Archive for October, 2009

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Some complexity-based thoughts on macro

October 26, 2009

Lynne Kiesling

I am doing a lot of reading and thinking, trying to make some headway on a way-overdue paper, and have been reading a striking working paper from David Colander, Richard Holt, and Barkley Rosser, “The Complexity Era in Economics” (August 2009). Their insights are directed toward the evolution of economics methodology and the absorption of complexity-related concepts and techniques. In addition to being relevant to my own work on regulatory institutions and technological change, I found the paper insightful in the context of the discussion a couple of weeks ago about this year’s new institutional economics Nobel prize and the dominant methodological hegemony in economics.

One of their interesting observations is also pertinent to the reexamination of macroeconomic theory in light of the financial market context of the past year and a half. This quote, in particular, illustrates what I find especially striking in macroeconomics:

However, while the new theoretical models have done a good job in eliminating the old theory, it is less clear as to what the new theoretical work has added to our understanding of the macro economy. At best, the results of the new macro models can be roughly calibrated with the empirical evidence, but often the calibration of these new models is no better than any other model, and the only claim they have to being preferred is aesthetic—they have micro foundations. However, it is a strange micro foundation—a micro foundation based on assumptions of no heterogeneous agent interaction, when, for many people intuitively, it is precisely the heterogeneous agent interaction that leads to central characteristics of the macro economy.

It’s also interesting that in that section they footnote Leijonhufvud, who wrote the only macroeconomic theory that I ever felt like I had any kind of grasp on, On Keynesian Economics and the Economics of Keynes:A Study in Monetary Theory.

If you haven’t had you fill of current critiques of macro theory, and you are interested in reading their thoughts on the evolution of economics to incorporate the analysis of economic systems as complex adaptive systems, I recommend this short working paper.

Posted in Complexity, Economics | Tagged , , | Comments Off

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Attorneys General in Virginia and North Carolina continue to prosecute Hurricane Ike price gouging cases

October 26, 2009

Michael Giberson

Another few price gouging cases settled by the Attorneys General of Virginia and North Carolina arising from complaints filed during Hurricane Ike in September 2008.  From North Carolina, via the AG’s press release:

Cooper filed suit in October of 2008 against Steve Compton, owner and manager of Tire Pro, also known as Troy BP, located at 104 Courthouse Square in Troy, contending that the gas station raised its prices on September 12, 2008 from less than $4 a gallon to $5.99 per gallon. Fortunately, no consumers purchased gas at that inflated price, according to the Attorney General’s investigation.

To resolve price gouging claims, Compton will pay $2,000 to an energy assistance fund, $5,000 in civil penalties to North Carolina schools, and $800 to cover the costs of the investigation. [Read the settlement agreement with Compton.]

Links, in the original press release, show the text of the state’s complaint and the settlement agreement.  So “no consumers purchased gas at that inflated price,” but the price gouging claim sticks, anyway?  And what’s with using price gouging cases to raise money for North Carolina schools and energy assistance funds?  The AG also settled a claim against another retailer who in fact sold gasoline at as much as $5.679 on similar terms.

North Carolina TV station WRAL has a related story online which includes links to several related stories from over the past year.

In Virginia, last Friday the AG announced a price gouging settlement with a retailer in Appomattox County:

“Virginia’s Post-Disaster Anti-Price Gouging Act leaves room for standard market forces to work in times of disaster and prohibits only the charging of unconscionable prices for necessary goods and services during those rare times,” Attorney General Mims said. “I am hopeful that our seventh price gouging settlement will send the message that we intend to enforce our statute. We will continue to do so in a reasonable and fair manner.”

In the Complaint filed along with the Assurance, the Attorney General alleges that certain prices Pamplin Exxon charged for gasoline on the evening of Friday, Sept. 12, 2008, were unconscionable as grossly exceeding the price the station charged during the 10 days immediately before the declaration. …

The settlement enjoins Pamplin Exxon from engaging in any of the practices alleged … and requires Pamplin Exxon to set aside $500 for consumer restitution.

