36 thoughts on “Monday Message Board

  1. In the absence of serious experimentation one approach to gaining insight taken by economists is to take curious transaction case studies and conclude form them that neoclassical economics is a great idea. But how far do they take this logic you might ask? In response I offer the following:

    LEESON, P. T. & COYNE, C. J. 2012. Sassywood. Journal of Comparative Economics, 40, 608-620 (probably downloadable pdf for free via one of the Googlescholar links).

    Here are some quotes: “4. Sassywood superiority…Sassywood seems absurd. But it comes closer to satisfying the institutional conditions required for effective criminal justice than Liberia’s formal criminal justice institutions….Sassywood is fraught with imperfects that limit its effectiveness. But the features indicated above and described in greater detail below may make it a sensible institutional substitute for formal Liberian justice where the latter is still less effective.”

    “ 4.1. Accessibility….In contrast to formal judges and courts, sassywood ‘‘judges’’ and ‘‘courts’’ are readily accessible to all Liberians who seek criminal justice’s aid. ….Sassywood is informal. It can be conducted at any time in any place. All that is needed is a sassywood specialist, which all communities have or can readily obtain, and the sasswood tree’s poisonous bark. Because of this, sassywood-provided criminal justice can be, and is administered whenever and wherever a Liberian community seeking criminal justice desires it. However basic the accessibility dimension of sassywood’s superiority over formal justice may be, its importance for effective criminal justice is difficult to overstate. In place of nothing as a potential means of administering criminal justice, sassywood provides something. This is tremendously helpful for supporting property rights.”:
    “ 4.2. Judicial administrator incentives…Sassywood provides judicial administrators stronger incentives to wield their judicial authority honestly—i.e., in the interest of justice instead of for private purposes—than formal criminal justice institutions do.

    (for more on Sassywood see http://www.ialsnet.org/meetings/enriching/JallahDavid.pdf – noting Jallah also recently decided that the whole of Liberia’s University entrance class – 25000 should be flunked http://www.theguardian.com/world/2013/aug/27/all-candidates-fail-liberia-university-test )

    Parting comments as this actually needs to be read to be believed:
    – Coyne is apparently a darling of the neoliberal Washington Right.
    – Sassywood is in fact torture akin to the wrong doer drowning techniques of our own Medieval ages which I learnt in primary school. (if this makes you think of Monty Python and the Holy Grail – a witch ways the same as a duck you are on the right track).
    – I’ve already nominated this article for an economics Ignoble Prize but please feel free to email support.
    – Or alternatively could someone explain please the merits of such mad analysis.

  2. There’s been a spate of recent articles on the looming gas shortage in eastern Australia. See the Alan Kohler article in the online ABC or ThisIsPower or Peak Energy Australia. Funny thing is this was officially anticipated as long ago as 1974 by Rex Connor a minister in the Whitlam government. Since then we’ve had the wonders of fracking and coal seam gas. Recently former Liberal MP Peter Reith chaired a committee about fracking in Victoria’s prime farmland; the central recommendation seems to be to keep farmers onside.

    This has has been brought about by the construction of three gas liquefaction plants at Curtis Island, Gladstone Qld. The plan is they will eventually convert more gas (25 Mtpa) to export LNG than Australia’s entire domestic gas demand. That means peaking power stations, fertiliser makers, food processors, brick kilns and domestic gas retailers will have to match the export parity price. That is expected to be at least double the 2012 price of about $4 a gigajoule.

    The thinking seems to be even if we drill like buggery it will only delay the eventual crisis. If Abbott is still PM in 2015 he will surely be asked to create a domestic gas quota to be sold at a lower price. I think this is a reminder that the Earth’s cheap resources are finite. Free marketeers cling to the Magic Pudding view that once one resource is consumed we move onto another. Trouble is sometimes that simple alternative isn’t there.

