Monthly Archives: December 2009

Pro-liberty reading to take you into 2010

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Lynne Kiesling

Happy New Year’s Eve! At the turn of the year our thoughts naturally turn simultaneously toward reflection and the future. There are many dimensions of our lives in which the future looks more bleak for individual liberty and autonomy than they did a year ago, which is one reason why the Atlas Foundation’s list of the top ten pro-liberty books of the decade is so timely and will be so useful. These ten books range from economics to philosophy, from applications to theory, and include Bryan Caplan’s Myth of the Rational Voter, Deirdre McCloskey’s Bourgeois Virtues, and Bill Easterly’s The Elusive Quest for Growth. The top pro-liberty book on the list is Hernando de Soto’s The Mystery of Capital:

#1 Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else (2001) by Hernando de Soto

Hernando de Soto’s seminal The Mystery of Capital made him one of the most famous economists in the world.  The book earned him praise from New York Times Magazine, “To the leaders of poor countries, de Soto’s economic gospel is one of the most hopeful things they have heard in years.”  In Mystery, de Soto revolutionized the development debate, and had the rare privilege of testing the application of his ideas.  De Soto offers a more realistic alternative to 20th century redistribution schemes that achieved little more than inflating political power, encouraging corruption, impeding the rule of law, and perpetuating poverty.   Aware that developed countries did not start wealthy, and weren’t assisted by foreign aid, the De Soto coordinated a series of empirical investigations to identify what prevents the Third World from reaching the same level of development as the First.  He discovered that institutional costs imposed by governments all over the world are the main obstacles to reducing poverty.  Real estate is the most emblematic case.  The fact that states do not recognize the property rights of millions of people to the homes they effectively own prevents them from capitalizing on goods that sum billions of dollars.  Free exchange and initiative has made poverty more of an exception than a rule in the developed world, and it is the lack of freedom that imprisons millions of people in a condition of poverty. No book of this decade demonstrates this better than The Mystery of Capital.

If, like me, you are feeling angry and dispirited by the turn toward bureaucracy and government hegemony, these works provide ideas and examples that distill and crystallize why individual liberty is such a crucial value for individual well-being and for healthy civil society.

So are you fed up yet? I am

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Lynne Kiesling

Another reason I’ve been staying away from the computer over the holidays is that between the Senate health care bill process, the futilely constructivist quest for government policy to stimulate the economy, proposals for financial regulation, and the craven stupidity of TSA policy proposals after the Christmas day bomb failure, I am fed up and disgusted with pretty much everything having to do with economic policy.

Of course, the frustrating thing with all of these issues is that I am so fed up and annoyed and disgusted, but feel so powerless. It’s not enough to call my so-called elected representatives and tell a staffer that I am fed up and disgusted. Democratic politics is so soul-sucking in this way that I am focusing my mental and emotional energy on the areas where I can find meaning and can see a difference due to my efforts. Sadly, though, I do feel like I’m fiddling while the republic is burning around me.

One meme has recurred in my reading over the past couple of days, particularly at Bruce Schneier’s blog where he discussed the Christmas bomb attempt, Christopher Hitchens on the TSA and how good we are at collective punishment of the innocent, and Bruce Schneier talking with Jeffrey Goldberg at the Atlantic: it’s increasingly hard to escape the feeling of being terrorized by our own government. And not just at the airport.

Crandall & Winston on financial regulation

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Lynne Kiesling

My thanks to Arnold Kling for the link to this October Forbes article from Robert Crandall and Clifford Winston remarking on financial regulation. They point out, correctly, that the re-examination and soul searching about macroeconomics in which we are currently engaged overlooks the great insights and policy successes that microeconomics-based deregulation have brought to the U.S. economy:

Nothing in the last two years has undermined microeconomic analyses that influenced the deregulation of the airline, trucking, railroad, natural gas, crude oil, telecommunications and cable television markets. These deregulatory successes have not been compromised by the market failures that originated in the financial sector and are at the heart of the Krugman lament. But even if Krugman could uncover a theory that integrates irrational exuberance in financial markets with macroeconomic performance, it would hardly guarantee improved performance of government regulators. Nor would it enhance our considerable knowledge of how markets correct after sharp downturns.