… The settlement further requires Pamplin Exxon to pay $1,250 to reimburse the Commonwealth for its costs, investigative expenses and attorneys’ fees in this matter. And the settlement requires Pamplin Exxon to make a contribution of $500 to the Salvation Army for disaster relief purposes. This payment is in lieu of a payment of civil penalties.

See also the  story from the Lynchburg, VA News and Advance.  The story mentions an earlier settlement of a price gouging complaint in the area for a station that had raised prices for only 12 hours.

Curious: the North Carolina Attorney General charged the object of its attention only $800 for the costs of the investigation while the Virginia Attorney General charged $1,250.  The Virginia price is more than 50 percent higher than the North Carolina price for cases announced on the same week.  Is rampant inefficiency making the costs of state legal activity much higher in Virginia, or is the AG’s office “gouging” gasoline retailers charged with price gouging?

(On the other hand, Virginia apparently demands – I’m resisting the term “extorts,” but it seems to fit – a much lower contribution to vaguely-related charitable organizations as the price of avoiding civil penalties.)

Posted in Energy markets, Politics | Tagged , , | 2 Comments »

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Post-season tournament design: Seeding issues

October 26, 2009

Michael Giberson

The NCAA post-season basketball tournament is seeded such that better teams are paired against weaker teams in the first round.  In fact, the highest seeded team is paired against the weakest team, the second highest seeded team against the next weakest team, and so on.  If the better seeded teams win each game, the pattern of highest seed against lowest remaining seed carries over into the second, third, and forth round.

However, as Robert Baumann, Victor Matheson, and Cara Howe of the College of the Holy Cross point out in a paper, “Anomalies in Tournament Design: The Madness of March Madness,” if a lower seeded team wins a game, then the pattern of matching the strongest team to the weakest will not hold in the NCAA b-ball tournament. For example, if in the first round #1 beats #16, #7 beats #10, and #8 beats #9, but #2 loses to #15, then the second round will feature #1 playing #8, but #7 playing #15. The first round upset by #15 in effect rewards #7 with a (purportedly) easier match than the #1 seeded team faces.

The result is an anomalous blip in the pattern of teams advancing from the second round to the third round:

While a number 10, 11, 12 seed has a lower chance of advancing to the second round than an 8 or 9 seed, their chances of advancing to the third round are much higher than those of 8 or 9 seeds. In fact, number 10 seeds have advanced to the third round, known as the sweet sixteen, 6 times as often as number 9 seeds and over twice as often as number 8 seeds.

Interesting, and those third round games are high profile “Sweet Sixteen” games.

This surprising result is easily explained by the lack of reseeding. First, while number 10 seeds are less likely to advance to the 2nd round than a number 8 or 9 seed, once they get there they will face a number 2 seed or perhaps even a number 15 seed in the event of a first-round upset. An 8 or 9 seed will almost certainly face a tougher 2nd round opponent since number 1 seeds are stronger than number 2 seeds and number 1 seeds are less likely to be upset in the first round. Similarly, number 11 and 12 seeds likely face weaker number 3 or number 4 seeds, respectively, in the second round and are far more likely to benefit from first round upsets than number 8 and 9 seeds. These advantages in the second round outweigh the disadvantages seeds 10 through 12 face in the first round of the competition.

They calculate that each tournament game win yields over $1 million in direct revenue from the NCAA to the schools athletic conference over six years, and observe there are other less tangible benefits, so the extra tournament games played by #10 seeds is significant.

The authors note that, in theory, reseeding the tournament at each round would eliminate the problem.  However, reseeding could require substantial shifts by teams between venues in between each round, which would significantly complicate the scheduling for teams and fans.  In addition, popular forms of gambling on the tournament are based on the fixed seeded approach.  The authors suggest the NCAA would be loathe to admit it, but also loathe to upset the role that March Madness plays in popular American culture.  As a result, they expect the anomalous success of #10 seeds to live on.

