Is energy the ultimate natural monopoly?
In the short term, the answer is clearly no: there are many methods of producing electricity, for instance, and none of them necessarily benefit from the natural monopolistic arrangement.
But long-term, when we've stopped using coal and even are depleting our nuclear supplies, when we've tapped the major sources of hydro power and wind power, etc... is solar power best produced in a monopolistic setting?
While many natural monopolies come from distribution issues (water) or public goods (defense), the solar monopoly would be due to the vast differences in geography between high-quality and low-quality sites. The middle of the Arizona desert, I'm told, is a fantastic place to collect solar energy; Seattle, not as much.
In fact, in the real long-term, solar panels may need to be either placed in space or covering a substantial fraction of the Earth's surface. In either case, the defense requirements of the arrangement are such that it may be impracticable for private companies to support the whole grid.
Perhaps this can be the issue that the world unites behind as the 21st century progresses.
Tuesday, January 6, 2009
Monday, January 5, 2009
The development of polities
With the kinds of problems now facing the international community, we may be forced to return to a conception of political life more like Aristotle's.
In ancient eras, the formation of political organizations was something of a necessity for survival. A family might be able to produce sufficient food to live, but only by working toward that as a common goal. However, since production was largely a mechanical task that took labor and land as essentially its only inputs, slaves could perform the same functions for greater profits. As families and tribes grew, it became easier for them to subjugate other families and tribes.
Military power also had increasing returns to scale, up to a point. As a community grew larger, it wasn't just able to produce more soldiers but was actually able to field a more effective army per person, due to the technology of the time. Two hoplites were more than twice as effective as an individual hoplite, because they could maneuver, attack from multiple angles, and outflank the enemy; bigger armies usually won, and so empires that could field them grew rapidly. Survival, then, depended on being allied with the right group and focused on maintaining the existence of that group (including being willing to fight for it).
After the fall of the Roman Empire, technology began to dominate on the battlefield. The improved lethality of horsemen (with the invention and adoption of the stirrup) and the development of increasingly easy-to-use distance weapons such as the crossbow meant that armies now had to field higher levels of technology per person rather than simply putting as many swords as possible in a line.
This change in the nature of warfare may have had a hand in the changing political situation. The dominant political units after the Roman Empire were no longer vast territory-holding dominions but usually lordships bound loosely together in times of great need. Peasants had little ability to choose their polity, and there were fewer major empire-empire wars, so there was comparatively little feeling of national or political unity. Survival no longer depended on whether each individual committed him- or herself to the common project.
I'd suggest that this has reversed again in modern society. Many of the problems we now face--global warming is a signal example, but more broadly the collapse of the financial system or the potential of epidemics--require massive joint efforts to attack. We may not be worried about survival because we can make plenty of food. But perhaps we should be worried about the potential effect of these other disasters, many of which are man-made.
Are we willing to throw ourselves into the common project of humanity?
In ancient eras, the formation of political organizations was something of a necessity for survival. A family might be able to produce sufficient food to live, but only by working toward that as a common goal. However, since production was largely a mechanical task that took labor and land as essentially its only inputs, slaves could perform the same functions for greater profits. As families and tribes grew, it became easier for them to subjugate other families and tribes.
Military power also had increasing returns to scale, up to a point. As a community grew larger, it wasn't just able to produce more soldiers but was actually able to field a more effective army per person, due to the technology of the time. Two hoplites were more than twice as effective as an individual hoplite, because they could maneuver, attack from multiple angles, and outflank the enemy; bigger armies usually won, and so empires that could field them grew rapidly. Survival, then, depended on being allied with the right group and focused on maintaining the existence of that group (including being willing to fight for it).
After the fall of the Roman Empire, technology began to dominate on the battlefield. The improved lethality of horsemen (with the invention and adoption of the stirrup) and the development of increasingly easy-to-use distance weapons such as the crossbow meant that armies now had to field higher levels of technology per person rather than simply putting as many swords as possible in a line.
This change in the nature of warfare may have had a hand in the changing political situation. The dominant political units after the Roman Empire were no longer vast territory-holding dominions but usually lordships bound loosely together in times of great need. Peasants had little ability to choose their polity, and there were fewer major empire-empire wars, so there was comparatively little feeling of national or political unity. Survival no longer depended on whether each individual committed him- or herself to the common project.