I do think that Crandall and Winston overlook the crucial role that government policy had in fomenting “irrational exuberance in financial markets”, and therefore call it more of a “market failure” than I would, but it’s still a good piece and a good reminder of the benefits that economic deregulation has created in several industries over the past three decades. In particular, Randall and Winston point out that markets provide consumers with adaptation opportunities that they can use as their information and knowledge increase — a fancy way of saying that as individuals take actions in sharp downturns (such as saving more and shoring up their balance sheets), information about those adaptations ripple through markets through price signals and other means.

Thanks for the KP design input

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Lynne Kiesling

I’ve been staying away from the computer for most of the past two weeks — our vacation and then the relaxing holidays at home have been more about reading and knitting and spending time with the KP Spouse. But I have spent the past several hours tweaking the KP design on the dimensions that I didn’t like, that Mike didn’t like, and based on your helpful feedback on my earlier post on the matter.

I’m really, really keen on the image that I created for the header banner; to me it symbolizes self-organizing systems and decentralized coordination. It also has symmetry, balance, and order, so it invokes for me the themes of complexity and emergent order that inspire my thinking, whether it’s from complexity science, Austrian economics, the Scottish Enlightenment, new institutional economics, or technological change.

I hope you and yours are enjoying your holidays.

Sarewitz/Thernstrom LA Times op-ed on leaked climate research documents

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Lynne Kiesling

I am blissfully on vacation this week in Maui (biking, diving, snorkeling, swimming, and not spending time on the Internet), but did check in briefly this afternoon.

For those of you interested in keeping up with the “politicization of science” and bastardization of the scientific method aspect of it that angers me the most (and that I commented on in an earlier post), I recommend this op-ed in the LA Times from Daniel Sarewitz and Samuel Thernstrom. I don’t agree with their entire argument, but it’s an exceedingly valuable contribution, despite the dichotomous R/D, left/right red/blue framing that I dislike so much. Here’s an example from their piece that may catch your attention:

The real scandal illustrated by the e-mails is not that scientists tried to undermine peer review, fudge and conceal data, and torpedo competitors, but that scientists and advocates on both sides of the climate debate continue to claim political authority derived from a false ideal of pure science. This charade is a disservice to both science and democracy. To science, because the reality cannot live up to the myth; to democracy, because the difficult political choices created by the genuine but also uncertain threat of climate change are concealed by the scientific debate.

For further commentary on the Sarewitz/Thernstrom piece, I also recommend the comments from Jonathan Adler at the Volokh Conspiracy, environmental studies professor Roger Pielke Jr., and Ron Bailey at Reason.

National Research Council says benefits from plug-in hybrid vehicles decades away

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Michael Giberson

The National Research Council has issued a study examining the costs and benefits of plug-in hybrid electric vehicles and concluding that it will likely be decades before such vehicles yield benefits to overcome their higher initial costs.  From the press release:

Costs of plug-in hybrid electric cars are high — largely due to their lithium-ion batteries — and unlikely to drastically decrease in the near future, says a new report from the National Research Council.  Costs to manufacture plug-in hybrid electric vehicles in 2010 are estimated to be as much as $18,000 more than for an equivalent conventional vehicle.  Although a mile driven on electricity is cheaper than one driven on gasoline, it will likely take several decades before the upfront costs decline enough to be offset by lifetime fuel savings.  Subsidies in the tens to hundreds of billions of dollars over that period will be needed if plug-ins are to achieve rapid penetration of the U.S. automotive market.  Even with these efforts, plug-in hybrid electric vehicles are not expected to significantly impact oil consumption or carbon emissions before 2030.

