Monthly Archives: April 2012

NHL suspends Torres for Hossa hit; have we achieved incentive compatibility?

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Lynne Kiesling

This year’s NHL Stanley Cup playoffs are in the first round, and so far the violence has been horrific:

“The most vicious and, perhaps, disgraceful first round of the Stanley Cup playoffs” was the verdict of Stu Hackel, the former director of broadcasting for the N.H.L., and this is now close to a universal view—if you except Don Cherry and Mike Milbury, who may not actually live in this universe, but rather in some other, remote dimension, where it is forever 1959. The list of uglinesses allowed is too long and depressing to entirely enumerate, but it runs from Nashville’s Shea Weber’s slamming the head of Detroit’s brilliant Swede, Henrik Zetterberg, against the glass—not once, but twice—in what was clearly a deliberate attempt to injure, and could easily have ended with a concussion, not to mention a broken neck; to our own Rangers’ Carl Hagelin elbowing the Senators’ highly skilled captain, Daniel Alfredsson (good trade for the Rangers); to the assault of the Coyotes’ Raffi Torres on the Blackhawks’ Marian Hossa.

Adam Gopnik mentions it only generally, but I am angry and disappointed that some of my Pittsburgh Penguins belong on that list of ugliness too. In fact, last Saturday’s Penguins-Flyers game and its 160-plus penalty minutes was so vile that it doesn’t even deserve to be called hockey. Yes, it’s a physical game, yes, you have to be tough and to expect physical play, but the brutality of the past couple of weeks that includes elbows up, leaving the feet, aiming for the heads of opponents, and slamming heads into glass is not simply physical. It’s barbaric.

It’s also not in the long-run interest of the sport, either as a sport or as a business, as Sidney Crosby’s long, long concussion and TBI recovery attests to. Injuries that reduce the productivity of the athletes and shorten their careers are not long-run profit maximizing, despite the troglodytic protestations of the retrograde few who claim that fighting is the reason they watch and attend games.

In a post I wrote on moral hazard and protective gear and rules in hockey seven years ago, I suggested a rule that the KP Spouse and I have discussed for a long time that could induce better long-run incentive compatibility in the violence in the NHL: if you injure another player and he misses a number of games, you must sit out that same number of games, without pay.

Since that time the NHL has instituted coach fines as well as player fines for injury-producing violence; sometimes those fines are laughable, such as the $2500 fine levied against Weber for the double-whammy Zetterberg hit. They also do suspend players, but there’s a lot of tension and disagreement about how long is too long; GMs don’t want their aggressive players out of commission for too long, but the NHL recognizes the long-run negative consequences of head injuries. But what I don’t understand is why the team GMs think in such a static manner that they object to long suspensions for violence — they object to the short-run loss of the use of the athlete, but they fail to internalize the longer term negative effects. If their enforcers dial it back and still play physically but within the rules, all teams will benefit from the productivity and the longevity, particularly of the star players that are frequent targets of less-skilled hit-oriented players. Those star players are the ones that most people pay to see play, and the GMs thinking statically are putting themselves in a low-payoff outcome of a repeated Prisoner’s Dilemma.

Fines and suspensions for head-targeted injury-producing hits have been an issue all year, as newly-appointed NHL head disciplinarian Brendan Shanahan has tried to balance these competing perspectives on injury-producing violence. Yesterday he announced the terms of the suspension that Raffi Torres will serve for his horrific, late, calculating hit on Marian Hossa on Tuesday night: a 25-game suspension, the third-longest suspension ever in the NHL.

But it’s not just the long suspension; because Torres has a history of such violations he’s classified as a repeat offender, so he will forfeit $21,341 in salary per regular season game that he misses next season. That rule has some of the incentive effects of what I’ll call “the KP rule” that you sit out without pay for as long as the person you injured is out. His penalty does not tie the duration of his suspension without pay to the duration of Hossa’s injuries, but I agree with Isaac Smith at the Bleacher Report that Shanahan’s decision is a good one, for two reasons — it punishes Torres for his vicious behavior, and it also indicates that Shanahan is willing to set a precedent and make an example of chronic violators to reduce the career-ending head injuries that threaten the game, as a sport and as a business.