  3. It would be much wiser from Australia’s point of view to not export gas at all. We are deficient in oil. Local natural gas could replace refined petrol and diesel imports via converting cars, buses and trucks to natural gas. Indeed, it would much wiser to cease all our fossil fuel exports, especially coal of course. At the same time, we could ramp up solar, wind and other renewables.

    To those (including me) who bleat that we can’t run our curent full system without fossil fuels I say;

    1. The result will be better than totally wrecking the climate.
    2. Sooner or later we WILL have to run on all renewables anyway.
    3. Whatever renewables will run is going to be as good as it can be, so get used to it.

  4. @Hermit

    If true I cant help feel this is to the good – as it highlights again the way energy costs are increasing to the point where even conservatives might accept that renewables make better sense because of the economics as well as environmental reasons and sustainability.

    In reality we aren’t about to run out of gas in an absolute sense as there are obvious alternative supplies to fracking e.g. return to town/coal gas and sea floor methane hydrates. But like all these lower grade fuels they are proportionally greater, certainly environmental, and probably economic nightmares. So while in the short term there maybe some bad decisions in the long term renewables will be seen as just plain commonsense.

    Another thing of note here is that in the longer term of technology and infrastructure change natural gas can be replaced with renewable hydrogen generated on site or piped (assuming technology challenges can be sorted like hydrogen’s tendency to explode and whiteant its containers e.g.://en.wikipedia.org/wiki/Hydrogen_embrittlement).

  5. @Newtownian

    Hydrogen as a fuel has almost nothing it its favour apart maybe from its clean burn.

    1. Hydrogen has a low energy density on a per volume basis.
    2. Hydrogen is notoriously hard to store as gas or liquid.
    3. Hydrogen is more dangerously explosive than most fuels.

    If we were to synthesize a gas/liquid fuel then methane is by far the best bet. And the C of CH4 is fine if it comes from the C of CO2 during synthesis. The net effect on CO2 emissions is zero. Much of our economy must become electrified but there will still be some applications where you need an IC engine powered by (synthesized) methane.

  6. Hydrogen is up to $8/kg depending on the process while natural gas (methane) is more like 22c a kg wholesale. We also have a massive sunk cost in natural gas infrastructure that could last decades longer. We can replace some gas with electrically driven heat pumps, induction cooking and the like. Let’s hope we don’t go back to coal fired brickworks. I suspect domestic gas users are holding their breath to chuck a major wobbly when Gladstone LNG exports start late 2014.

    The resulting brouhaha and price rises could make carbon tax look like a picnic. If it coincides with high petrol prices it could be a turning point. It will show those who dismissed AGW that we needed to decarbonise regardless.

  7. @Hermit

    Some quick points for Ikonoclast and Hermit

    – I agree there are downsides but I think you are not looking at the full/big picture.

    – Taking Ikon’s point first
    * We used to use town gas widely – which had a useful energy density, was stored satisfactorily and was used without continuously blowing ourselves up – that was 50% hydrogen – and that was before current technologies.
    * Regarding synthetic methane/methanol – its feedstock is hydrogen – so its not a question of no hydrogen economy but of how/what use is made of it. I agree zeolite cars are problematic but the idea of storing renewables derived hydrogen for peak demand/cloudy days instead of solar and burning it in gas turbines isn’t revolutionary.

    The stuff on the hydrogen economy at least deserves consideration rather than simple off hand dismissal http://en.wikipedia.org/wiki/Hydrogen_economy . What is impressive is that for the most part the technology exists.

    Regarding Hermit’s comments.

    – You omit to mention:
    * hydrogen on a weight basis is nearly 3 times more energy dense than even natural gas.
    * Natural gas isn’t sustainable price or climate change wise over the long term. We cant afford for example to burn all that methane hydrate even if we could get it. Just like coal if a bit longer.
    * Like it or not efficiencies in energy use continue – while the price of primary renewable energy is approaching that of conventional fuels.
    * The current price of natural gas reflects a mature infrastructure and probably minimum price.
    * The brouhaha is by in large a real furphy generated by short term politics and entrenched interest. Consider two things:
    – The price of oil has increases 3-4 fold in the last few years far outweighing the trivial carbon tax.
    – Yet have you seen a mass switch to the much cheaper LPG – no sir.