John Petersen, writing at Alt Energy Stocks, sums up the point for investors who have jumped into the field: “grid-enabled vehicles, or GEVs, are nowhere near ready for prime time and investors that buy into the GEV hype can look forward to decades of pain and suffering.”  Petersen follows up with additional commentary on electric vehicle issues.

It doesn’t appear that the NRC report examines possible “Vehicle to Grid” (V2G) services and associated revenue, which are sometimes explored in this kind of analysis, but that is probably a good thing.  You might recall the USPS report “Electrification of Delivery Vehicles” assumed that the examined all-electric vehicles would yield nearly $200 per month from V2G (and still the project only made sense of the USPS if taxpayers chipped in to the tune of $15,500 per vehicle).  The NRC report is on the safer ground, I think.  As I’ve said here before, projections of significant V2G revenues are unlikely to pan out.

Is our morality derived from our biology?

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Lynne Kiesling

Recently I found a striking essay from Marc Hauser, an evolutionary psychologist at Harvard who works in cognitive neuroscience. In this essay at Edge, Hauser argues that our biology is the source of our moral sense.

Recent discoveries suggest that all humans, young and old, male and female, conservative and liberal, living in Sydney, San Francisco and Seoul, growing up as atheists, Buddhists, Catholics and Jews, with high school, university or professional degrees, are endowed with a gift from nature, a biological code for living a moral life.

This code, a universal moral grammar, provides us with an unconscious suite of principles for judging what is morally right and wrong. It is an impartial, rational and unemotional capacity. It doesn’t dictate who we should help or who we are licensed to harm. Rather, it provides an abstract set of rules for how to intuitively understand when helping another is obligatory and when harming another is forbidden. And it does so dispassionately and impartially.

In the body of the essay he proceeds to discuss the scientific evidence consistent with this hypothesis, and it’s a fascinating read. What I found particularly striking is the consistency of his analysis with arguments made over 200 years ago, by David Hume and Adam Smith. Both Hume and Smith argued that our morality is grounded in our human nature in the form of our “sentiments”, and that in many ways these sentiments transcend the specifics of religion or culture. As noted in the Hume moral philosophy entry in the Stanford Encyclopedia of Philosophy:

These moral sentiments are emotions (in the present-day sense of that term) with a unique phenomenological quality, and also with a special set of causes. They are caused by contemplating the person or action to be evaluated without regard to our self-interest, and from a common or general perspective that compensates for any distortion in the observer’s sympathies resulting from physical or temporal closeness to or distance from the person judged, or extra degrees of resemblance (in language, appearance, or the like).

In Adam Smith’s analytical framework in the Theory of Moral Sentiments, this contemplation takes the form of the impartial spectator. Individuals use the impartial spectator to evaluate the actions of others as well as their own actions, and simultaneously perform that evaluation in light of the context of these actions as well as the impartiality removed from closeness and resemblance.

For both Hume and Smith, grounding morality in these sentiments that they viewed as part of human nature means that morality is not a (deductivist Cartesian) rational construct. This is the sense in which I see substantial consonance between the Hume-Smith moral sentiments argument and Hauser, despite the fact that Smith and Hume did not have these cognitive science insights available to them in the 18th century. For example, this observation of Hauser’s is entirely in keeping with Smith’s categorization of acting and failing to act in Theory of Moral Sentiments:

We tend to see actions as worse than omissions of actions: pushing a person into the factory vent is worse than allowing the person to fall in. Using someone as a means to some greater good is worse if you make this one person worse off than if you don’t. This is the difference between an evitable and inevitable harm. If the person in the hospital or in the factory is perfectly healthy, taking his life to save the lives of many is worse than if he is dying and there is no cure. Distinctions such as these are abstract, impartial and emotionally cold. They are like recognising the identity relationship of 1=1, a rule that is abstract and content-free.

