considerable strain on these same relationships. In the market, insurance companies and banks have to find contractual work-arounds and screening devices to limit these problems. Depending on the constraints and the desired outcomes, not all economic systems are created equally. Some systems may perform better for a certain task, at a certain time.

This poses a number of questions:

  • What are these outcomes?
  • What metrics do we use to measure the economy?
  • Are these metrics correct?
  • What is the goal of the system?
  • What is the paradigm that governs the system?
  • What are the base ideas of the system?
  • How do these ideas change the system?
  • What are the marginal changes of black swans?
  • Are averages overrated? (I think so)
  • What is inequality, and by what metric do we determine inequality?
  • What are the feedback loops in each economic system?
  • How do stocks and flows change these?
  • Which feedback loops have increasing returns to scale vs those that have diminishing return to scale?
  • What about returns to scope?
  • How can open ended evolution systems help us find the answers? (In a way that DSGE is unable to do?)
  • What are the ultimate ends of the society?
  • Was George Bernard Shaw correct when he stated that socialists were just communists without courage?

Upcoming, a look at the Soviet economy via Janos Kornai.

Thoughts on complexity in economic systems

  • If a social system develops in practice, it should also work in theory. (That theory may be convoluted and never finished, however.) Much like the sorting and randomization algorithms, the efficiency and effectiveness of the system of economic organization will vary.
  • The difference between economic systems lies not only in the rules of the game, but the stocks and flows of each system, and how they are determined. Additionally, how much self organization do the agents have?
  • The flow chart will change depending on the type of system.
  • No system is purely socialist or purely capitalist, but a gradient of each. Communism may fit in somewhere, as well.
  • The system must seek resiliency and self perpetuation
  • This fails at the extremes because in the purest systems there are leakages; not all agents will be able to continue in economic means.
  • In pure socialism, the end will transfer economic activity into the public choice domain as people, no longer lacking of economic wants, will demand positional goods in their place.
  • Pure capitalism creates its own undoing by driving technology to a place at which there is no work available for anyone to do. To put it simply, after the Hansonian singularity, there will be no more economic activity necessary for an agent.

Vocabulary Capacity and Rappers

Matt Daniels at The Pudding ranked rap artist by the number of different words used in their first 35,000 words of lyrics.

“I used a research methodology called token analysis to determine each artist’s vocabulary. Each word is counted once, so pimpspimppimping, and pimpin are four unique words.”

“35,000 words covers 3-5 studio albums and EPs. I included mixtapes if the artist was just short of the 35,000 words. Quite a few rappers don’t have enough official material to be included (e.g., Biggie, Kendrick Lamar). As a benchmark, I included data points for Shakespeare and Herman Melville, using the same approach (35,000 words across several plays for Shakespeare, first 35,000 of Moby Dick).”

It comes at no surprise that the Wu-Tang Clan and its members dominate the scene; yet, none of them reach the standard of Aesop Rock, whose vocabulary is so expansive that Daniels would have had to adjust his graphics in order to show the magnitude of the disparity. (Similar disparities are often seen in the realm of business where the industry leader far outperforms those in second and third place. At this point, there is often a clustering of those who are not at the top. For example, Google is the number one search engine outside of China and is leagues away from their competitors Yahoo and Bing.) I was thoroughly pleased to see Outkast among the top rankings and somewhat surprised to find that popular rappers from the 90s and early 2000s unable to make the cut.

Thoughts on the marginal effects of shock doctrine on the power of words

We live in an era in which people make an abomination of words. With a stroke of a pen, a click of a key, and pulse of a teleprompter, our language and the power inherent within becomes less than what it was prior. With every superlative, every ounce of electrons containing the newest bit of shock doctrine, we move forward to a linguistic atrophy — the point at which words mean nothing.

The linguistic atrophy. When our language can no longer express the range of human experience: from our emotions to our hopes to our cries of defiance. Where will we turn? To whom will we call out? And if someone hears our cries, will they understand the depth of our pleas?

To what facet will our inner selves find relief if we become powerless in our voices? In a world where everyone is screaming, no one is heard. Today, as those who wish to be heard scramble to find the next loudest mouthpiece, the next platform upon which to stand, each one prior built upon the wreck of it’s previous standard holder, and the next fastest way to voices their opinion, we lose some of ourselves. For, at some point, technology escapes our grasp. Information flows too quickly. We are unable to hold onto the currents; the tide rises and we are without the proper evolutionary mechanisms that would enable us to swim with the depths and against the strength of the water.

Words spoken at volume of a jet engine are no more discernable than those at the faintest whisper. Words scavenged from the remnants of others, scaffolded upon faltering foundations will surely collapse in upon themselves. Knowledge and the speed at which it is transferred surely has a trade-off with truth, clarity, and depth.

We are slaves to the lies which we tell ourselves, along with the myths that pervade our consciousness. These overarching ideas which form into feedback mechanisms of both vicious and virtuous circles all reiterating things lost and opportunities forgone. We cannot see the folly in our actions because of the stories by which we have woven through them. The narrative, so dutifully cast, as us placed so high upon a hill and guardian of the ultimate good, face our foes who are of the vilest nature. We harbor the weapons of their demise. We must. After all, if we fail, the demise will be that of ourselves and our most loved. That is the basis of the story used to justify our actions. These actions, no matter the cost are justified by the inhumanity of those whom we claim to be our sworn enemies. The reverse is also true.