    Overall both sets of points are fair comments but like with so many other things the fat lady hasn’t sung yet. When she does we may be a bit ‘poorer’ in respect to fewer fast cars and wasteful energy behaviour, but richer by sustainability measures without having to return to caves. If there are obstacles they are the machinations of those aligned to short term interest e.g. dependency on continued coal exports to provide key national income.

  8. If any state is worried about the price of natural gas increasing all they need do is make like South Australia and install wind capacity. Along with rooftop solar it has resulted in South Australia’s gas use being about 25% less than what it would otherwise be.

  9. in the news in canada today, with regard to the on-going scandal of senator duffy & the payback of his rorted expenses, it is increasing looking like either:-

    (1) harper knew his chief of staff was organising to (a) interfere with the deliberations of a senate committee investigating duffy, and (b) bribe & threaten duffy, in order to neutralise a serious political problem for his government, or

    (2) harper, a known micromanager, did not have any knowledge of how this serious political problem for his government was being resolved.

    rcmp today have applied to extend their investigation.

    in his supporting affidavit, the investigating officer said, with regard his interview with the leader of government business in the senate, and chair of the committee that investigated duffy:- “I believe that Senator Stewart Olsen’s version of events to police was incomplete and not consistent with the facts.”

    the rcmp investigation will now move on the prime minister’s office, starting with the email servers. if what they say, about the “arsies” always getting their man is true, this may be the beginning of the end of stephen harper as canadian prime minister.

    http://www.cbc.ca/news/politics/rcmp-question-credibility-of-3-tory-senators-in-duffy-deal-1.2434323

    there were 233 comments on this story at the cbc before comments were closed, and, most unusually, removed altogether from view. -a.v.

  10. @Ronald Brak
    It’s the flexibility of gas generation that enables intermittent wind and solar to drop in and drop out. I expect in January that Adelaide will get a 44C day when it’s still 35C at 9 pm. Solar panels won’t be helping and wind power could be at just 5% of capacity. It will be mainly gas fired generation and interstate electricity imports that keep the aircons going.

    Adelaide already has very high end user power prices and I’ve seen a prediction they could go up another 25% by 2015. Torrens Island power station is the largest user of natural gas in Australia. I expect one of the gas price dummy spits will come from Weatherill.

  11. Sorry for a long comment but I just looked at the Senate numbers and got further depressed about the prospects for carbon pricing in Australia, even in the medium term.

    Counting Xenophon as a moderate, the left-moderates won 17 Senate seats from 40 at the September election. If the WA revote results in another 4:2 right-left split, that means the left-moderates will need to win 24 seats at the 2016 election for there to be a left-moderate majority in the Senate in July 2017 should Labor win the next election.

    That means the left-moderates would effectively need to win 3 in 2 states and 4 in 4 states (unless the Greens win the second ACT seat in which case they “only” need 4 in 3 states – demonstrating that there may be some upside for the left in massive Coalition public service cuts). It also seems likely that the voting system will be changed before then so there may not be the same chance to fluke a 4:2 left-right split as almost happened in Tasmania this time.

    24 seats is a huge hill to climb. It would represent the left’s greatest Senate triumph since Chifley introduced proportional representation and would probably only occur if Labor won a House victory like Curtin’s, which took place while the Japanese were bombing us and while the conservatives were hopelessly divided. Barring a successful double dissolution, which probably couldn’t occur earlier than mid 2017 and possibly early 2018, the right will very likely hold the Senate until July 2020. And of course, 2020 is when we should be hitting our first emissions reduction target, whatever it is.

    I think this highlights the flaws in having 6 year staggered fixed terms for the Senate – the conservative majority elected in September 2013 may hold sway almost 7 years from now. We need another referendum for simultaneous terms.

