Lynne Kiesling

Interesting post and comments over at Grant McCracken’s place about Coldplay, their new album, and their disdain for corporate shareholders.

I really encourage you to read the whole post and comment thread. A teaser, though, because I really treasure Grant’s open, forward-looking vision as articulated here:

Ours is no longer a dual world that distinguishes artists into two mutually exclusive camps: popular and credible. It’s now a continuum and we have seen artists learn to work the continuum in a variety of ways.

One of these is to release a stream of albums, some of which are frankly popular, others frankly difficult. Martin’s wife, Gwyneth Paltrow appears to chose her film roles according to this rule. Another is to fill a single album with work that is both popular and difficult. A third is to make single songs that have this mix of the popular and difficult.

Contemporary culture has opened up. The audience is no longer either clueless or hip. Everyone, I think, is a good deal more sophisticated than we used to be. That means that new multiplicity rules apply and we are interested in a variety of music. More than that, we are interested in artists who are sufficiently mobile to work the creative continuum.

The last thing we want is to witness celebrity self destruction that comes from the anxiety that they are not “serious” and “artistic” enough. Chris, dude, you don’t have to choose anymore.

BTW, Coldplay’s new album, X&Y, will be released a week from today. I like the music, I like Chris Martin’s voice, I don’t like the lyrics. Two out of three …


Lynne Kiesling

I don’t read Left2Right, largely because I don’t like politics. But this post from Elizabeth Anderson about Hayek’s arguments for procedural rules for public support to those who cannot “play the game” is insightful and thought-provoking. Many of the comments are also worth reading, in particular the one from economist Steve Horowitz.

Hat tip: Will Wilkinson. Thanks, man! I owe you a beer next time …


Lynne Kiesling

About five weeks ago, when I was in France, I pondered the upcoming French referendum on the EU Constitution. I certainly concluded that it was a curate’s egg, with the (extremely few) excellent bits being what, according to Glenn Reynolds, induced

French free-market activist Sabine Herold [to support] the EU because she thought that only an external institution could break the power of the French unions.

Yes, but … the distance between the Lisbon protocols (free-trade, transparency, lower bureaucracy) and this iteration of this Constitution is sizeable. My hunch is that this defeat will open up a more honest discussion of the internal economic and cultural tensions within the EU, and may even make the Lisbon protocols all the more possible than the Constitution would have.

Mr. Seat also has some choice links. I think it’s pretty clear that this document is a Constitution no one can love. The entitlement class fears competition. The political elite want to maintain their power and keep European government bureaucratic and elitist (a Constitution of 485 pages? Please!), and the attempt to drape democracy around that power and call it a Constitution was pretty flimsy and transparent. Or at least that’s the conclusion I drew about why it was a bad institutional change, notwithstanding Sabine Herold’s argument that exogenous institutional change is necessary to break the French unions.

I particularly enjoyed today’s Wall Street Journal editorial on the vote:

The French vote is a victory of democracy against an opaque and elite process that few people really understood. It is also a defeat for those leaders, notably French President Jacques Chirac, who have been unable to deliver on what they promised from a united Europe. The defeat shouldn’t be seen as a renunciation of “Europe” writ large, so much as for a particular narrow vision of the Continent.

The document itself is a monstrosity running to 485 pages. As a flavor of its character, consider that one of the treaty’s “annexes and protocols” concerns the right of the Sami people to husband reindeer. …

The prevailing view among European elites was summed up by a senior EU bureaucrat we spoke to last month who said about the French and the constitution: “They haven’t read it. If they had read it, they wouldn’t understand it. If they understood it, they wouldn’t like it.” Nonetheless, he thought that the French should vote yes anyway.

Then, about six weeks ago, something unusual happened: Opinion polls suggested for the first time that the French referendum on ratification might fail. And even more remarkable, a debate erupted. It was messy and often uninformed, but at bottom people had started to ask themselves, what should the EU be?

In answering that question, the French may well have done the right thing for the wrong reason. The opposition included much of the political left, which derided the constitution as an ultra-liberal (in the classical sense of liberal), Anglo-Saxon thing, destined to strip Europe of its social-welfare model. At the same time, Mr. Chirac asserted that the constitution was France’s only bulwark against the encroachment of Anglo-Saxon-style capitalism.

And of course the selection of Dominique de Villepin as prime minister reinforces Chirac’s commitment to the Titanic that is the French social-welfare model.

Watching this play out is going to be interesting. I hope some constructive, small-l-liberal voices get a good listen this time, instead of just being dismissed with a disdainful Anglo-Saxon stereotype. While the rest of life disintermediates, decentralizes, and distributes, why shouldn’t EU institutions? If the EU can’t survive that, then it’s not really that robust a federation, is it?

