I found this interesting, but was sort of profoundly unconvinced.
I found this (and linked) discussion of the grid especially interesting (the grid is a personal interest for me). I think we would both agree that a national grid system would result in better real productivity, stability, etc. but I think we might disagree about the causes of dysfunction and desirable form. I see the current fragmented and comically insufficient electric grid as the result of a long and intense history of borderline nationalization. Further, I see that certain (fundamentally normative) supply side interventions (Tax credits for VREs) substantially contribute to grid insufficiency. broadly, though, I think we agree strongly that an integrated national (continental?) grid would be an improvement.
I guess I have the following questions (phrased as statements):
You seem to present profit in strong normative terms, but isn't profit also (actually?) just a positive (in the economic sense) signal that investing capital in a firm is likely to be productive? I mean, from a financial accounting perspective, the only reason firms even deign to allow profits to accrue to shareholders under the Bearle Means regime is to signal fitness to (and so maintain access to) capital markets. I think I understand that part of the answer here is a distinction between profit from production and profit from rent.
Going back to electric markets, it seems that a lot of the markets you point out as the biggest failures are, in fact, the most regulated. Electric markets have never been free markets, housing is a hyper regulated market (on the supply side no less!), healthcare, etc. How would you respond to someone (like me) who thinks that the failure of these markets (and others, food, transportation, etc.) is a byproduct of massive over intervention on the supply side?
Speaking of housing and supply side regulation, say you construct a fantastically robust supply side regulatory regime... What happens when it falls into the hands of people who have a different set of normative values than you do? I am personally concerned about the development of supply side power because I think a lot of it serves to prop up and intensify the military industrial complex. Most supply side talk in the news right now today is focused on making sure we can keep doing an arms race with China. Less catastrophically (maybe more), we, as a society have made the normative decision that suburban sprawl is good and we should do supply side interventions that enable it. Stipulating that supply side interventions are effective economically, I would still probably be VERY wary of building a powerful machine for good because its really just a powerful machine for whoever is in charge atm...
At the beginning, you say that monetary policy is a demand side intervention, but isn't there an argument to be made that interest rate fixing is like the ultimate supply side intervention?
The biggest frustration I have with this piece is that it fails to address the elephant in the room which is that a major economic power executing full spectrum supply side control to advance full employment, real productivity and (nominally) human thriving has been tried and has failed catastrophically leaving behind one of the poorest and most belligerent large states on the planet. Did GOSPLAN do a good job and something else went wrong? How is your plan different and better than GOSPLAN? On the other hand, China is experiencing very impressive growth by employing supply side interventions (I think that economic catch up is a good use of supply side intervention, but the US is not playing catch up w anyone.) How is your plan similar or different to China's use of capital controls, 5-year plans, etc. I think I understand that talking about the past or a "rival" (as people are fond of calling China) might not seem like it fits into a vision statement like this, but I guess I am very curious...
Lastly, have you read Seeing Like a State or Red Plenty?
Obviously, I have very strong market priors, but genuinely interested to hear from people who obviously have more economics than me and challenge those priors.
I agree with pretty much everything you wrote Emory, although I would like to add my own two cents about profitability, standards of living, and the Soviet Union/top-down control.
First profitability. People seem to think that firms being unwilling to invest in things like grid upgrades is a sign of greed. It sometimes is that: why invest when you can spend your money on luxury goods and/or never work again. But I think like Emory says, profitability is more often an indication that it doesn't make sense to do a certain activity because we're not getting an appropriate return (I prefer to think of this in terms of energy, but you can also think about $$, or another form of measuring value). I believe this is because declining stocks of natural resources have made activities that were formerly profitable to no longer be so. It makes a lot of sense to open a copper mine where you can mine 20% grade ore, but much less when the ore is only 0.1%.
Secondly, I think that many of the problems we have can be solved by maybe accepting that our ways of doing things don't necessarily deserve to be propped up. Europeans use about 50-60% of the electricity we do for a similar, if perhaps superior standard of living. If we shrunk our footprint by 50% almost all of the current problems with the grid would be solved. Same with housing (and healthcare). The city where I live (Baltimore) has far more than enough housing units, but many of this are vacant because of lack of use. What if we focused on filling those vacancies instead of building new housing in the suburbs.
Finally, as Emory states, supply side control of this stuff has been tried. The Soviet Union is the most extreme example, and while I have a more positive view of the success of that nation (especially when it comes to electricity production, education, and healthcare), the Soviet Union did not last because broad supply side control could not meet the demands of every day people. Even in other countries with partial supply-side control (of healthcare for example), the system has broken down nearly as fast as in the USA. I believe this is because of fundamental energy constraints and the declining EROI of our fossil fuel base, but the fact remains that the supply-side system isn’t really robust either.