  12. @Newtownian

    The “hydrogen economy” is a thermodynamic oxymoron. No significant reserves of free hydrogen exist on earth. Thus hydrogen cannot be an energy source via extraction and combustion of free hydrogen on earth. This means, in the practical sense, that hydrogen is only an energy carrier or energy store in the attempted “hydrogen economy” but not a primary energy source. The free hydrogen first has to be generated by (you guessed it!) large inputs of energy. This energy has to come from another energy source. Given the inefficiencies (energy losses) of creating a combustible fuel from scratch and then burning it, this makes the process an energy sink, an energy loss maker.

    Using energy to create an energy store is a common process that is true. For example, we do it when we make batteries. The energy losses are tolerated because the energy is storable and made available later in the form we want it. Hydrogen really does not tick those boxes except in a few specialised cases. Hydrogen is not practical to store, at least not in gas or liquid form in tanks. It has a low energy density per unit volume and it leaks and damages containers. It’s also very dangerous to store.

    Hydrogen as a secondary energy source might come to have some significant specialised applications but that’s about it. Indeed, it has some minor applications now. It makes no sense to talk about a “hydrogen economy” however. It’s like talking about a “battery economy”. Calling a secondary, concocted energy source working via storage (and which is also a net energy sink) the basis of the economy is nonsensical. The primary energy source is the basis of the economy. So if we had a solar powered economy which made secondary use of batteries (charged by solar power) in some applications we would logically call that a solar economy not a battery economy. The same reasoning applies to the “hydrogen economy” oxymoron.

  13. @Ronald Brak
    Industry players like AGL think we could get more coal instead. See today’s This Is Power article. Now that Pr Q’s climate advisory panel has been sidelined we could end up with a watered down RET, no carbon price and ‘world pricing’ for gas. And the winner is…coal.

  14. @Hermit

    At least two technologies already exist to allow solar generation to deliver power 24/7. I wonder why commentators persistently ignore this fact?

    1. The first technology is concentrated solar thermal coupled with turbine generators and molten salt thermal storage in a closed loop system. This technology generates power 24/7 and is practicable and economic right now.

    2. The second technology is the solar convection tower which by working via the temperature differential (higher at night actually) between tower base and tower top also generates power 24/7 via wind turbines around the base. One large tower of 1000m with covered tarmac apron can generate enough power for a city of 250,000 people.

    South Australia with its hot inland expanses is ideally placed to use this technology.

    It’s funny. No matter how many times I tell people these things exist and are practicable technically and economically, it’s like I am talking to a brick wall. The debate starts all over again and it’s like people have never heard of these possibilities.

    The bottom line is when oil and coal get too expensive these other technologies will be implemented. Oil is set to rise rapidly in price now since peak oil was 2005 and peak hydrocarbon liquids is about now. Peak coal is also a lot closer than people think. Whilst we are not really close to peak tonnage we are close to peak net energy from coal due to rising mining costs (in energy terms) and lower energy returns due to declining coal quality. Much of the easiest to mine and highest quality coal is already gone; mined and burned up.

    Of course, we all better hope we don’t try to utilise methane clathrates off the sea floor. If we do that in any significant way, then Earth will turn into another Venus. There won’t be any of us around when the surface temperature goes to 400 degrees C.

  15. @Ikonoclast
    Some estimates put the capex of solar thermal with storage at $19/watt versus $1 for new PV which is why Google did a partial switch on their Ivanpah project. When I last looked the levelised cost of electricity was in the range 20-30c per kwh and the average annual capacity factor is about 60% meaning it still needs backup in winter and overcast weeks. As to the tower of power I understand none actually work yet. OTOH new coal absent CCS or carbon tax should be able to produce power 24/7/365 for less than 10c per kwh.

    We need something that does the same job as coal but without the CO2 and at a price less than double. At this stage solar thermal ain’t it. The way we’re going when Hazelwood is clapped out we’ll build another one just like it.

  16. @Ikonoclast

    True but then language especially English is not noted for being fully consistent.