Adam Gopnik makes the important general point:

The supposedly self-policing ethic points to the real problem: games are played by rules, and we enjoy them because they involve wild improvised action in a context of rules. Without them, the game can’t count as one of our pleasures. … The rules are the game. The Sedins are skill players playing within the rules, and the other guy is playing outside of them, and [by not penalizing Brad Marchand for his vicious hit on Daniel Sedin last fall] the league effectively sides with the guy who doesn’t want to play by the rules.

Reasons to end the War on Drugs. Now.

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Lynne Kiesling

Today in Forbes Art Carden has an essay arguing that we should end the War on Drugs and make marijuana legal, now. He’s right. Here’s why.

  • As Art argues, the War on Drugs is a policy poster child for unintended consequences, because the inelastic demand for the regulated good means that stronger enforcement leads to more profits from selling the good. The War on Drugs increases drug dealer profits.
  • Because of those profits relative to other alternatives, the War on Drugs just doesn’t work. An example: here in Chicago we had a recent spate of unusual gun violence, and even though new police chief Garry McCarthy said last year that he thought the War on Drugs was ineffective, after this violent weekend he joined mayor Rahm Emanuel in promising more vigorous and aggressive enforcement and targeting of drug transactions. Note at the head of the lede that Mick Dumke says “The first time I heard a police officer argue that the war on drugs wasn’t working was in 1994.” Law Enforcement Against Prohibition has been saying it since 2002.
  • The War on Drugs violates the fundamental individual right that humans have of self-ownership; individuals have the right to choose their own actions without interference as long as their actions do not violate the fundamental individual rights of others.
  • The War on Drugs has created horrific law enforcement violations of individual rights: police brutality, increased police militarization, no-knock raids resulting in property destruction and death of innocent citizens when they get the wrong addresses, civil asset forfeiture rules that police departments have incentives to exaggerate so they can sell assets to raise revenue. The actions that the police rationalize using the War on Drugs increasingly are the actions of a police state.
  • The War on Drugs has virtually eliminated the constitutional protection of individual rights against unreasonable search and seizure, and is seriously eroding judicial due process rights.
  • The War on Drugs has costly and socially corrosive blowback in other areas. If you think that the invasive actions of the TSA are solely related to the War on Terror, you haven’t been paying attention. When the TSA crows about its “successes” in airport security, they are often items of “contraband”. The War on Terror is in part a red herring for the War on Drugs, and the two combine to give law enforcement officials substantial discretion in the militarization, unreasonable search, etc. mentioned above.
  • The War on Drugs has destroyed the fabric of urban families and communities much more than drug use would, through the disproportionate incarceration of young African American men (see above point about how regulation increases the profits from the drug trade).
  • In addition to the immorality of the War on Drugs described above, as a matter of public policy it fails benefit-cost analysis. Jeffrey Miron estimates the net effect annually of reducing enforcement, legalization, and taxation of marijuana to be $15 billion — an increase in tax revenue of almost $7 billion and a reduction in enforcement costs of $8 billion. The net social savings from extending legalization to other drugs is even larger. Think about the other uses of those resources — revenue for deficit reduction, reallocation of law enforcement activity to some other area where it may actually have meaningful beneficial impacts (like, say, intelligence gathering, community development, cops walking the beat).
  • The beneficial budgetary effects and reduced social corrosion that Miron suggests have actually happened recently in Portugal, which has liberalized its drug trade and consumption, with net beneficial financial and social effect.
  • The hypocrisy of the War on Drugs is astounding, particularly the president’s recent heavy-handed opposition to legalization after his admission in 2004 that the War on Drugs is a failed policy. In the face of the fact that the health effects of alcohol are more negative than of marijuana and the fact that general social mores have moved so that more than half of the U.S. population believes that marijuana should be legal, this hypocrisy is downright absurd.

Nick Gillespie says it well in this reason.tv video:

We cannot afford the War on Drugs, either morally or economically. End this costly, ineffective, corrosive policy. Now.

 

Micro-hydropower potential in man-made waterways

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Michael Giberson

Earth Techling reports on the release of the latest report in the U.S. Department of Interior’s efforts to identify opportunities to develop small-scale hydropower projects within the DOI’s current water delivery systems in the Western United States. The goal of DOI’s project was to inventory potentially valuable locations and then invite developers to consider investing in projects. The most recent report indicates an annual potential for as much as 1.5 million MWh of energy to be generated.

Details from the Earth Techling summary:

These are all micro hydro sites, ranging in potential capacity from 125 kW to about 26 MW installed capacity. Fish would not be endangered because they are largely municipal water conduits.