Part of the challenge is that the European political elite has been trying to build a top-down federation, when it’s bottom-up federations that are evolutionarily robust and adaptable. Can these political elites sincerely craft a bottom-up constitution for a federation?


Michael Giberson

I’m puzzled. Earlier this year I was involved in a project examining natural gas price volatility, and as part of the background work I examined circuit breakers in futures contracts. As it turned out, the circuit breaker on the NYMEX natural gas futures contract was the most permissive by a wide margin.

Circuit breakers are market rules that trigger a temporary stop in trading when a price moves by more than a specified amount compared to the previous day’s close. In some cases, the circuit breaker simply prevents price movements beyond the limits without a stop in trading. For example:

  • Price movements on frozen pork bellies at the Chicago Mercantile Exchange are limited to 3 cents per pound up or down from yesterday’s closing price.

  • Prices movements on corn futures on the Chicago Board of Trade are limited to 20 cents per bushel up or down.
  • Price movements on NYMEX copper futures of 20 cents per pound will trigger a 15-minute suspension of trading. Trading will resume with the circuit breaker expanded to 40 cents above or below the previous day’s closing price.

As of March 24, when I compiled the information, these price limits represented a little over 3 percent for frozen pork bellies, about 9.5 percent for corn futures, and under 14 percent for copper.

In contrast, it would take a price movement for NYMEX natural gas futures of $3 per mmBTU, or more than 40 percent of the price as of March 24, to trigger a 5-minute trading suspension. Trading resumes with a circuit breaker expanded to $6 per mmBTU; hitting that limit triggers another 5-minute trading suspension and another $3 expansion of the circuit breaker. There is no maximum trading limit during any trading day.

At the cost of a single five-minute stoppage in trading, prices would be permitted to swing as much as $6 per mmBTU above or below yesterday’s closing price. Today’s price is about $6.30 for June delivery, meaning after a single trade stoppage prices could range from $0.30 to $12.30.

This is my puzzle: Such a limit is hardly relevant to market activity, so why does NYMEX bother to have the limit at all?

The academic literature on circuit breakers focuses mostly on stock market trading, not commodities futures. Some articles suggest that circuit breakers could be destabilizing, because traders fearing a trade stoppage may rush to trade before the stoppage, a rush to trade that itself may bring about the price movement triggering the stoppage. One article worried that trading halts would interfere with the continuous trading that promotes efficient price discovery.

Other articles point out that a trade stoppage may allow markets and brokers time to issue margin calls, or otherwise adjust to unusual trade volumes or price changes. In addition, to the extent that price limits reduce price risk, lower margin requirements may be allowed.

An interesting paper by Kodres and O’Brien in the 1994 American Economic Review suggests that price movement limits may be efficiency enhancing for hedgers, but not for speculators. Such a differential impact may explain the popularity of circuit breakers on commodity markets.

However, all of these articles assume that the circuit breaker is at least potentially binding. For all practical purposes, the circuit breaker on NYMEX natural gas futures contract doesn’t bind. So why does the NYMEX have such a limit on natural gas futures contracts?


Lynne Kiesling

So we stayed up late Thursday night to watch the replay of the Liverpool-AC Milan UEFA Champion’s Cup match, which we had not seen on Wednesday as we were both working. What a hum-dinger of a game! Definitely the best comeback story I’ve seen in a long time. I stayed up through the 2 overtimes, but I was too tired to stay up for the winning PK (and I have to say, PKs are boring, so I preferred sleep).

The second half was great, particularly after Liverpool tied it up. From then on it was a soccer lover’s soccer match, with most of the strategy and action being midfield play. As an old midfielder myself, I have to say that’s my favorite kind; it’s not sexy or glamorous, but it’s intelligent and strategic, and you can really see the core strength of the teams. That said, Liverpool’s defense in the 2nd half was really impressive, especially Stephen Gerrard.

I don’t consider Liverpool “my team” the way Courtney does, being a Manchester City fan myself. But I do cheer for British teams in international matches, unless it’s World Cup and they’re playing the US. So I was happy with the outcome. And I really like this essay from the London Times correspondent Alyson Rudd. She’s got a great quote to which I can relate:

I had dreamt a lot about the European Cup final. The usual stuff. Liverpool losing. Me playing in it. Having to leave before the end because I had a hair appointment. All very silly but not as utterly ludicrous as the truth.

Too true, especially the hair appointment bit. Plus, I have to say, I am happy to see that there are other women out there blathering about this too, not just the usual “Fever Pitch” guy crowd.

Didn’t hurt that Liverpool midfielder Xabi Alonso is easy on the eyes, either …


Lynne Kiesling

For years Warren Buffett has been saying that there is a lot of untapped, uncreated value to be unleashed in the electricity industry. Berkshire Hathaway’s acquisition of PacifiCorp, a retail utility in the Pacific Northwest, is its first large acquisition in seven years.