    But the word serves its purpose as we are clearly discussing the same issue – new energy sources – which are continually evolving. Given the latter I think the term ‘Hydrogen Economy’ is still a useful one even if its relationship to and economy based on hydrogen has a similar relationship to that between Ecology and ecology.

    The words ‘Sustainability’ and ‘Organic’ (apparently pirated by the organic chemists and no vice versa as many of them believe) are similar. such is life.

  17. @Ikonoclast

    Addressing your second and third points:

    – Regarding storage and handling you didn’t comment on long term historical use of town/coal gas which was 50% hydrogen. Admittedly they were ugly but those huge storage bellows which dotted the landscapes all over Sydney in the old days show what is possible. Their legacy of PAHs is pretty bad but that isn’t relevant to this point. This hydrogen would have corroded the containers and vessels and distribution pipes but clearly this was tolerable. Of course safety was a concern but we are a lot better at that these days. Or perhaps pure hydrogen is significantly more or a problem.

    – I’m certainly not devoted per se to hydrogen but rather to whatever works on balance – ultracapacitors, new battery designs, whatever it takes.

    – Perhaps a better description of what I am referring to is a wind/solar/hydrogen economy where:
    * everything that can be electrified is,
    * that electricity is used efficiently and energy conservation complements it production/impact
    * solar thermal heating is used directly wherever possible (e.g. solar space, hot water and probably refrigeration)
    * peak electricity demands are supplied by stored energy (salt, pressurized air) or turbine systems (could be hydrogen or methane powered).
    * small lowish mobile demand items (phones, tools) are powered by rechargeable batteries
    * larger /high demand mobile machinery where weight/energy density is a concern is powered by a synthetic liquid fuel – methanol or pressurized methane produced.

    In this scheme hydrogen is central to synthetic methane/methanol synthesis and very likely storage given we already know it works.

    As to the economics – of course its different to the present e.g. more frugal.

    In response to Hermit – I suggest its the case that the real world will drive the economy in the end not vice versa and we don’t ‘need’ a specific energy cost (overseas in Europe they thrive in lousy climates with prices twice ours) – the simple fact is we have to change and we in Australia actually have a lot of room to do so without returning to the proverbial dark ages. One only has to look at the current waste to realize there doesn’t have to be a collapse but rather rationality. Anyone who compares their energy bill before and after installing the obvious (photovoltaics, solar thermal, insulation, low energy light bulbs, a smaller car ) knows this. Its not rocket science but more a case of overcoming simple laziness and stupidity.

  18. @Hermit

    Industry players like AGL think we could get more coal instead. See today’s This Is Power article. Now that Pr Q’s climate advisory panel has been sidelined we could end up with a watered down RET, no carbon price and ‘world pricing’ for gas. And the winner is…coal.

    In the current political climate that is a real possibility, unfortunately.

  19. Fortunately, as South Australia demonstrates, there is absolutely no need for storage to achieve large cuts in gas use. With regards to storage, Australia’s low wholesale and high retail electricity prices makes it more profitable to install energy storage in homes and businesses that have rooftop solar rather than on the grid, despite considerably higher costs per kilowatt-hour.

  20. Prof. Quiggin

    Do you still believe that full employment (conservatively defined to mean an unemployment rate of 3 per cent) is feasible and desirable?

    Kind Regards,

    Senexx

  21. Senexx, do you really think that Professor Quiggin sits alone in his lair, stroking his beard, (in my imagination he saved it after shaving and keeps it in a glass case and takes it out when he has ‘Doctor Evil’ moments) and saying to hmself, “Mawh HA HA HAHA! I want more unemployment! More suffering! That is what is both feasible and desireable! Mawh-Ha-HAHAHAHAHA!”

