Economics – Page 191 – artdiamondblog.com

Case for Wind Power is “Absolute Baloney”

I once heard a top MidAmerican Energy executive express considerable, articulate, scepticism about the economics of wind power. (Wind power is unreliable, so that electric companies still must stand ready to provide the electricity by other means.) If wind power made economic sense, you wouldn’t need subsidies to promote it—profit maximizing power companies would pursue it on their own. MidAmerican now invests in wind power, not because it has become an efficient energy source, but because wasteful government subsidies, make wind power profitable for MidAmerican.

Glen Schleede, a retired power company executive, has nothing to lose by speaking the truth:

(p. 1B) The turbines do bother some folks, including Glenn R. Schleede, a retired power company executive from Round Hill, Va., who said the wind power industry puts out "absolute baloney" to justify its existence.

"I’m tired of subsidizing Warren Buffett companies," Schleede said, referring to federal tax subsidies that go to MidAmerican Energy Holdings Co., a division of Omaha-based Berkshire Hathaway Inc. that is headed by Buffett. Those are MidAmerican’s turbines in the fields around Schaller.

Schleede’s criticisms, mostly in academic-style papers he writes, concentrate on the economics of wind power and what he called "false claims about how this is good for an energy system."

"In fact, these things, because they’re intermittent and volatile and unpredictable, they don’t really add a lot of capacity to an electric grid," he said. "When you see these things advertised, they talk about how many megawatts of capacity, the number of homes served and all that garbage.

"I would maintain that they don’t serve any homes."

For the full story, see:

Jordon, Steve. "Harvesting Wind;Farmers like payout, but critics of wind power point to costs." Omaha World-Herald (Sunday September 3, 2006): 1D-2D.

Added Evidence for Weidenbaum’s ‘Birth Dearth’

Source of book image: http://www.aei.org/books/bookID.497,filter.all/book_detail.asp

Ben Wattenberg had already been predicting a world population decline for years, when he published The Birth Dearth in 1987. Back then, scepticism was widespread. Governments and philanthropists spent billions promoting birth control to restrain population growth. Many were still convinced of the wisdom of Isaac Ehrlich, darling of the environmentalist enemies of economic growth, who had predicted disaster in his Population Bomb.

(Note that the plausibility of many environmentalist disaster scenerios is based on the assumption of continuous population growth.)

The current decline in birth rates is not a total puzzle. Nobel-prize winner Gary Becker long-ago claimed that quality of children is what economists call a ‘normal’ good, which means that families invest more in quality as their incomes rise. As families invest more in quality, they invest less in quantity.

Whatever the reasons, the evidence continues to accumulate that Wattenberg was right:

After a long decline, birthrates in European countries have reached a historic low, as potential parents increasingly opt for few or no children. European women, better educated and integrated into the labor market than ever before, say there is no time for motherhood and that children are too expensive anyway.

The result is a continent of lopsided societies where the number of elderly increasingly exceeds the number of young — a demographic pattern that is straining pension plans and depleting the work force in many countries.

For the full story, see:

ELISABETH ROSENTHAL. "European Union’s Plunging Birthrates Spread Eastward." The New York Times (Mon., September 4, 2006): A3.

Source of graphic: online version of the NYT article cited above.

Salt Lake Mayor Violates “Ridiculous” Zoning Law

Salt Lake City Mayor Rocky Anderson, whose "xeriscape" yard violates a Salt Lake City zoning ordinance. Source of photo: scan from a paper copy of the NYT article cited below.

SALT LAKE CITY, Aug. 21 — Covered as it is by red bark and dotted with ornamental grasses and purple sage shrubs, the front yard of Salt Lake City’s mayor stands out in contrast against the other, uniformly green lawns on the tree-lined street.

Not only is Mayor Rocky Anderson’s yard distinctive, though. It is also illegal, one of hundreds of drought-friendly yards and gardens here that are in violation of zoning ordinances.

In light of a five-year drought that meteorologists say ended last year, Mr. Anderson is one of a growing number of homeowners in desert cities across the West who have traded in their manicured lawns and colorful flower beds for ground cover and gardens that require little water.