I'd suggest that this has reversed again in modern society. Many of the problems we now face--global warming is a signal example, but more broadly the collapse of the financial system or the potential of epidemics--require massive joint efforts to attack. We may not be worried about survival because we can make plenty of food. But perhaps we should be worried about the potential effect of these other disasters, many of which are man-made.
Are we willing to throw ourselves into the common project of humanity?
Sunday, January 4, 2009
Election after election after...
One of the downsides of democracy is the elections.
They take up time, money, and other resources (including attention). And they don't even necessarily produce the optimal results.
Leaders seem to spend as much time preparing for elections as leading.
But for all those negatives, would you really rather have anything else?
Where are the necessary inefficiencies in your life?
They take up time, money, and other resources (including attention). And they don't even necessarily produce the optimal results.
Leaders seem to spend as much time preparing for elections as leading.
But for all those negatives, would you really rather have anything else?
Where are the necessary inefficiencies in your life?
Saturday, January 3, 2009
Beyond Dilemmas
It can be hard to think in terms of infinite possibilities.
Hell, it can be hard to think about 100 options simultaneously. What's the highest number of reasonably simple options you can consciously consider at the same time? 50? 20? 10? 5?
For most policy decisions, I'd say we tend to think in terms of two choices at a time. Do we cut down this forest, or do we not? Do we make gay marriage legal or not? Do we X, or not?
Sometimes, if we're really ambitious, we might consider three choices. Do we raise interest rates, lower interest rates, or keep them the same?
But even for situations where we are considering only two options, we have to recognize that there are usually near-infinite implicit options. The key is timing.
Let's say we have two potential policies, X and Y. X will provide benefits of $100/year for 100 years, and Y will provide $3000 the year it is implemented, but will never allow X to be implemented thereafter nor provide any benefit after the first year.
For a discount rate of 3%, the present value of X is ~$3255 and of Y is $3000. If we treat these as the only two options, then we would clearly go with X.
But those aren't the only two options. After 30 years of implementing X, the discounted value of the 70 years remaining under X is less than $3000. So to maximize the benefits of our policies, we should run X for 30 years and then do Y.
If you imagine that X is "preserving a natural resource" and Y is "harvesting that resource" (where the resource will naturally disappear even under X in 100 years), this may be more clear.
The point is that we shouldn't think of policies as being unchangeable--indeed, taking into account the incentives of future policymakers should be an important step in major decision-making (RAND has a freely downloadable monograph on the subject here).
How can time play into your decisions?
Hell, it can be hard to think about 100 options simultaneously. What's the highest number of reasonably simple options you can consciously consider at the same time? 50? 20? 10? 5?
For most policy decisions, I'd say we tend to think in terms of two choices at a time. Do we cut down this forest, or do we not? Do we make gay marriage legal or not? Do we X, or not?
Sometimes, if we're really ambitious, we might consider three choices. Do we raise interest rates, lower interest rates, or keep them the same?
But even for situations where we are considering only two options, we have to recognize that there are usually near-infinite implicit options. The key is timing.
Let's say we have two potential policies, X and Y. X will provide benefits of $100/year for 100 years, and Y will provide $3000 the year it is implemented, but will never allow X to be implemented thereafter nor provide any benefit after the first year.
For a discount rate of 3%, the present value of X is ~$3255 and of Y is $3000. If we treat these as the only two options, then we would clearly go with X.
But those aren't the only two options. After 30 years of implementing X, the discounted value of the 70 years remaining under X is less than $3000. So to maximize the benefits of our policies, we should run X for 30 years and then do Y.
If you imagine that X is "preserving a natural resource" and Y is "harvesting that resource" (where the resource will naturally disappear even under X in 100 years), this may be more clear.
The point is that we shouldn't think of policies as being unchangeable--indeed, taking into account the incentives of future policymakers should be an important step in major decision-making (RAND has a freely downloadable monograph on the subject here).
How can time play into your decisions?
Friday, January 2, 2009
Unintended Positive Consequences
To paraphrase a midterm question from Economics of Law last quarter:
I said yes, that the law would tend towards efficiency by the principle behind stare decisis, that people would adapt their lives to the predictable environment created by the law and thereby improve social welfare.
This response, while perhaps interesting in its own right, fails to answer the more basic question of whether the law becomes more efficient over time under these conditions. The correct response was "yes, because cases brought to court will tend to be produced by socially inefficient arrangements, so even random decision-making will slowly resolve social inefficiencies."