  22. Senexx, the context is that very few people in this world would think a job for everyone who wants one, or for at least 97% of people who want one, is not desireable. This is similar to the way that very few people in this world think harming kittens for fun is desireable. In fact, unless I see evidence to the contrary, such as someway saying, “Kittens! I wish I could slowly kill them all!” I automatically assume that everyone I meet is not in favour of harming kittens for fun. In much the same way I think we can automatically assume that Professor Quiggin is in favour of a job for everyone who wants one, unless of course you have some evidence to the contrary. For example, perhaps you were talking to him the other day and he said something along the lines of, “Gosh darn it! I hate these sniveling proles who think they deserve a job just because that have children to feed!” while twirling the ends of his moustache which he had removed from its glass case.

  23. Since I never do what I vow to do, I vow to blog even more than I have today. (There, that should slow my blogging down.)

  24. @Ronald Brak

    You’ve had some fun lampooning Sennex’s “feasible and desirable” remark but I rather suspect that by “desirable” Sennex was intending “desirable in practice as distinct from in theory

    Yes, in theory, we’d all like full employment — defined by the standard that everyone could as soon as they needed, secure adequately rewarded, ethically robust, safe employment.

    Sennex may mean that in practice, that’s not possible or sustainable over time without consequences that would create conditions that would fail general utility.

    Of course, I’m just speculating.

    FTR, in theory, I prefer the end of the wages system and a world of material abundance in which people do as they please, exploring their possibility for all of their lives from now until the end of time. I’d trade that for full employment in a heartbeat.

    I suspect strongly that’s not in practical prospect on any timeline meaningful to me.

  25. Fran, I won’t speculate on what Senexx desires, but let’s say that technological change results in ONE MILLION Australians being kicked out of the workforce. To give all these people 20 hours of work a week at minimum wage (say $20 an hour) in businesses and volunteer organisations by paying their full wage would only cost about $20 billion dollars a year. That’s about 1.3% of GDP and would require Australian taxes to be raised to about the same level as Canada’s but still much lower than the UK’s. So leaving aside whether or not it is desireable, it is fairly obvious that employing everyone is feasible and I’m sure Senexx is capable of doing primary school maths and so is aware of this, and so I’m pretty sure this isn’t what he’s asking.

    Technically any increase in taxes to subsidise employment should be paid by those who benefited from the improved technology that threw ONE MILLION people out of work, but in the interests of fairness it should instead be paid by the middle class. (Admittedly I haven’t seen any middle class for quite some time now, but I’m sure they’re still out there somewhere.)

  26. @Ronald Brak

    To give all these people 20 hours of work a week at minimum wage (say $20 an hour) in businesses and volunteer organisations by paying their full wage would only cost about $20 billion dollars a year.

    Probably closer to twice that in practice when you include other non-wage costs, and it’s doubtful if all those million in practice could afford to work for only $20 per hour.

    It’s probably the case of course that there would be some clawback in expenditure on taxable goods — perhaps we could call this “trickle up theory” 😉 — and personally I’d have no problem with this.

    That said, it would be better to give them all decent welfare provision and such retraining and support as needed and likewise invest in actual areas of need (rather than subsidising charities to employ them).

  27. Hi John,
    you posted a little while ago about Bitcoin. At the time I thought that you were ignoring the illicit uses. Matt Yglesias has a post about it recently and it turns out “[i]t is being used right now by Chinese people as a means of evading that country’s exchange-rate controls.”
    So it seems there is some value other than as a purely speculative good.
    Love your work, keep up the thoughtful columns.

    http://www.slate.com/blogs/moneybox/2013/12/02/bitcoin_my_mind_hasn_t_changed.html

  28. Put it this way, there’s a lot of economists saying the macroeconomic conditions are about right.

    Very few economists that say we always tend to get macroeconomic conditions wrong.

    Unemployment is rising & whenever it is, the second lot are correct.

    Unemployment is a good bellwether for the economy. GDP growth is not. That is just numbers on a spreadsheet. Unemployment is about real people trying to have a sustainable living at a bare minimum a subsistence living.

    FWIW if these MMB go up as often as they should and I catch them I intend on repeating the question ad nauseam until it gets an answer. You never know I might even provide the original context.

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