The total clean energy produced would be equivalent to replacing one 260 -300 MW coal power station.

Since the hydropower projects probably would generate less power than the waterway itself uses, it might be more economical to consume the power ‘behind the meter’ rather than producing power for sale elsewhere. Possibly, however, the locations where the waterway uses power and the locations with good hydropower potential are distant from each other, so then sale off system could be more economic.

The DOI’s webpage for the project has several reports.

(The Earth Techling post ends with an odd political slam at Republicans, seemingly wistful for the good ol’ days of grand projects like the Hoover Dam. Apparently the inability to ram project’s down a region’s throat from the halls of government can be a bit constraining to people with big dreams.)

Zwolinski: “Is price gouging immoral? Should it be illegal?”

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Michael Giberson

Five minutes of Matt Zwolinski on price gouging (from Learn Liberty).

If you think price gouging should be against the law, watch this video. Are you persuaded by Zwolinski? Let me know in the comments.

MORE: Zwolinski has written serious philosophical works on price gouging,which makes the clarity of his position in the video all the more surprising. :-)   See links to some of Zwolinski’s work on the topic in previous KP discussions here and here.

Smart meter cybersecurity and moral panics

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Lynne Kiesling

In March I wrote about Adam Thierer’s paper on technopanics — “a moral panic centered on societal fears about a particular contemporary technology” — and I argued that we should bear the moral panic phenomenon in mind when evaluating objections to smart grid technologies. In the past two weeks we’ve seen news articles on this topic: according to the FBI, smart meter cybersecurity is loose enough that hackers have been able to hack into smart meters and steal electricity.

Chris King from eMeter has done some digging into this question, and writes at Earth2Tech suggesting that the problem is old-fashioned criminal human behavior, not any technology-specific security failure:

Upon a closer look, this situation is not so much about smart meters as it is about criminal human behavior. Former Washington Post reporter Brian Krebs explained that it was not actually the smart meters themselves which were “hacked.” The meters’ own security measures were not breached.

Instead, criminals accessed the smart meters by stealing meter passwords as well as some devices used to program the meters. This is more like stealing a key and opening a door, rather than breaking the lock on the door.

These criminals were former employees of the utility involved, and of the vendor who provided the smart meters. These people were paid (bribed) by customers to illegally reprogram the meters so that those meters would record less energy consumption than actually occurred. This is not fundamentally different from bribing human meter readers to under report consumption — which happens often in some developing countries.

Which brings us back to Adam’s original point: why are we so willing to accept the technopanic argument? Why are so many people so suspicious of new technology, and so willing to give up both the consequentialist potential benefits and the moral defense of individual liberty and impose controls and limits on technology?

Oil speculator witch hunt, 2012 edition

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Michael Giberson

Steve Mufson at the Washington Post reports:

President Obama proposed measures Tuesday to step up oversight of energy markets and boost by tenfold the penalties for market manipulation, in an effort to blunt political pressure over the 20 percent increase in gasoline prices since the beginning of the year. [Links in source.]

Not that the administration has turned up any evidence of problems in the market:

A senior administration official said the president wants to increase the number of “cops on the beat” to stop illegal speculation and market ma­nipu­la­tion…. But neither Obama nor his aides pointed to any examples of such illegal activity or to any evidence that oil speculators had, in fact, been responsible for raising prices recently. The senior official said that oil prices have been rising mainly because of growing global demand and political uncertainty in the Persian Gulf. Obama cited “global trends” in his announcement. Lawmakers on both sides of the political divide have alleged that “speculation” is partly responsible for the jump in oil prices over the past year, but they have not offered any examples, either.

See also: the Wall Street Journal‘s article; the New York Times on the topic; and from The Nation, “Obama Announces Empty Crackdown on Oil Speculation.”

The Nation‘s piece is interesting, essentially claiming that the President is right on the merit of his proposals, but just pandering to the public with symbolic gestures since five out of six of his proposals require Congressional action the President knows he won’t get, and the President refuses to do the one thing he can do that would work (in the author’s view): telling the attorney general to start subpoenaing oil traders and begin actually uncovering oil market manipulation.

Of course you may recall that a year ago the President did tell his attorney general to constitute an Oil and Gas Price Fraud Working Group. Last month the Attorney General reported on its many great successes.