Electric power rate reforms needed for smart grid to create value

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Michael Giberson

In a white paper released yesterday, the Association of Home Appliance Manufacturers (AHAM) identified three requirements necessary for the smart grid to create value for residential customers:

  1. Pricing must provide incentives to manage energy use more efficiently and enable
    consumers to save money.
  2. Communication Standards must be open, flexible, secure, and limited in number.
  3. Consumer Choice & Privacy must be respected; the consumer is the decision
    maker.

The smart grid comes in both industrial-sized and consumer-sized packages.  Electric utilities can use sophisticated electronics for communication and computation to improve control and reduce their costs of operation.  This utility-side smart grid can and will proceed without consumer rate reform, but these incremental changes in ways of doing business will bring relatively modest benefits.

The consumer-oriented smart grid is where the revolutionary action will be, as consumers gain better control over their electric power use.  That better control will allow consumers to more completely reveal where and when electric power has more value, and the electric power industry will become more efficient at delivering power where and when it is most wanted.

Obviously, it will take consumer buy-in to get the revolutionary ball rolling.  As the AHAD white paper notes, only a small number of customers will adopt smart appliances because of the environmental benefits that come from better control over power use.  Most consumers will require economic incentives to participate.

However, it isn’t the case that each retail customer need to face real-time rates all of the time.  Rather, each customer just needs a contract with a retail supplier that divides up the price and quantity risks in a mutually agreeable fashion.  Those contracts could be real time rates, or fixed-term time-of-use rates, or critical peak pricing rates, or whatever.  Real-time rates have nice theoretical properties, it is true, but most of the potential benefits can be achieved with relatively few consumers on real-time rates.

AHAD writes:

With the proper tariffs in place to incentivize actions, the consumer can reduce costs and manage energy without significant behavior changes. Truly dynamic pricing combined with Smart Appliances will not require large changes in consumer behavior to realize a reduction in peak load. Unfortunately, tariffs that would encourage widespread adoption of these practices are currently not in place.

AHAD recommends the development of model tariffs and rate structures, presumably with the goal of adoption for use in state regulatory proceedings.  I predict this effort will happen, and over time model smart grid tariffs will gain adoption by many state regulatory commission.

Also, I predict the consumers in the competitive retail portions of the Texas power market will have “smart grid compatible” contract offers available from at least three separate companies within three months after (a) the customer has a smart meter and (b) ERCOT has rolled out its new wholesale settlement system for the customer’s distribution utility footprint.  The Texas retail power market will get better and better as the state becomes the leader in end-to-end smart grid integration.

Texas power rates are already dropping due to low natural gas prices, wind power pressure on prices, and temporarily moderated demand due to economic conditions.  While I’m in a predicting mood, I may as well predict that when the economy rebounds and natural gas prices are next over $8/mmbtu for a sustained period, we’ll see a much different Texas power market: more resilient, more efficient, and offering reasonably-priced power relative to neighboring states.

Cato Unbound: Hayek and the Common Law

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Lynne Kiesling

This month’s issue of Cato Unbound has a topic that sits at the core of the issues of interest here: Hayek’s concept of spontaneous order, its universality, and its applicability to orders beyond market processes, including the common law.

Examples abound. No one individual or committee sets market prices; those who have tried have always failed. No designer created the English language, and artificial languages have never met with any great success. Scientific discovery through repeated experiment causes truth to emerge, but scientific truth is not forged through rationalistic design. Instead, it is a product of many uncoordinated searches, serendipity, and replication across the scientific community.

Timothy Sandefur’s lead article lays out what he sees as four problems with Hayek’s normative conclusions arising from his analysis of spontaneous (or, as I prefer, emergent) social orders and the processes by which they evolve. John Hasnas, Dan Klein, and Bruce Caldwell provide responses to Sandefur’s argument. Taken as a whole, these four articles provide a thoughtful and thorough critical examination of Hayek’s arguments. If you have any interest in legal and regulatory institutions and the processes by which they evolve, these articles are well worth reading and thinking about carefully.