A new sandpit for long side discussions, conspiracy theories, idees fixes and so on.

To be clear, the sandpit is for regular commenters to pursue points that distract from regular discussion, including conspiracy-theoretic takes on the issues at hand. It’s not meant as a forum for visiting conspiracy theorists, or trolls posing as such.

Monday Message Board (on Tuesday)

Back again with another Monday Message Board.

Post comments on any topic. Civil discussion and no coarse language please. Side discussions and idees fixes to the sandpits, please. If you would like to receive my (hopefully) regular email news, please sign up using the following link You can also follow me on Twitter @JohnQuiggin, at my Facebook public page   and at my Economics in Two Lessons page

Why the Texas electricity market failed

Update: An expanded version of this post has now been published at Inside Story

By special request from regular commenter James Wimberley (and with some suggestions from him), some thoughts on the failure of the Texas electricity market to deal with unexpected cold weather.

Texas lost power when neighboring states, which also experienced the freeze did not. This is part because it has a mostly separate electricity grid. The Texas Interconnection has been kept separate from the rest of the US grid deliberately, to ensure that it remains under Texas not Federal control. That means that Texas couldn’t draw on electricity from the major power pools, notably the Southwest Power Pool.

The reason Texas was kept separate was so that it could replaced traditional integrated electricity supply with a pool market for electricity generation, combined with competitive retailing and lightly regulated transmission and distribution. This was run by ERCOT, the Electric Reliability Council of Texas (a name with plenty of irony right now), Interestingly, Australia is a mirror image. The National Electricity Market was set up on the pretext that it was necessary to manage the National Grid, which connected systems in Eastern Australia from the 1990s onwards.

The US ought to have a single national physical grid, as most of Australia does. The benefits of interconnection increase with greater need for reliability, greater total requirements for electricity (as transport is electrified) and an increased role for time-varying generation from solar and wind. The costs of interconnection have fallen with technological progress including (over long distances) the option of high-voltage direct current (HDVC) transmission.

A lot of people have suggested that the electricity market doesn’t provide incentives for reliable supply. Others (with some overlap) have commented adversely on the fact that the price of electricity rose to $9000/MWh during the freeze (average is around $30/MWh). The correct analysis is more subtle. The idea of a pure electricity market is that the prospect of getting high prices when everyone else has shut down would provide an incentive to maintain reliable supply.

Electricity only market seen as not providing adequate incentives for reliability. But ultra-high peak prices are supposed to provide those incentives. Max of $9000/MWh too low, not too high.

Switch from vertical integration to pool market good for renewables. An inherent result of markets, or just that disruption of any system favors shift to more efficient technologies?

(I’m going to edit this bit by bit, without noting updates)

Economic lessons of the 20-year armistice

Another extract from my book-in-progress, Economic Consequences of the Pandemic

The 20-year armistice from 1919 to 1939 was a period of economic stagnation in Europe, punctuated by crises which had disastrous economic and political effects. And while the US boomed in the 1920s, the Great Depression that began in 1929 caused massive unemployment and suffering which lasted through the 1930s. What lessons can we learn for the present?

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The 20-year armistice

One of the striking discoveries of the Internet age for me is that, no matter how original and idiosyncratic you imagine your thoughts to be, someone else has already thought them[1].

My book-in-progress, The Economic Consequences of the Pandemic is largely about the mistakes made between 1919 and 1939, and what we can learn from them. This period is usually called ‘interwar’, going along with the conventional naming of World War I and World War II, implying two separate conflicts.

I’ve long thought of these conflicts as one long war, with the Cold War that followed as a falling out between the victors. In this context, it struck me that the ‘interwar’ period 1919-39 would better be described as a 20-year armistice.

In formal terms, the Armistice of 1918 was ended by the signing of peace treaties between the Allies and the defeated Central Powers, most importantly the Treaty of Versailles with Germany, signed on 28 June 1919, five years to the day after the assassination of Archduke Franz Ferdinand.

The starting point of my book is Keynes’ critique of the Treaty of Versailles, The Economic Consequences of the Peace. Given the failure of the Treaty to secure peace, it makes sense to regard the subsequent 20 years as one long armistice, ending in a renewal of the same war. Going to Wikipedia to check info on some technicalities of the Versailles Treaty, I found the following statement attributed (as usual, dubiously [2]) to French Marshal Ferdinand Foch “”this (treaty) is not peace. It is an armistice for twenty years.” So, Foch (or whoever actually coined the phrase) was way ahead of me. Foch’s view was that the treaty was not hard enough on Germany, and would therefore not remove the threat of German aggression

Whatever its provenance, I’m adopting the term[3], even if I can’t claim credit for it.

fn1. As with most things attributed to the Internet, this idea was around much earlier, a notable example being Merton’s discussion of multiple discoveries

fn2. The quote can’t be traced back before 1939 suggesting a case of what I would call prophetic hindsight (the technical term, it appears is vāticinium ex ēventū Foch’s position directly opposed to Keynes who was concerned with the economic part of the peace, notably reparations, rather than with the military and territorial clauses) . Both saw the Treaty as unlikely to secure peace.

fn3. It follows, I think that the best term for the entire conflict from 1914 to 1945 is The Great War, the name originally given to what is now called World War I.

Hands off the rich?

The idea that we should tax the rich to fund public services and transfers to the poor seems obvious from an egalitarian perspective, at least as long as we are in a society with significantly unequal incomes. But it has been challenged recently by some advocates of Modern Monetary Theory.

[note: The meaning of ‘rich’ is rarely spelt out, and isn’t very helpful. Hardly anyone is willing to admit to being rich, so the discussion tends to focus on a handful of cases like Bill Gates, rather than on people in the top 1 per cent or 10 per cent of the income distribution. So, from now on, I’m going to use the term ‘high-income’ and refer to proposals raising taxes on some subset of the top 10 per cent.]

Over the fold, an extract from my book-in-progress, The Economic Consequences of the Pandemic

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How can we reduce inequality in Australia

Late last year, along with Emma Dawson, John Hewson and Angela Jackson, I took part in a discussion for the ABC’s Big Ideas program, hosted by Paul Barclay. It went to air recently. Here’s a link to the podcast[1]

Unfortunately, I don’t have the time/ patience to listen to audio. I also don’t like the sound of my voice on radio – this is true for many people I think. It would be great to have a program that took an audio file and generated text output. A very quick search mostly turned up paid transcription services. Does anyone have any experience with this.

fn1. Is a recording of a radio program a podcast? Can anyone clarify this.

A whirlpool of speculation around GameStop squeeze

That’s the headline the Canberra Times gave to my article on the implications of the recent short squeezes on Gamestop and AMC . It’s uninformative, but maybe more clickworthy than WallStreetBets and financialised capitalism, the title I gave to the early version posted here. With a bit esprit d’escalier and ignoring word constraints, I’d now go for “You wouldn’t let a bookie manage your home finance, so why let a casino plan our national investment”.

Canberra Times is paywalled, so I’m putting the text over the fold. We should soon resume the standard model where articles are published first in Inside Story (free), then reproduced (with a new headline, natch) in the Canberra Times

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