(HT to Daniel Houser at George Mason University.

Recall that GMU was a #11 seed the year they reached the Final Four.  They upset #6 Michigan State in the first round, so in the second round a #3 seed played a #11 seed, while the higher-seeded #2 faced a higher seeded #7.  As it turned out, both the #3 – North Carolina – and #2 Tennessee lost, and in the third round #11 GMU faced off against #7 Wichita State, while #1 Connecticut had to face #5 seeded Washington.)

Posted in Economics, Professional sports | Tagged , , | 4 Comments »

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New transmission lines are the last thing renewable power needs, says John Harrell

October 26, 2009

Michael Giberson

On Marc Gunther’s blog, a guest post by John Harrell of the Institute for Local Self-Reliance argues that the “last thing renewable energy needs right now are new transmission lines.”  The view is not, he admits, shared by folks in the renewable energy business.  The ILSR has a second edition out of a report, Energy Self-Reliant States, which says that three out of five states could generate all of their power from in-state sources.  The report allows the in-state transmission improvements may be necessary, but inter-regional lines less so.

I tend to believe that the benefits from transmission and long-distance trade in electric power usually outweigh the costs associated with relying on non-local resources.   While I agree that “local self-reliance” in energy may be possible, I don’t think most people are willing to pay the price of such extreme energy independence.

(And, of course, it is a funny kind of local self reliance that involves importing your solar panels from manufacturers in other communities.  Energy-independence types may want to start developing their local community silicon chip fabrication skills.)

Posted in Electricity, Politics | Tagged | 5 Comments »

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Power consumers in New York and New England markets rely on imports from Canada

October 25, 2009

Michael Giberson

Power consumers in New York and New England markets rely on imports from Canada, so they may be interested in discussions between Quebec and New Brunswick that would give Quebec more control over power delivered from Eastern Canada into the Northeastern United States.

The Globe and Mail reports:

Quebec and New Brunswick are closing in on a $10-billion deal that would see Hydro-Québec take over key assets of debt-laden New Brunswick Power, a controversial move that would give Quebec a stranglehold over access to electricity markets in the northeastern United States.

A final agreement must still be approved by the respective governments, but could be announced early next week.

… [Under the deal] Hydro-Québec would acquire assets of New Brunswick Power, take over its $4.7-billion debt, and supply the province with power at rates that represent $5-billion in savings for residential and industrial power users.In exchange, Quebec would get greater access to the New Brunswick market and the transmission corridor to major U.S. markets – a significant benefit given Hydro-Québec’s expansion plans and the slump in electricity demand in North America.

While U.S. regulators clearly have no jurisdiction over a deal between power companies and Provincial governments in Canada, U.S. law and regulations do require companies that sell power at market-based rates in U.S. wholesale power markets to allow non-discriminatory third-party access on affiliated transmission systems.

Hydro-Quebec sells a great deal of power into both New York and New England.  Consumers in New York and New England benefit from those sales, and wouldn’t gain from having Hydro-Quebec caught up in some Washington DC-based regulatory snafu.  But independent power producers in Quebec have complained in the past about the difficulty of securing transmission services in the province, and as the linked story indicates, power company representatives in Newfoundland are concerned that the deal will hinder its efforts to reach U.S. markets.

Posted in Electricity, Energy markets | 1 Comment »

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Fake chamber press conference? Funny. Fake reporters? Not so much.

October 24, 2009

Michael Giberson

There seemed to be a tone of mild amusement in some of the press coverage of the fake Chamber of Commerce press release and staged press conference earlier this week.  Activist group Yes Men staged an elaborate hoax, with a fake press release, website, and press conference (but fake press conference held in the real National Press Club), with real reporters showing up and some apparently taken in by the stunt.

But it turns out that the hoax also included Yes Men members posing as reporters, and judging from this Greenwire story posted on the New York Times online site, at least some journalists are not finding that so funny.  One unnamed media analyst called it a “a stunt that compromises the credibility of journalists,” and Kelly McBride of the Poyter Institute said, “It makes the public dubious of real reporters.”