Long-time KP readers know that this is the kind of dynamic, entrepreneurial activity that the industry desperately needs in order to generate some capital flow and some implementation of new thinking, new business models, and new technology. I commented on Buffett’s electricity interests twice in summer 2002, after acquiring a natural gas pipeline from Dynegy and when Berkshire Hathaway provided financing for Williams.

Buffett certainly knows what he’s getting in to, which is a byzantine rat’s nest of inertial regulatory institutions. The core of that nest is PUHCA, the Public Utility Holding Company Act of 1935. I summarized PUHCA and the arguments for and against its repeal in a post from June, 2002. In the three years since I wrote that, my belief that PUHCA is obsolete and detrimental to the public interest (by which I mean detrimental to the well-being of customers and forward-looking, entrepreneurial producers) has only solidified. All of the Congressional energy bill proposals of the past three Congresses have had provisions for the repeal of PUHCA. I continue to think that those provisions are the only parts of the energy bill worth passing. PUHCA was passed to address harms that no longer exist.

Furthermore, it creates additional layers of merger approval by putting SEC and FERC fingers in the regulatory pie. Last time I checked, we had a regulatory agency whose primary focus is mergers (that would be the DOJ), and which follows a public and transparent set of merger guidelines that make the lay of the land a lot clearer than the merger provisions under PUHCA. I am no fan of antitrust and merger regulation (last week at the PFF IRLE workshop my friend Howard Shelanski called me a “strong Schumpeterian” because of that skepticism about antitrust regulation), but in this world of incremental institutional change, it’s superior to deeply meshed, high transaction cost reality that is PUHCA. PUCHA has got to go. This PacifiCorp transaction, and a couple of other cross-regional utility mergers, might even put PUHCA before the Supreme Court. Good. Let ’em at it, since Congress lacks the gumption to unravel 70 years of obsolete law.

This obsolete law and its cousins, state rate-of-return regulation, have led to strong feelings of customer entitlement to low, stable rates. According to this article in today’s Portland Tribune,

MidAmerican Energy Holdings Co. may think it would score a vibrant electric utility in proposing to buy PacifiCorp for $5.1 billion, but it still is walking into a tough regulatory market, a former state regulator says.

The unit of billionaire Warren Buffett’s Berkshire Hathaway Inc. also is likely to face some of the same consumer groups that helped derail the Portland General Electric sale to Texas Pacific Group.

“Everyone will have trouble,” predicted Joan Smith, a former chairwoman of the Oregon Public Utility Commission who now serves on the Idaho Power board of directors. “Now that intervenors have smelled blood, they want more. They’ll want rate relief. (MidAmerican) will have to fight for every nickel they get in a rate case because the regulatory scene is hostile.”

At the very least, the Citizens Utility Board of Oregon and other groups want reductions in rates for local consumers. “I think we need to make sure this process is as robust as all the others that we’ve gone through,” said CUB’s counsel, Jason Eisdorfer.

What galls me about this mindset, which I agree is very real, is the blinkered, narrow conception of consumer well-being that persists in this industry. PacifiCorp was for sale because there are lots of capital investment projects that are needed, but the ones that can deliver real value to customers and to shareholders, that involve innovative technologies and new services and product offerings, are off the table when the so-called consumer advocates hammer away at low rates, low rates, low rates. Doesn’t it occur to them that lots of folks are willing to pay more to get a better quality product in lots of different industries? Why continue to ghettoize electric service with the red herring claim that electricity is different? Why continue to hold all customers back just to ensure that low income customers can afford service, instead of bolstering targeted low-income programs and letting the rest of us create the opportunity for entrepreneurs to come up with different offerings and business models?

I hope this acquistion, and other recent mergers, spark a pushback against these ossified and obsolete notions of customer value and public interest. If they don’t, I worry that distribution utilities will come too late to the realization that the world is changing, and that they have to change to stay valuable and relevant. It’s becoming more and more possible for us to innovate around utilities, and with the persistence of PUHCA, stale utility business models, and the shrill, narrow focus of so-called consumer advocates, institutional inertia will only exacerbate that dynamic.


Lynne Kiesling

While I’m over at Crooked Timber, Eszter Hargittai recently had an interesting post on disciplinary boundaries and some of the difficulties of doing interdisciplinary work. Henry Farrell follows up with, among other things, a very insightful extended quote from Susanne Lohmann and from a follow-on post from physicist Cosma Shalizi. See also MeshForum for more networking on social networks.

I think universities are not very good at providing incentives and evaluation to make good interdisciplinary work happen, for many of the reasons that Lohmann cites. This is too bad, because I think interdisciplinary boundaries are where a lot of the most fruitful ideas are currently found.