In Salt Lake City, though, all front yards must be completely covered with flat green grass, which needs to be watered often to keep it from turning brown and strawlike. Although the zoning ordinance is rarely enforced, some Salt Lake City leaders — including the mayor — want to bring the letter of law in line with current landscaping trends.

“I think the zoning ordinance is ridiculous,’’ Mr. Anderson said. “It clearly needs to be changed.”

For the full story, see:

MELISSA SANFORD. "Salt Lake City Moving Toward Less Thirsty Lawns." The New York Times (Fri., August 25, 2006): A12.

Feds Slowed DSL by Forcing “Open Access”

Here is the background. From the earliest days of broadband service, controversy raged over whether the physical networks used to transport data should be allowed to control content. Thus open access rules, which forced telcos to allow broadband company rivals to use their networks at regulated rates. Cable TV systems, meanwhile, also provided Internet connections via cable modems, but without any obligation to share their facilities. If an independent Internet Service Provider (ISP) like Covad or Earthlink wanted to connect customers via Comcast’s lines, they could negotiate a deal but had no legal club — as they did under open access.

There was a vigorous campaign to mandate open access on cable similar to DSL; regulators under both Presidents Clinton and Bush refused. The inevitable litigation ensued; but the Supreme Court set the matter to rest in FCC v. Brand X (2005). Its 6-3 decision upheld the FCC’s classification of cable broadband as an "information service," placing it beyond the scope of common carrier regulation.

For a number of years, therefore, DSL service was subject to open access while cable was not. Unsurprisingly, DSL providers were blown away early in the race for market share. By the end of 2002, cable-modem subscribers numbered 11 million and DSL just 6.1 million, according to Leichtman Research.

Then DSL began its deregulatory trek. The first critical reform was a surprise FCC decision in February 2003 to end "line sharing" rules. This dramatically raised the prices which ISPs would have to pay to use phone company facilities to provide retail DSL service, dealing a severe blow to companies like Covad. Echoing conventional wisdom, the New York Times news story forecast a consumer defeat: "High-Speed Service May Cost More."

It hasn’t. Average DSL rates, according to Kagan Research, dropped from $39.51 per month in 2002 to $34.72 in 2003. Telcos also expanded the scope, capacity and quality of advanced networks, even improving its endemic customer relations problems.

Consumers responded. DSL, holding just 35% market share in 2002, pulled even with cable among new subscribers in 2004. Leichtman Research reports that "DSL providers have added more broadband subscribers than cable providers in each of the last six quarters," and that overall, "the first quarter of 2006 was the best ever for both DSL and cable broadband providers." Unleashed from open access, DSL is attracting customers like never before — and the overall growth of broadband subscribers (DSL and cable) is notably higher.

For the full commentary, see:

THOMAS W. HAZLETT. "RULE OF LAW; Broadbandits." Wall Street Journal (Sat., August 12, 2006): A9.

Needed to Save New Orleans: Less Local Government Corruption and More Local Capitalism

Source of graphic: online version of the WSJ editorial cited below.

New Orleans’ plight is not the result of federal underspending. Uncle Sam has spent some five times more on Katrina relief than any other natural disaster in the past 50 years. Both parties in Congress and the White House opted for the status quo by relying on federal bureaucracies to oversee the rebuilding effort. If Uncle Sam were deliberately trying to waste these funds, it is hard to imagine a better way than to funnel the money through the Department of Housing and Urban Development, the Small Business Administration and the Federal Emergency Management Agency. Both HUD and the SBA have been on the chopping block back to the early Reagan years.

The post-Katrina spend-fest in Louisiana will be remembered as one of the greatest taxpayer wastes in U.S. history. First came the FEMA $2,000 debit-cards fiasco intended to pay for necessities that were used for things like flat-panel TVs and tattoos. Then came the purchase of thousands of mobile homes that cost as much as $400,000 per family housed; the $200 million for renting the Carnival Cruise Ship millions more in payments that went for season football tickets, luxury vacation resorts, even divorce lawyers. Federal flood insurance policies surely will encourage many to rebuild in the same flood plains and at the same height as before.

. . .

