Planet Money’s t-shirt project

Lynne Kiesling

Are you a fan of Leonard Read’s I, Pencil (see video above)? Hayek’s argument the “The Use of Knowledge in Society” about how prices coordinate the decisions of anonymous individuals with diffuse private knowledge? Adam Smith’s tale of the making of a woollen coat? Pietra Nivoli’s book on the global travels of a t-shirt?

Then you may be interested in Planet Money’s new t-shirt Kickstarter project:

Almost every single t-shirt out there — from the cheesiest vacation tank top to the fanciest boutique designer tee — is the result of a complicated global odyssey. We will take you on that odyssey and document the route our t-shirt took to your back. We’ll meet the people who grow the cotton, spin the yarn, and cut and sew the fabric. We’ll ride on the cargo ships that bring our t-shirt from factories in Bangladesh and Colombia to ports in the US. And we’ll examine the crazy tangle of international regulations which govern the t-shirt trade the whole way.

Planet Money does some of the best economic journalism, and the participatory nature of bringing this story into being is itself an example of the kind of value-creating interconnectedness that underlies economic exchange.


If truth is what your freshmen students let you get away with, then…

Michael Giberson

What do we owe the status quo?

Uwe Reinhardt, Economix, asks “How convincing is the case for free trade?” In his column, Reinhardt takes note of a few discussions of free trade without taking a stand himself. But he ends with a provocative quote from Alan Blinder: “If we economists stubbornly insist on chanting ‘free trade is good for you’ to people who know that it is not, we will quickly become irrelevant to the public debate.”

Mark Thoma responds, “If we are going to make the argument that trade is good because everyone could potentially be made better off, we should do much more than we have to ensure that this potential is realized, i.e. that the gains from trade are distributed widely across the population rather than concentrated among a smaller set of winners.”

Thoma’s response triggers Tim Worstall: “this argument then generally morphs into an insistence that we should not have free trade until that compensatory mechanism is put in place, so that, say, I, who will be gaining from that free trade will be compensating those who will lose from that free trade.” He continues, “This is obvious: if free trade benefits me and disbenefits you, then not free trade must disbenefit me and benefit you. Which leads to the question: are you compensating me for those benefits you are getting and the disbenefits I am getting from the absence of free trade?”

Blinder’s message is one that William J. Polley  has learned from “16 years of defending free trade to Midwestern college students.” In “Should losers from free trade be compensated?” Polley says you can’t just teach free trade leads to potential Pareto improvements. It isn’t good enough for “classes of principles students who have seen jobs in their hometowns disappear because of free trade.” You have to add that there are winners and losers, and standard economics can’t recommend the policy unless the winners compensate the losers. What economists know about free trade is that winners will gain more than the losers will lose (problems of implementing the necessary transfers aside). Polley says he doesn’t advocate free trade unless compensation is there.

Polley notes Worstall’s critique of compensation arguments, but isn’t persuaded. Ultimately, said Polley, “it boils down to the notion of a social contract.  People make decisions, many of which are irrevocable or nearly so, on the basis of the best information and their expectations of the future.  Sometimes the biggest influences on our expectations are the existing law and the political environment.  If I then make a decision in good faith based on existing law, only to have the law change to my disadvantage, I will feel wronged.”

Polley’s “social contract” is, essentially, the same principle as involved in the broadest notion of regulatory takings. If a new law or regulation deprives a person of some portion of their property, advocates of regulatory takings will demand compensation. You want to prevent millionaires from building their vacation homes too close to the beach? You’ll have to tax the public to pay the millionaires for taking beachfront property, since they acquired the property in good faith based on existing laws. Want to impose a carbon tax to control global warming? All those owners of coal deposits are going to need a side payment. Want to implement new workplace safety rules? Like free trade, the policy will have winners and losers; like free trade, Polley’s social contract would have the workers pay the factory owners for the owner’s losses.

And the principle is still broader: when Wal-Mart comes to town, it should pay off the less efficient competition for taking their customers. Boeing moves its headquarters from Seattle to Chicago? They’d have to pay Seattle for the good faith decisions the citizens left behind made on the basis of the best information and their expectations for the future. This “social contract” is a quite conservative tool, a very big defender of the status quo.

Of course ideas like this “social contract” are usually not as ambitious as all of this, usually because they are not as consistent. Instead, in most such “social contract” arguments, the advocates want to pick and choose which winners should pay and which losers should be compensated. The “social contract” argument is, in effect, the tool by which a “value free” economist can get his values back into the mix.

Anyway, I prefer to argue in favor of free trade because I think the right to choose who I wish to deal with belongs to me and your right to choose who you deal with belongs to you. I think, ultimately, government policies respecting these rights will promote economic growth and development, but that is mostly just a happy coincidence.

ADDED: Two related views from Kids Prefer Cheese: first Angus, then Mungowitz.

MORE: This post is quoted at Free Exchange: “Putting the Free in Free Trade.”