Just kidding, they’ve got nothing. Here is what the Attorney General actually said on March 9, 2012:

Since last April – when I established a new part of the Task Force known as the Oil and Gas Price Fraud Working Group – we’ve also been focused on identifying civil or criminal violations in the oil and gasoline markets, and ensuring that American consumers are not harmed by unlawful conduct.   This Working Group’s latest meeting was held at the Justice Department just this morning – and its members discussed a variety of topics, including the role of speculators in the market; recent reports and enforcement matters by various Working Group members – such as the FTC and the New York State Attorney General’s Office; as well as ways to improve information sharing between Working Group members and partners; and where we go from here.

I can also report that one of the Working Group’s members – the Federal Trade Commission – is currently conducting an investigation, with assistance from other Working Group members, into whether gas prices have been affected by any antitrust violation or market manipulation by refiners, oil producers, transporters, marketers, physical or financial traders, or others.  Working Group members stand ready to act if the FTC learns anything that implicates the laws they enforce.

So in short, they’ve held meetings, talked about stuff, and are working on better “information sharing” (always a popular task for interagency task forces because you get to have new processes requiring new paperwork so you can justify new staff to handle the added work load). Oh yeah, the FTC is conducting an investigation. (Which has been known since at least last December and so far no results. More from McClatchy on the OGPFWG. A blogger at Think Progress is seriously disappointed in the administration’s lack of commitment to rooting out oil market manipulators.)

Like before, a shameful, pandering witch hunt in search of short-term political advantage. (And by the way, the GOP is no better in their beating of the political drums trying to pin high gasoline prices on the President’s failure to approve the Keystone XL pipeline and reductions of oil output from federal lands.)

How green is your EV?

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Lynne Kiesling

On Monday the Union of Concerned Scientists released an analysis estimating the MPG equivalence of electric vehicles. The point of the analysis is this: taking as given an objective of greenhouse gas emission reduction, how do electric vehicles compare to internal combustion vehicles in that dimension? To do such an analysis requires comparing the GHG emissions across the two types of engines, taking into account that the electricity generation fuel mix varies across the country. Here’s how they did that:

Most drivers are familiar with the concept of miles per gallon (mpg), the number of miles a car can travel on a gallon of gasoline. The greater the mpg, the less fuel burned and the lower your global warming emissions. But how can such consumption be figured for electric vehicles, which don’t use gasoline? One way is by determining how many miles per gallon a gasoline-powered vehicle would need to achieve in order to match the global warming emissions of an EV.

The first step in this process is to evaluate the global warming emissions that would result at the power plant from charging a vehicle with a specific amount of electricity. Then we convert this estimate into a gasoline mile-per-gallon equivalent—designated mpgghg, where ghg stands for greenhouse gases. If an electric vehicle has an  mpgghg value equal to the mpg of a gasoline-powered vehicle, both vehicles will emit the same amounts of global warming pollutants for every mile they travel.

For example, if you were to charge a typical midsize electric vehicle using electricity generated by coal-fired power plants, that vehicle would have an  mpgghg of 30. In other words, the global warming emissions from driving that electric vehicle would be equivalent to the emissions from operating a gasoline vehicle with 30 mpg fuel economy over the same distance (Table 1.1).3 Under this equivalency, the cleaner an electricity
generation source, the higher the mpgghg . When charging an EV from resources such as wind or solar, the mpg equivalent is in the hundreds (or thousands) because these resources produce very little global warming emissions when generating electricity.

This map, from a New York Times feature on the report, summarizes the results:

The results reflect the regional variety in electricity generation fuel mix — hydro power in the Pacific Northwest increases the mpgghg there, as does the predominance of nuclear around Chicago. The results suggest that even in the coal-intensive Midwest and plains states, electric vehicles using coal-generated electricity outperform the standard 4-door 27 MPG sedan in the greenhouse gas dimension.

I found this analysis useful and informative. Frankly, I often take UCS analyses with a grain of salt, because they are an advocacy group and generally start their analyses with presumptions of catastrophic global warming that directs their conclusions, while I think it’s more scientific to make assumptions that weaken your conclusion so that you don’t bias your analysis toward your desired conclusion. This analysis, while still a piece of advocacy, presents the calculations and mpgghg comparisons in a more dispassionate fashion that I found informative. The New York Times also had an article on Sunday summarizing the report.