It's not that I had simply been wrong; I wasn't even thinking of the problem in an open enough frame of mind.
I had essentially taken the status quo and asked how the system would respond to this impulse. The question was looking for an analysis of the parameters of the system, not its evolution.
In determining questions of public policy, we have to remain similarly open to this kind of analysis, lest we fall prey to the Lucas critique. Too often we assume that the lack of a central decision-maker is a problem.
If judges decide cases by flipping a coin, should we expect the law to tend toward efficiency?
I said yes, that the law would tend towards efficiency by the principle behind stare decisis, that people would adapt their lives to the predictable environment created by the law and thereby improve social welfare.
This response, while perhaps interesting in its own right, fails to answer the more basic question of whether the law becomes more efficient over time under these conditions. The correct response was "yes, because cases brought to court will tend to be produced by socially inefficient arrangements, so even random decision-making will slowly resolve social inefficiencies."
It's not that I had simply been wrong; I wasn't even thinking of the problem in an open enough frame of mind.
I had essentially taken the status quo and asked how the system would respond to this impulse. The question was looking for an analysis of the parameters of the system, not its evolution.
In determining questions of public policy, we have to remain similarly open to this kind of analysis, lest we fall prey to the Lucas critique. Too often we assume that the lack of a central decision-maker is a problem.
Thursday, January 1, 2009
Spaceport America
The world finally will have a spaceport.
I'll discuss in future posts why I think it so important that humans develop extra-planetary colonies. For now, let's just say I think it should be one of the highest priorities for the world over the next hundred years.
The details are somewhat more complicated than that assertion makes it sound. This spaceport project is an important step, allowing commercial ventures to make progress in an area thoroughly dominated by government. While government ventures are going to be integral to any colonization program--I find it pretty unlikely that governments are going to allow the monopolization of a planet--private corporations have stronger and more consistent incentives to promote space travel.
The real problem in the near-term is how property rights should be allocated in space--and by whom. As in Antarctica, there isn't yet an "owner" of space, and therefore it's a nontrivial problem to distribute or acquire rights. An international organization set up to manage such issues would have a great deal of power over the next major step for civilization, so the politics involved may be difficult to resolve in the near term.
The best we have so far is the UN Office for Outer Space Affairs. You tell me: does that look robust or empowered enough to handle the vast and varied needs of our future in space?
I'll discuss in future posts why I think it so important that humans develop extra-planetary colonies. For now, let's just say I think it should be one of the highest priorities for the world over the next hundred years.
The details are somewhat more complicated than that assertion makes it sound. This spaceport project is an important step, allowing commercial ventures to make progress in an area thoroughly dominated by government. While government ventures are going to be integral to any colonization program--I find it pretty unlikely that governments are going to allow the monopolization of a planet--private corporations have stronger and more consistent incentives to promote space travel.
The real problem in the near-term is how property rights should be allocated in space--and by whom. As in Antarctica, there isn't yet an "owner" of space, and therefore it's a nontrivial problem to distribute or acquire rights. An international organization set up to manage such issues would have a great deal of power over the next major step for civilization, so the politics involved may be difficult to resolve in the near term.
The best we have so far is the UN Office for Outer Space Affairs. You tell me: does that look robust or empowered enough to handle the vast and varied needs of our future in space?
Starting and Ending with a Resolution
This is my resolution: to post once daily on this blog for at least the entire year.
This blog is about ideas. Not all will originate with me--indeed, I expect that I'll base the majority of these posts on a theme someone else brought to my attention. However, I will do my best to make an interesting, original contribution.
If you have any suggestions for topics, want to comment on a post, or would like to get in touch with me for any reason, you can reach me at cmilroy[at]uchicago.edu or chris.milroy[at]gmail.com.
365 posts. That should be quite the journey. It might be the biggest project I've ever undertaken.
We'll see what the resolution will be.
This blog is about ideas. Not all will originate with me--indeed, I expect that I'll base the majority of these posts on a theme someone else brought to my attention. However, I will do my best to make an interesting, original contribution.
If you have any suggestions for topics, want to comment on a post, or would like to get in touch with me for any reason, you can reach me at cmilroy[at]uchicago.edu or chris.milroy[at]gmail.com.
365 posts. That should be quite the journey. It might be the biggest project I've ever undertaken.
We'll see what the resolution will be.
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