After the hurricane, newspapers around the world showed photos of New Orleans under headlines that shouted: "America’s shame." In truth, New Orleans was America’s shame long before Katrina. In large part the residents of the Big Easy were victims of the predatory behavior of their own politicians. Louisiana already ranked among the bottom five of all the states in crime, poverty, health care and school performance; the murder rate in New Orleans today is 10 times the national average.

For all the finger-pointing this week, Congress hasn’t spent much more than a dime to clear away the debris of corruption, patronage, welfare dependency, high taxes and racial division of decimated neighborhoods. What is still lacking in the life of New Orleans is the vital architecture of local capitalism.

For the full editorial, see:

"The Tragedy of New Orleans." The Wall Street Journal (Tues., August 29, 2006): A14.

Unintended Consequences of Sending Food: More on Why Africa is Poor

Millet in bowl. Source of photo: online version of the NYT article cited below.

NIAMEY, Niger, Sept. 21 – The images coming out of this impoverished, West African nation have been unrelentingly grim: hungry children with stick-thin arms and swollen bellies, mothers carrying babies hundreds of miles to look for food after a poor harvest and high prices put local staples out of reach. A few months ago, those images prompted a torrent of food aid from Western donors.

But now, after a season of good rains, Niger’s farmers are producing a bumper crop of millet, the national staple. This should be a cause for rejoicing, yet in one of the twists that mark life in the world’s poorest countries, the aid that was intended to save lives could ruin the harvest for many of Niger’s farmers by driving down prices.

The newly harvested millet and the donated food will reach market stalls at the same time, and with prices depressed, poor farming families may be forced to sell crops normally set aside for their own use and use the money to pay off debts. The effect would be a new cycle of hunger and poverty.

For the full story, see:

Burley, Natasha C. "In Place Where the Hungry Are Fed, Farmers May Starve." The New York Times (Thurs., September 22, 2005): A3.

Source of map: online version of the NYT article cited above.

Distorted Incentives in Medicine

Source of book image: http://www.harpercollins.com/books/9780061130298/The_End_of_Medicine/index.aspx

The problem right now, as Mr. Kessler sees it, is that we fight the "big three" — cancer, stroke and heart attack — with treatment rather than early detection. Cancer cells and blood-vessel plaque can be handled much more easily in the early stages, but we spend most of our money on the later ones. More than 80% of health-care dollars are paid by insurance companies and the government, and neither is especially interested in detecting disease when it first appears. Doctors, regulators, researchers and payers of all kinds are locked into what Mr. Kessler calls — a bit ungenerously — the "cholesterol and cancer conspiracies."

A complicated system of mutual dependency distorts the incentives. "The FDA is like the FCC and Big Pharma is like the regional Bells" is what Mr. Kessler hears from Don Listwin, a former Cisco executive who now heads the Canary Foundation, a Silicon Valley-based effort to promote preventive medicine. In other words, in medicine as in telecom, the big players end up exploiting regulations more than opposing them, if only to preserve their monopolies. The Food and Drug Administration — understandably but narrow-mindedly — wants "cures" for cancer and other diseases. Thus tens of thousands of chemicals are screened, only a handful make it even to Phase I trials, and by the time a new drug is approved a billion dollars has been spent. Even then the new drug may help only 10% of patients.

Yet if someone were to invent a device with a wide, preventive usefulness — say, a nanotech implant that would spot the proteins that indicate the first minute presence of cancer — it would have to go through the same process of billion-dollar testing. Since the government and insurance companies are reluctant to add anything to their repertoire of coverage — and since such a device would be targeted at the much broader pool of people who are not sick — research might well stall in its earliest phases for lack of reimbursement-funding.

For the full review, see:

WILLIAM TUCKER. "Bookshelf; The Art of Navigating Arteries." Wall Street Journal (Tues., July 18, 2006): D6.

A full reference to the book reviewed, is:

Kessler, Andy. The End of Medicine: How Silicon Valley (and Naked Mice) Will Reboot Your Doctor. HarperCollins, 2006.

Welfare Reform Increases Number Employed

Source of graphic: online version of the NYT article cited below.