However, our use of words fails us in this respect. Those whom we assume are our foes are not our enemies. They are human; and like us, they are full of fallacies, hopes, and aspirations. Many of them want no more than to improve the world in which we live. Only, their vision has been shaped by their specific environment, not unlike our own visions. Yet, we are unable to see this. Our blindness, voluntary or not, makes us loathe and seek our harm on those who are not like us. In spite of our limited information and imperfect sight, we strike a blow. In retaliation, our formidable foe strikes back with slightly more force. Thus begins the exchange.

Productivity Growth and the Steady State

The idea of diminishing marginal returns is a key founding block in economics. We assume that as one adds each additional unit of something, the additional product of that unit decreases unless all other inputs are increased by the same amount. This is not always the case, but for many real world examples, diminishing marginal returns (DMR) hold.

Over the past couple centuries, the amount of growth the world has seen has been tremendous. On all known levels of human development, there has been significant progress even at the average level. Granted, some nations have fared better than others (that’s another story), but the industrial revolution has been a net positive for humanity. Within the United States, this rate of growth peaked in the mid 1920s, but high levels of growth continued in the subsequent decades. Many of the highest impact inventions were created during this time: radio, television, cellular technology, semi-automated home appliances, the early versions of the internet, nuclear energy, solid state electronics, transistors, and integrated circuits. All of which, are still with us, but this rate of progress did not continue. It is common knowledge, amongst economists and infovores, alike, that developed countries have experienced on average lower growth in productivity and technological change since the 1970s.

Much of this decline in technological change reminds me of growth models encountered in my first year grad courses. In these models, all economies converged on a steady state growth path where the rate of change in their respective productivity growth became zero. For many of these models, this stationary state implies some sort of equilibrium; however, I’d argue that the world is in a constant state of disequilibrium while trending towards some unknown target and each of these inputs has DMR. The path towards equilibrium in many of these models contains well-specified criteria and variables, but in the real world, everything is a variable.

A small goal of mine is to come closer to understanding this slowdown in growth. Many people question it, including recent Nobel laureate, Paul Romer, but it isn’t the mainstream topic of our time outside a few, well-specified circles.

Some thoughts moving forward in an inquiry into the nature and causes of productivity growth:

  1. Innovation is a form of social violence against the current technology and producers.
  2. Complacency is a human downfall?
  3. The current set of research has reached saturation to the point of DMR
  4. Institutions, both social and legal, have changed to maintain the status quo.
  5. Leisure is to cheap relative to work (credit: SP).
  6. We are no longer engaging in basic research.
  7. We have gathered the low-hanging fruits.

Changing it up: What is Economics?

Economics pervades everything we as humans and our institutions do.

In the last couple months, I have struggled to find something to write about. It hasn’t been that I’ve had nothing to write about, quite the opposite, I’ve had far too much to write about. My notebooks and planner have been overflowing with ideas about blog posts, op-eds, and scholarly articles. Unfortunately, I didn’t have a system in which I could divulge this ever-growing heap of ideas and prompts into something others could comprehend. Thanks to the suggestion of a good friend, I’m going to focus on putting many of these ideas on Optimal Economics (OE). Starting with this post:

What is Economics?

If you’re reading this blog, I assume that you have an idea as to some of the things that describe economics. It’s the Dismal Science, the study of the economy, a study of scarcity, etc., etc…

Unfortunately, those descriptions barely scratch the surface of what economics is; in fact, economics is everywhere. Economics pervades everything we as humans and our institutions do. (Many, like Walter Williams, would say that even animals observe the laws of economics because even insects and vermin are utility-maximizers.) Every choice you make has an economic undertone. Every choice is made from you weighing your options and then acting upon them. Even if you act upon impulse, you’ve made the choice of not carefully thinking about your next more; therefore, you’ve decided that weighed your option to weigh other options and went with the most immediate plan of action.

Through the course of my academic career, I have often heard the field of economics described as being one the following:

  1. Economics is the study of scarcity and how people make choices in a world of scarcity.
  2. Economics is the study of how people mitigate risk.
  3. Economics is the study of human action.

Which one of these is the correct definition for economics?

The answer is all three of them. Every choice a person makes is an action, specifically, a Human action. Every action must be made within a realm of constraints. Our world, having a limited amount of mass, area, and resources, is by definition one of scarcity. In order to deal with this scarcity, humans must determine the associated risks with using any number of scarce resources to satisfy their means, or actions.

If we lived in a world without scarcity, such as the Marxist utopia, the laws of economics need not abide; however, such a world is not only inconceivable, it is impossible according to the current laws of physics (the First Laws of the Conservation of Mass and of Energy). We do not possess the technology or the universe-altering techniques to allow our world to be free from scarcity, thus free from risk, thus free from human action.

From the view of the innocent bystander, I do not think we would want to live in a world where there was no human action. Yet, we do not live at the other extreme proposed by Thomas Malthus. Humans are inherently creative and solve seemingly insolvable problems. Every individual has the ability to make a sequence of choices, that combined with their own creativity, can make the world a better place. The choice to save a larger percentage of one’s income could lead to a bank lending out more money which in turn would lead to capital investment and potentially higher standard of living for everyone within a given economy. Your choices impact not only today, but tomorrow, the day after that, the day after that and so on. Human minds, social constructs, and institutions are not directly bound by the laws of physics, and every choice has the potential to be far-reaching in its consequences. Furthermore, being self-interested has so far, on the aggregate, been found to be beneficial to society. It’s because of our great capacity to overcome that we were able to rise above the limits set by Malthus and that we as humans will be able to overcome whatever issues we as a species will face next.

Economics tells the how and the why we have succeeded at becoming the dominant species on the Earth.