U.S. companies getting into the LNG export business

Michael Giberson

More evidence that shale gas development is changing the international (not just the United States) natural gas market:

Contrast the picture of the natural gas market presented by the above developments to the US Energy Information Administration outlook in 2004; selected quotes from EIA’s “The Global Liquefied Natural Gas Market: Status and Outlook,” (December 2003):

  • EIA’s Annual Energy Outlook 2004 (AEO2004) projects that four new LNG regasification terminals will be constructed on the Atlantic and Gulf Coasts from 2007 through 2010 to meet the 58-percent increase in LNG imports that is projected for that timeframe.
  • The first new U.S. LNG terminal in more than 20 years is projected to open on the Gulf Coast in 2007. It is projected that additional terminals will be constructed to serve markets in Florida, the south Atlantic states, and the western Gulf Coast. EIA also forecasts that a terminal targeting the Florida market will be constructed in the Bahamas with the gas piped to Florida.
  • By 2010, the new terminals are projected to be collectively importing 812 billion cubic feet annually.
  • Based on EIA long-term forecasts, U.S. natural gas consumption is projected to increase from 22.5 Tcf in 2002 to 26.2 Tcf in 2010 and 31.4 Tcf by 2025. Domestic gas production is expected to increase more slowly than consumption over the forecast period, rising from 19.0 Tcf in 2002 to 20.5 Tcf in 2010 and 24.0 Tcf by 2025. The difference between consumption and production will be made up by imports, which are projected to rise from net imports of 3.5 Tcf in 2002 to 7.2 Tcf by 2025.
  • Nearly all the increase in net U.S. natural gas imports from 2002 to 2010 is expected to come from LNG, with an almost 2.0-Tcf (42.0-million-ton) increase expected over 2002 levels. Net U.S. LNG imports are expected to rise from 5 percent of net U.S. natural gas imports in 2002 to 39 percent in 2010.

For the time being, the U.S. remains a net importer of natural gas.

Tres Amigas transmission link overview at Alt Energy Stocks

Michael Giberson

I put together an overview of the Tres Amigas LLC proposal for Alt Energy Stocks, published today: “Tres Amigas Proposes Three-way Transmission Link.”  (Tres Amigas proposes to build a three-way transmission link between the Eastern Interconnection, the Western Interconnection, and the Texas Interconnection.)

The only company mentioned in the summary with a stock trading somewhere is AMSC.  The Tres Amigas project has been promoted as aiding the development of renewable power sources.  The combination apparently qualifies the discussion for posting at Alt Energy Stocks.  (Thanks Tom.)

The project should facilitate trade (of all kinds of power) among the three areas, reducing price volatility and lowering average wholesale prices overall.  Since it is proposed as a merchant transmission facility, without electric ratepayer money at risk, there is almost no downside to consumers from the project.

NOTE: Link to related Tres Amigas posts at Knowledge Problem.

Buy American sounds great—until you think about it

Michael Giberson

“Buy American sounds great—until you think about it,” said Marc Gunther in “Buy American: Bad for America.”

(Gunther begins by writing: “Congress should have known better,” but I think the truth is that Congress did know better.  It just didn’t matter.)

Tres Amigas project proposes to connect Eastern, Western, and Texas power grids

Michael Giberson

A high-profile, high-technology power project is making waves well beyond the small town of Clovis, New Mexico, where it has secured land for development.

I’ve been telling my students and anyone else I can induce to listen to me for a few minutes (i.e., mostly just my students) that my new hometown of Lubbock, Texas is in an interesting place, electrically speaking, because we are so close to that corner of the country where the Eastern Interconnection, the Western Interconnection, and the Texas (ERCOT) Interconnection meet. The developers of the Tres Amigas LLC project hope to spend about a $1 billion in Clovis, about 100 miles northwest of Lubbock, to prove that this area is in fact an interesting place.

Tres Amigas has proposed building a three-way superconducting HVDC link between the three separate power systems to allow power to be shipped among them. (Currently the systems are linked by a small number of weak and relatively unimportant DC interties.) The press releases (by Tres Amigas and partner-company American Superconductor) highlight the way the project can help foster development of renewable power in the region — and it would, and politically those are good buttons to press — as a practical matter this project should be a good deal for power plant developers of all kinds and for power consumers in the area.

Leading the Tres Amigas effort is Phil Harris, former CEO of the PJM Interconnection. As noted, power systems technology firm American Superconductor is partnering in the effort, and directing AMSC’s efforts is Terry Winter, former CEO of the California ISO.  Pat Wood, former chairman of FERC and former chairman of the PUC of Texas, is working with Texas-based transmission developer Sharyland Utilities, and the Wall Street Journal story quotes Wood as saying Sharyland is interested in partnering with Tres Amigas, too.  While the project is at an early stage, still seeking long-term financing and regulatory approvals, these are quite talented people.

Of course, Lubbock is already an interesting place, electrically speaking, because the city is served by competing distribution utilities (noted here and here) rather than by a distribution monopoly.  But that’s a local issue.  A $1 billion spent up the road a little ways could help show how interesting the area is on a much broader scale.

More links:

ADDED: POWERnews, “Transmission Project to Link Three U.S. Grids and Aid Renewables.” Once again renewable power makes the headline, but the value here comes from additional potential gains from trade that can be captured via the project. Whether solar power or coal power, consumers will be better off by having the additional options the system will provide.

STILL MORE, FROM THE COMMENTS: Popular Mechanics, “Lone Star Energy: Why Texas Will Resist the Call for a Unified Grid.” News stories suggest that Tres Amigas plans to ask FERC to confirm that nothing about the project will upset current jurisdictional arrangements regarding ERCOT.