Actually, what compromised the credibility of journalists were published reports saying the Chamber of Commerce had changed its position on climate change and the Senate bill by John Kerry and Barbara Boxer.  Reuters and CNBC, among others, should be embarrassed.

And did I miss the newspaper story in which journalists lamented how the hoax compromised the credibility of lobbying groups in Washington, DC?

Ah … well, never mind.

Posted in Environmental policy, Politics | Tagged | 5 Comments »

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Pandora+iPhone = Excellent car radio even in Lubbock

October 23, 2009

Michael Giberson

I haven’t been much of a radio music fan since, I don’t know, high school.  I liked music that wasn’t played much by the local radio stations and in general the signal-to-noise ratio on most radio stations was too small.  Cassette tapes, then CDs were part of the answer, but that cuts off access to new tunes.

Fast forward to the present. Lubbock radio is mostly not too interesting for me.  Classic Rock. Pop. Pop Rock. Country. Latin.  One “alternative” station with a weak signal but wide-ranging playlist, and usually my choice in the car. (Too be fair, Washington DC music radio wasn’t too interesting, either, after the demise of WHFS other than the occasional jazz programs and Texas Fred’s Zydeco show on WPFW.)

Now there is a new option.  Pandora is one of my favorite online music services.  Recently picked up an iPhone.  More recently added the Pandora iPhone app.  Just discovered that the adapter my wife has to connect her iPod to the car radio also works fine with my iPhone.

I can run Pandora in my car.  If you have Pandora and a compatible phone and a way to link to your car radio, so can you.

Fantastic.  And when I get to my destination I can pop the iPhone out of the adapter, insert headphone jack, and keep the music rolling.

How about little Snooks Eaglin radio to celebrate?

Posted in How cool is this?, Music | Tagged , , | 1 Comment »

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Raising a generation of grittier children

October 23, 2009

Michael Giberson

Do we need “grittier” children?  No, not messier children, but children with more grit, as in more stick-to-it-iveness and dedication.  A growing body of evidence is supporting the obvious – that success requires dedication and effort as much or more than intelligence.  Maybe obvious, but for decades the U.S. educational system and career counselors have been sorting people based on intelligence tests and trying to find ways to boost IQ scores.  That growing body of evidence is suggesting that we need ways to boost grittiness (will we be sorted by GQ scores?).

Author Jonah Lehrer (How we decide, Proust was a neuroscientist) wrote in “The truth about grit“:

One of the most important elements is teaching kids that talent takes time to develop, and requires continuous effort. Carol S. Dweck, a psychologist at Stanford University, refers to this as a “growth mindset.” She compares this view with the “fixed mindset,” the belief that achievement results from abilities we are born with. “A child with the fixed mindset is much more likely to give up when they encounter a challenging obstacle, like algebra, since they assume that they’re just not up to the task,” says Dweck.

In a recent paper, Dweck and colleagues demonstrated that teaching at-risk seventh-graders about the growth mindset – this included lessons about the importance of effort – led to significantly improved grades for the rest of middle school.

Interestingly, it also appears that praising children for their intelligence can make them less likely to persist in the face of challenges, a crucial element of grit.

More recently Lehrer writes about “Learning from mistakes“:

Conventional pedagogy assumes that the best way to teach children is to have them repeatedly practice once they know the right answer, so that the correct response gets embedded into the brain. (According to this approach, it’s important to avoid mistakes while learning so that our mistakes get accidentally reinforced.) But this error-free process turns out to be inefficient: Kids learn material much faster when they screw-up first. In other words, getting the wrong answer helps us remember the right one.

So, if I try to translate this into my daily work teaching college students, I guess I should give students opportunities to screw-up first so that they will learn much faster later.

I’m always trying to improve my pedagogical skills, but I will say (with some pride, I might add) that some of my students are way out ahead of me on this front.

