Archive for October 2008
Its easy to find $100 billion dollars in Zimbabwe.
The story of hyperinflation, told through pictures.
It’s real hard to know exactly when we hit rock bottom, but after enough free-fall its a pretty safe bet that the big splat is near. If you’re in to speculation, now seems like a great time to get into commodity and currency markets; say, buying some oil futures high and holding Icelandic kronas.
For some speculation safe enough to resemble investing more than gambling, the major stock indices are hard to beat. Every time the Dow has fallen this far this fast, it was way up within a year; the only exception is the Great Depression, and even then it was back within 5 years. I might even bet on this one with my own money. That, or buy most of Iceland.
This 2005 book by a physicist and a Manhattan Institute fellow puts forward some shocking claims on the dust jacket: energy supply is infinite, more energy-efficient technology will never lower energy demand, energy waste is virtuous, and gasoline prices will matter less and less.
On closer examination, these claims are either wrong or turn out to mean much different things than those who spent money on the book likely expected.
For instance, hearing that “waste is virtuous”, one expects that it is a good thing to keep the house warm in the winter and cool in the summer while commuting to work alone in your Hummer. But in fact the book simply states the obvious, that extracting and refining energy and bringing it to market itself takes, or “wastes”, more of the same.
Similarly, when a book titled “The Bottomless Well” makes the claim that energy supply is infinite and gas prices don’t matter, you might expect that contains arguments about why we will never run out of oil. In fact, it does no such thing; again, it simply states the obvious, that solar and wind energy are infinite and coal, shale-oil, and uranium might as well be.
The authors do advance some non-obvious arguments. They note that fuel prices have long been declining relative to the price of the things they fuel; for instance, the price of gas has been decreasing relative to the price of cars. This is an interesting trend, but it is unwise to base much policy on the extrapolation of a trend that could easily reverse, and indeed has reversed during the three years since the book was written.
Their argument that increased efficiency will not lower demand is based on a similar extrapolation of past trends. They note that energy demand has increased continually for a century even as efficiency did too. This is not mere correlation; they note that more efficient technologies find so many new uses they end up expanding total energy demand. For instance, though an individual new efficient microprocessor can do the same job as its predecessor with less energy, it will be so popular in so many new settings that more energy will be used to power the total community of microprocessors.
In fact, this is quite an interesting question, containing an array of important subquestions: when does a more efficient version of a current technology change to the extent that it becomes a whole new technology or new product? Demand for energy has increased because GDP and income have increased, but higher GDP and income were themselves caused partly by these new technologies; so how much demand could efficiency gains alone be said to cause? The books problem is that it dodges such interesting and difficult questions by asserting that “basic economics” proves their point without bothering to explain how. If anything, basic economics refutes their point; any economics-based support for it would need to have a good model of how new technology affects a wide range of variables, which is quite an “advanced” and difficult task. Like most economists, I have physics envy and think that physicists and mathematicians are generally the smartest people around; so I do take some perverse pleasure, schadenfreude, at seeing a physicist largely unable to deal with my own field.
The book is far from all bad. If you’re looking for an honest title or a good explanation of the economics of energy, it is certainly not the place to go. But most of the book is really an engaging presentation of the history of engineering new technologies with ever-higher “energy densities”, an explanation of how many electricity-generation methods work, and how the grid distributes power. Underlying it all is a continual explanation of how the laws of thermodynamics must inform any discussion of energy, and how much of the discussion can be framed in terms of entropy, order, and logic.
All in all, the book delivers some poor economics, mixed policy recommendations, and excellent descriptions of the historical and physical backgrounds of energy-producing and energy-using technologies.
Paul Krugman has worked in academia, government, and policy, written several popular books and many technical articles. But despite all that, he is known primarily for one thing- New York Times columns chronicling the onset of his own Bush Derangement Syndrome. Inevitably, most non-economists and some economists will see the Prize as a political statement, which is perhaps what the Nobel Committee intended. I don’t think many economists would argue he didn’t deserve it, but certainly the timing (Bush’s last year in office) suggests the Committee may have been thinking about more than monopolistically competitive trade.
Libertarian Bryan Caplan explains why Krugman is the best popular left-wing economist he could ask for.
Tyler Cowen’s thoughts with lots more links.
Paul Krugman’s article, “How I Work”
My favorite quote from Krugman’s above article:
“What I began to realize was that in economics we are always making silly assumptions; it’s just that some of them have been made so often that they come to seem natural. And so one should not reject a model as silly until one sees where its assumptions lead. “
Isn’t there something a little… off… about a middle name like that? A little… un-American? My friends, is it possible that we will wake up to find our next President is really a secret Australian??