Peak oil gets all the attention, but the peak isn’t the problem. Unless your assumptions about the dynamics of oil production are rather artificial, there will be an inflection point before the peak. Symptoms of strain in the system appear as soon as the production rate grows more slowly more slowly than GDP less intensity improvements, or simply more slowly than expected. That’s when price has to begin rising to clear the market, creating the signal to alternatives (efficiency, biofuels, unconventional oil …) that they are needed, so that’s when the pain hits. Whether the pain is brief and results in an orderly transition, or something rockier, is a matter for some debate. Either way, arguing about when the peak might come is the wrong question; we should be considering whether we’re past the inflection point, and thus in a period of rising stress, and what to do about it.
Author: Tom
Kids on the Bailout
I got a silly chain email, which proposed taking the $85 billion needed for the AIG bailout and distributing it among all 200 million taxpayers, so that we’d each get $425,000 to play with. I decided to test this idea on my boys, who are seven and eight. Ignoring the fact that $85B divided by 200M is $425, not $425,000, we had a conversation about what would happen if the government distributed half a million in cash to every American:
Kid1: That would be generous.
Kid2: That would be hard. There are like 150,000 people just in Bozeman.
Me: Where would the government get that kind of money?
Kid1: Make it (by printing).
Kid2: Steal it from another country.
Jay Forrester honored in POMS
Production and Operations Management 17(4) honors Jay Forrester as an important person in the history of operations management. He joins Kenneth Arrow, Ronald Coase, and William Cooper in the distinction this year. Congratulations Jay!
Hat tip to John Sterman on the SD email list. I don’t have fulltext access to the journal, but if someone sends me a snippet, I’ll post it.
Now THAT's exponential growth
Brad Setser analyzes the Fed’s balance sheet in Extraordinary Times. They sure are:
Bailout MetaRoundup & Alternatives
MetaRoundup:
Several of the economics blogs I read have had useful roundups of bailout commentary. A few I find found useful:
Do we need to act now? on Economist’s View
9/26 Links on Economist’s View
NYT Economix’ analyst roundup
Greg Mankiw’s roundup of commentary
Update 9/29:
Real Time Economics’ Secondary Sources
Update 10/1:Â
Greg Mankiw with more commentary
Alternative Plans:
Economists Against the Paulson Plan
Brad de Long on Krugman on the Dodd plan
WSJ Real Time Economics’ Text of Lawmakers’ Agreement on Principles
Thomas Palley on Saving the Financial System
Marginal Revolution on the Republican plan to rescue mortgages instead of buying mortgage assets
Marginal Revolution with a Modest Proposal (finding and isolating toxic assets)
Update 9/27:
Marginal Revolution with substitute bridges
Greg Mankiw with a letter from Robert Shimer with a nice analysis, including problems with Paulson, the lemons problem, and the Diamond, Kaplan, Kashyap, Rajan & Thaler fix
Update 9/28:
Real Time Economics on securitization
Brad deLong on nationalization (the Swedish model)
Update 9/29:
The Big Picture with Stop Targeting Asset Prices
Marginal Revolution asks, is the Sweden plan better?
Waiter, there's a carpet in my coffee
From the ArXiv blog: researchers have discovered a new fractal, closely matching a Sierpinski Carpet, in the boundary layer dynamics of coffee in milk. I don’t know how Rayleigh-Taylor instabilities work, but I do find occasional cool things in my coffee:
WCI Design Recommendations
Yesterday the WCI announced its design recommendations.
Update 9/26: WorldChanging has another take on the WCI here.
I haven’t read the whole thing, but here’s my initial impression based on the executive summary:
Scope
Major gases, including CO2, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride.
| What? | In scope? | How/where? |
| Large Industrial & Commercial, >25,000 MTCO2eq/yr | ||
|
Combustion Emissions |
Yes | Point of emission |
|
Process Emissions |
Yes | Point of emission |
| Electricity | Yes | “First Jurisdictional Deliverer” – includes power generated outside WCI |
| Small Industrial, Commercial, Residential | Second Compliance Period (2015-2017) | Upstream (“where fuels enter commerce in the WCI Partner jurisdictions, generally at a distributor. The precise point is TBD and may vary by jurisdiction”) |
| Transportation | ||
|
Gasoline & Diesel |
Second Compliance Period (2015-2017) | Upstream (“where fuels enter commerce in the WCI Partner jurisdictions, generally at a terminal rack, final blender, or distributor. The precise point is TBD and may vary by jurisdiction”) |
|
Biofuel combustion |
No | |
| Biofuel & fossil fuel upstream | To be determined | ? |
| Biomass combustion | No, if determined to be carbon neutral | |
| Agriculture & Forestry | No | |
(See an earlier Midwestern Accord matrix here.)
End of World Postponed
The LHC has been shut down before it had a chance to destroy the universe. It’ll be back up in a few months though, so as a precaution I’ve raised my discount rate to 1800%. Apparently the failure was caused by a magnet quench, which is a cool positive feedback.
Bailout without Representation
The NYT has the draft text and an explanation of the Bush administration’s $700 billion bailout proposal. It audaciously creates a budget authority almost as big as the federal government’s total discretionary spending and bigger than every on-budget agency, seven times the California state budget, without any checks and balances at all:
Sec. 8. Review.
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
We used to dump tea in harbors for things like this.
How To Fix A Carbon Tax
Imagine that you and I live in a place that has just implemented a carbon tax. I, being a little greener than you, complain that the tax isn’t high enough, in that it’s not causing emissions to stabilize or fall. As a remedy, I propose the following:
- At intervals, a board will set targets for emissions, and announce them in advance for the next three years.
- On a daily basis, the board will review current emissions to see if they’re on track to meet the annual target.
- The daily review will take account of such things as expectations about growth, the business cycle, weather (as it affects electric power and heating demand), and changing fuel prices.
- Based on its review, the board will post a daily value for the carbon tax, to ensure that the target is met.
Sound crazy? Welcome to cap and trade. The only difference is that the board’s daily review is distributed via a market. The presence of a market doesn’t change the fact that emissions trading has its gains backwards: rapid adjustment of prices to achieve an emissions target that can only be modified infrequently (the latter due to the need to set stable quantity expectations). Willingness to set a cap at a level below whatever a tax achieves is equivalent to accepting a higher price of carbon. Why not just raise the tax, and have lower transaction costs, broader sector coverage, and less volatility to boot?
Certainly cap and trade is a viable second-best policy, especially if augmented with a safety valve or a variable-quantity auction providing some supply-side elasticity. However, I find the scenario playing out in BC quite bizarre.
Update: more detailed thoughts on taxes and trading in this article.