WASHINGTON, Aug. 20 — Ten years after a Republican Congress collaborated with a Democratic president to overhaul the nation’s welfare system, the implications are still rippling through policy and politics.

The law, which reversed six decades of social welfare policy and ended the idea of free cash handouts for the poor, was widely seen as a victory for conservative ideas. When it was passed, some opponents offered dire predictions that the law would make things worse for the poor. But the number of people on welfare has plunged to 4.4 million, down 60 percent. Employment of single mothers is up. Child support collections have nearly doubled.

“We have been vindicated by the results,” said Representative E. Clay Shaw Jr., Republican of Florida and an architect of the 1996 law who was vilified at the time. “Welfare reform was one of the most successful policy changes in our nation’s history.”

For the full story, see:

ROBERT PEAR and ERIK ECKHOLM. "A Decade After Welfare Overhaul, a Shift in Policy and Perception." The New York Times (Mon., August 21, 2006): A12.

Money Buys Happiness, and Governments Tax It Away

We are . . . all constantly reminding each other that "money doesn’t buy happiness."

Economists aren’t so sure. They note that people with a lot of money tend to express a higher subjective happiness than people with very little. According data from surveys by the National Opinion Research Center, for example, people in the top fifth of income earners are about 50% more likely to say they are "very happy" than people in the bottom fifth, and only about half as likely to say they are "not too happy."

There is, however, generally very little change in the average level of happiness in populations getting richer over the years. For instance, the percentage of the U.S. population saying it was "very happy" in 1972 was exactly the same as it was in 2002: 30.3%. Social critics of "consumerism" explain this by claiming that what makes rich people happy is not money per se, but rather the fact that they have more of it than others — so if everybody gets richer, happiness remains unchanged. The critics go on to say that income differences lead to unwholesome feelings of superiority, so taxes can improve our moral fiber simply by bringing us closer to the same income level.

Perhaps you’re unconvinced. In fact there is another explanation for unchanging happiness levels over time which is rather less supportive of income redistribution. As incomes rise, so generally do levels of government revenues and spending, and there is evidence that these forces work against personal income on the overall level of happiness. For example, a $1,000 increase in per capita income is associated with a one-point decrease in the percentage of Americans saying they are "not too happy." At the same time, a $1,000 increase in government revenues per capita is associated with a two-point rise in the percentage of Americans saying they are not too happy. In other words, not only can money buy happiness, but it may be that the government can tax it away as well.

For the full commentary, see:

ARTHUR C. BROOKS. "Money Buys Happiness." The Wall Street Journal (Thurs., December 8, 2005): A16.

Canon Prospers By Ignoring the ‘First Mover Advantage’

Canon’s new HV10 high definition camcorder. Source of image: the NYT article cited below.

In the dot-com era, many believed that in each niche, the future belonged to the company that got-in, and got-big, first. Sometimes this was called the ‘first mover advantage.’ There are many counter-examples. Here is one more:

(p. C1) Next month, Canon will release the world’s smallest and least expensive high-definition tape camcorder, a one-handable beauty called the HV10.

. . .

This image-quality business, as it turns out, is the new Canon’s specialty. Talk about being blown away the first time you play back your recordings — let’s hope you have a sturdy couch.

Several advances are responsible for the brilliant picture quality. First, Canon has paid extra attention to two of the most important aspects of HD recording: focus and stability. Because the high-def picture is so sharp and so wide, moments of blur-(p. C11)riness or hand-held jitters are far more noticeable and disturbing than in regular video.

So the front of the HV10 bears a special external sensor that, when you change your aim, handles the bulk of the refocusing extremely rapidly. A standard through-the-lens focusing system does the fine tuning after that. Together, these two mechanisms nearly eliminate the awkward moment of blurry focus-hunting that mars other camcorders’ output.

. . .

. . . , by entering the high-def camcorder market a year and a half after its rivals, Canon has played the same conservative waiting game it once used with digital cameras and camcorders. Its goal, of course, is to watch and learn as the pioneers get all the arrows in their backs.

If the HV10 is any indication, the company is off to a very good start.

For the full review, see:

DAVID POGUE. "A Head Start On the Future Of High-Def." The New York Times (Thurs., August 10, 2006): C1 & C11.