[Note: I should probably point out that this last line is intended to be a joke.  It probably isn't very funny.  Professional driver on closed course.  Your mileage may vary.  Never mind.  It's been a long week.]

HT to Broken Symmetry.

Posted in Education, Miscellany | Tagged , | Comments Off

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Smart meter benefits mostly going to utilities so far

October 23, 2009

Michael Giberson

Regular readers of Knowledge Problem will know that both Lynne and I are enthusiastic about the potential for smart meters and the smart grid to benefit consumers. (The difference between us on this topic is that she knows much much more than I do.  Examples: One, two, three, and four.)  But, as Lynne has explained before, a utility-centric approach to the smart grid can frustrate the potential consumer benefits.

So far, the utility-centric approach is dominant, and as a result – as Andy Stone explains at Forbes.com – utilities are benefiting from smart meters mostly at consumer’s expense. Advanced meters get installed, typically accompanied by a surcharge on the consumer, and they help the utility cut costs.  Eventually, in a world governed by state regulation of monopoly utility rates, those savings should be passed along to consumers.

Stone wrote:

Utilities get a good deal on smart meter investment. The meters send power usage information directly to power companies via the Internet or wireless networks, replacing human meter readers. Utilities can also use the meters to remotely turn off power when a customer moves out or fails to pay bills, or automatically reroute electric power when a storm knocks out power lines.

Such operational savings cover about 70% of smart meter investment, according to the California Public Utilities Commission. California’s three major utilities have installed a million smart meters since 2006 and plan to have all homes wired by 2012.

But “the power companies are spending on rate payers’ account,” says Nancy Brockaway, a utilities attorney and former counsel with the New Hampshire Public Utilities Commission. Rate payers foot the bill for the meters through higher utility bills. “Utilities don’t have much skin in the game,” she says.

What do consumers get for their smart grid investment? Apparently, not much.

“In terms of energy efficiency and conservation, just installing a smart meter isn’t going to have much effect,” says Greg Guthridge, a smart-grid consultant with Accenture.

The article continues by explaining that consumers need a complementary rate structure to gain much benefit from smart meters.  Real-time rates or time-of-use rates are the suggestions offered.  The article speculates on smart meter value in the Texas deregulated market:

… demand response will likely be a tough sell in very deregulated electricity markets such as Texas, where customers can choose from dozens of power retailers that compete by offering the lowest, most predictable energy prices.

Tough sell?  Maybe, but it will be easier to sell real-time pricing and demand response to consumers that also have the opportunity to select among alternative competing rate packages.  Presumably only consumers that expect to benefit will be tempted to switch, and the burden of proof will be on the companies wishing to sell such contracts.

The article suggests making dynamic pricing the default option.  This is one of the approaches promoted by James Bushnell, Benjamin Hobbs and Frank Wolak in their article, “When it comes to Demand Response, is FERC its Own Worst Enemy?” Electricity Journal, 22:8, October 2009, (ungated version here), and I’m in favor. But the evidence so far has suggested that the real “tough sell” has been to get state regulators to accept dynamic pricing and consumer-centric demand response in place of easy-to-explain status quo of flat rates.

NOTE: For background on regulation, dynamic pricing and demand response, see “What Could Possibly Be Better than Real-Time Pricing? Demand Response,” by Fereidoon Sioshansi and Ali Vojdani (Electricity Journal, Volume 14, Issue 5, June 2001.)

Posted in Electricity, Regulation | Tagged | 3 Comments »

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“Where the wild things are”

October 22, 2009

Michael Giberson

Just saw the movie Where the Wild Things Are.

Fantastic. Wonderful. Amazing.

Back when I was king, it was kind of like that.  Only, I had more brothers and sisters when I was king, and they thought they were the king or queen, so it was complicated.

And amazing.

I’m not sure my 13 year-old son was as impressed with the movie, but I think he still thinks that he’s the king.

Posted in Books, Film | Comments Off

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