NYT Energy For Tomorrow Closing Plenary video

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Lynne Kiesling

Last week the New York Times hosted a conference called “Energy For Tomorrow”, and they have made video from all of the sessions available; there are several sessions discussing energy efficiency, natural gas, renewables, etc. I watched the closing plenary on Friday, for which the topic was subsidies in any or all energy industries (sorry, WordPress and the embed code aren’t playing well together). Among the speakers it features Rice economist Amy Myers Jaffe  (to whom we have linked here before), as well as friend-of-Knowledge Problem Branko Terzic from Deloitte Consulting.

The discussion was good and very informative, raising many of the aspects of the pros and cons of subsidies depending on their form and how they are implemented. Naturally, much of the discussion addressed solar and the unintended (but easily anticipated) costs illustrated by Solyndra and by Spain, whether subsidies generate more overall net benefits than a carbon tax would, and whether subsidies should focus on driving down costs and getting to grid parity or on R&D. I’ll let you form your own conclusions on those topics.

I found that Amy Myers Jaffe’s comments were the closest to what I would have said if I were on the panel. She critiques the use of subsidies very effectively, and encourages an energy policy focus on “targeting the externality” and pricing it in the market. Branko’s comments highlight the political economy of subsidies and whether subsidies are hidden or in plain sight.

Recommended for easing into your Monday.

Hitting the big time, living the econoblogger dream

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Michael Giberson

From the Inbox earlier in this week comes news that Knowledge Problem is one of the blogs monitored and excerpted from time to time by EconAcademics.org, a blog aggregator being run by the Economic Research Division of the Federal Reserve Bank of St. Louis. You can skip the noise and get right to their KP posts by using this link.

According to their self reporting: “The primary goal of this blog aggregator is to enhance the discussion of economics research in the blogosphere by making it easier for the curious reader to find high-quality content. A secondary goal is to encourage discussion of economic issues based on academic research, instead of political arguments.”

Check out their list – we are currently #141 in their list of 289 monitored blogs, putting us ahead of such estimable blogs as Marginal Revolution and Wired Science. (Did I mention the list is in alphabetical order? In any case, we could rename ourselves to AAA Knowledge Problem and leap into the top 10. That would be really hitting the big time…)

BTW, I’ll thoroughly endorse their disclaimer, at least with respect to our posts: “Views expressed do not necessarily reflect official positions of the Federal Reserve System.” I’ll add that views expressed by the Federal Reserve System do not necessarily reflect official positions of the Knowledge Problem blog.

Reducing the size of the Strategic Petroleum Reserve

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Michael Giberson

Yesterday’s Wall Street Journal carried an essay by Austan Goolsbee in which he advocates reducing the size of the Strategic Petroleum Reserve. Even better, he suggests a rule by which the SPR could be managed in a transparent fashion: aim to be able to replace 90 days worth of imports from non-North American sources.

Goolsbee noted that “economists are generally uneasy with the whole idea of the strategic reserve. Self-sufficiency is not really an economic concept, and it seems an odd goal for a product that trades freely around the world at a market price.” He argues, though, that we need not grapple with that issue to grasp the case for reducing the current size of the SPR.

His argument runs like this: “self-sufficiency” is a kind of physical insurance against disruption; the economics of insurance are well understood, as the size of the risk falls then less insurance is needed; and the boom in domestic U.S. and other North American production has reduced strategic risks. Therefore, we need less SPR insurance.

Interesting aside: Notice that so conceived, domestic oil production provides a public good in the form of reducing strategic risks faced by the country. Would Goolsbee agree that his logic supports the idea of a subsidy to domestic oil production?

Previously I’ve said here that I have never been “much of a fan of the SPR, having never been convinced that there was a coherent economic and political plan for management of the reserve during either the accumulation or release phases of operation.” While in principle oil is supposed to be released only when the United States is economically threatened by a disruption in  oil supplies, in practice SPR management has been a less than transparent mix of strategic, political and practical considerations. (See the DOE history of SPR drawdowns here, which mostly minimizes the political angles.)

Goolsbee’s suggestion supplies a potentially coherent, non-political rule to govern operations during normal times (i.e. times lacking a market disruption threat), it doesn’t provide any guidance for the much more critical emergency release phase of operation.  I’m still anti-SPR.

IN RELATED NEWS: China is believed to be building up its strategic oil reserves, also from the Wall Street Journal.