I found this interesting, but was sort of profoundly unconvinced.
I found this (and linked) discussion of the grid especially interesting (the grid is a personal interest for me). I think we would both agree that a national grid system would result in better real productivity, stability, etc. but I think we might disagree about the causes of dysfunction and desirable form. I see the current fragmented and comically insufficient electric grid as the result of a long and intense history of borderline nationalization. Further, I see that certain (fundamentally normative) supply side interventions (Tax credits for VREs) substantially contribute to grid insufficiency. broadly, though, I think we agree strongly that an integrated national (continental?) grid would be an improvement.
I guess I have the following questions (phrased as statements):
You seem to present profit in strong normative terms, but isn't profit also (actually?) just a positive (in the economic sense) signal that investing capital in a firm is likely to be productive? I mean, from a financial accounting perspective, the only reason firms even deign to allow profits to accrue to shareholders under the Bearle Means regime is to signal fitness to (and so maintain access to) capital markets. I think I understand that part of the answer here is a distinction between profit from production and profit from rent.
Going back to electric markets, it seems that a lot of the markets you point out as the biggest failures are, in fact, the most regulated. Electric markets have never been free markets, housing is a hyper regulated market (on the supply side no less!), healthcare, etc. How would you respond to someone (like me) who thinks that the failure of these markets (and others, food, transportation, etc.) is a byproduct of massive over intervention on the supply side?
Speaking of housing and supply side regulation, say you construct a fantastically robust supply side regulatory regime... What happens when it falls into the hands of people who have a different set of normative values than you do? I am personally concerned about the development of supply side power because I think a lot of it serves to prop up and intensify the military industrial complex. Most supply side talk in the news right now today is focused on making sure we can keep doing an arms race with China. Less catastrophically (maybe more), we, as a society have made the normative decision that suburban sprawl is good and we should do supply side interventions that enable it. Stipulating that supply side interventions are effective economically, I would still probably be VERY wary of building a powerful machine for good because its really just a powerful machine for whoever is in charge atm...
At the beginning, you say that monetary policy is a demand side intervention, but isn't there an argument to be made that interest rate fixing is like the ultimate supply side intervention?
The biggest frustration I have with this piece is that it fails to address the elephant in the room which is that a major economic power executing full spectrum supply side control to advance full employment, real productivity and (nominally) human thriving has been tried and has failed catastrophically leaving behind one of the poorest and most belligerent large states on the planet. Did GOSPLAN do a good job and something else went wrong? How is your plan different and better than GOSPLAN? On the other hand, China is experiencing very impressive growth by employing supply side interventions (I think that economic catch up is a good use of supply side intervention, but the US is not playing catch up w anyone.) How is your plan similar or different to China's use of capital controls, 5-year plans, etc. I think I understand that talking about the past or a "rival" (as people are fond of calling China) might not seem like it fits into a vision statement like this, but I guess I am very curious...
Lastly, have you read Seeing Like a State or Red Plenty?
Obviously, I have very strong market priors, but genuinely interested to hear from people who obviously have more economics than me and challenge those priors.
I agree with pretty much everything you wrote Emory, although I would like to add my own two cents about profitability, standards of living, and the Soviet Union/top-down control.
First profitability. People seem to think that firms being unwilling to invest in things like grid upgrades is a sign of greed. It sometimes is that: why invest when you can spend your money on luxury goods and/or never work again. But I think like Emory says, profitability is more often an indication that it doesn't make sense to do a certain activity because we're not getting an appropriate return (I prefer to think of this in terms of energy, but you can also think about $$, or another form of measuring value). I believe this is because declining stocks of natural resources have made activities that were formerly profitable to no longer be so. It makes a lot of sense to open a copper mine where you can mine 20% grade ore, but much less when the ore is only 0.1%.
Secondly, I think that many of the problems we have can be solved by maybe accepting that our ways of doing things don't necessarily deserve to be propped up. Europeans use about 50-60% of the electricity we do for a similar, if perhaps superior standard of living. If we shrunk our footprint by 50% almost all of the current problems with the grid would be solved. Same with housing (and healthcare). The city where I live (Baltimore) has far more than enough housing units, but many of this are vacant because of lack of use. What if we focused on filling those vacancies instead of building new housing in the suburbs.
Finally, as Emory states, supply side control of this stuff has been tried. The Soviet Union is the most extreme example, and while I have a more positive view of the success of that nation (especially when it comes to electricity production, education, and healthcare), the Soviet Union did not last because broad supply side control could not meet the demands of every day people. Even in other countries with partial supply-side control (of healthcare for example), the system has broken down nearly as fast as in the USA. I believe this is because of fundamental energy constraints and the declining EROI of our fossil fuel base, but the fact remains that the supply-side system isn’t really robust either.