What I have been doing

A question of incentives

Some of my recent thinking has been about tax policy in the US, and what I would consider to be the ideal policy with respect to capital taxes.  I will freely admit that my thinking has been influenced by others.  To summarize:

• I have turned decisively against any support of 401(k)s plans and tax-advantaged retirement accounts,
• After researching the pros and cons of corporate taxation, I am now considering favoring their rollback (not quite abolition) provided that capital gains are taxed at a much, much higher rate

A subsidy by any other name

One of the most self-serving fallacies I've ever seen is the idea that a subsidy can only exist on the spending side of the ledger.  I see this argument popping up more and more, and it annoys the crap out of me.


The fundamental definition of a subsidy is any form of government support that allows a firm or product to be sold at below the efficient, market-clearing rate.  Exactly what that market clearing rate is can be up for debate, depending on how many externalities one takes into account.  However, it's a decent proxy to say that a subsidy is any type of explicit government support, where one type of firm or product is intentionally favored where no favoritism existed before - this definition, at least, avoids any debate over what the market clearing price level is given that most goods and services are taxed, regulated, etc. away from an efficient market rate.

The argument I've heard from certain GOP* commentators is that a subsidy can only be a government payment, soft loan, or other type of spending support.  Rather than engaging the economics directly, they tend to focus attention on one of two arguments.

TANSTACN

There ain't no such thing as carbon neutrality.

Or, at least, exceptions to that rule are few and far between.

Besides scarcity, greenhouse gas emissions are the second major concern with our current sources of energy.  But one of the most frequent fallacies I encounter is the contention that if any alternative source also produces a greenhouse gas at all, or does not have a negative carbon balance,  it is somehow not "green" or is just as bad as using fossil fuels.

Convergence, or, energy is a high yielding investment until it isn't

This will be a rambling post just to help me get some thoughts down. 

With the recent announcement that Chevron is essentially pulling out of all biofuels and renewables, I think it's worth noting some of the unrealistic expectations that Chevron placed on clean technology.  Most notably, Chevron placed clean tech processes in direct competition for investment money with its oil exploration projects.  Thanks to some of my work in graduate school from some of the best industrial practitioner educators I've ever had, I know that the IRR for a typical conventional oil exploration project is on the order of 20%. 

The corresponding number for a bio-renewables project is much lower, on the order of 3-7% for the very best.  This is much more typical of what you would see in agriculture.  Placing investment money for bio-renewables projects in competition with oil projects, it's easy to see why bio-renewables lost out.

Besides making me profoundly disappointed in Chevron, this kind of news, to me, points to where the future of energy will go.  If you accept that the world cannot indefinitely continue to power itself with petroleum-based transportation fuels, then eventually the IRRs of bio-renewable projects (or other types of renewable energy) must approach those of oil.  This can happen in one of three different ways.

On the side of petroleum, either the number of opportunities for highly profitable ventures will decrease (a supply-driven slump) or there will not be enough demand to sustain these ventures at a high level of profit (a demand-driven slump). 

On the other hand, a second option is for bio-renewables to decrease their costs, increase their IRRs and compete with petroleum on its own terms.


I've staked out my position on demand destruction before, and I still believe that the structural changes that might cause fuels demand to decrease in the same way the IEA and others claim will take decades longer than they predict.  That environment means that high prices will continue, and supplier costs will increase as profitable opportunities for exploiting petroleum become depleted - in short, a petroleum supply driven argument.   Something like a carbon tax would also help that along, by seriously affecting the economics of bitumen (somewhat less for other forms of unconventional oil, such as tight oil). 

As for bio-renewables, after seven years of active work in the area, two of them professionally, realistically I can't see the IRR of any project improving much beyond that 3 to 7% level.  Making a low-value product like a fuel just doesn't pay, not when there is the opportunity to avoid the cost of gathering your energy source (i.e. the sun, collected on land) by going with petroleum.

In the end, there will be convergence at some point, when a bio-rewables project and slurping up dead dinosaurs become equally attractive.  However, there are too many physical limits to bio-renewable feedstocks to make them more competitive.  Instead, the point at which convergence will occur will be when energy as we've known it for the past three quarters of a century is no longer a high yielding investment.

Reflections on Political Correctness and Israel

In my previous post, I briefly referenced not liking a meme rather unfortunately popular among the American right.  In brief, it claims that the liberal media, in kowtowing to the desires of minority groups, left-wing causes (such as, for example, illegal immigration, gay rights, and the like) are mired in an atmosphere of "stifling political correctness" that prevents anybody who does not share the liberal views of said media from expressing themselves.  Although the view is appealing to those with unpopular views, it has several problems.

The first problem is that in order for the thesis to be true, you would have to see editorial policy actively discouraging the publication of conservative viewpoints.  Instead, conservative views are regularly aired in so-called liberal media.

Second, the entire idea of an atmosphere of political correctness as "stifling" implies that the media themselves are to blame, when in fact the media are simply covering their bases in response to criticism.  This criticism comes not from the management of the media itself, but from the audience.  In other words, crying foul at "stifling political correctness" smacks of whining about receiving criticism because one's words offend.  It confuses the negative right to free speech - i.e., that no entity can stop one's words from being heard - with the positive right of preventing others from judging your words.  It's not a cry for "freedom to," but for "freedom from."

I suppose it's been easy for me to hew to this opinion for much of my life because by and large, I've never been on the receiving end of such feelings of persecution.  Recently, however, the incident with the BDS and Brooklyn college (and yes, I know I'm 2 months late) made me nuance this view.

The difference between skepticism and disbelief

One of the myriad subjects that's been bouncing around my cranium recently has been the nature of scientific skepticism.  I suppose I should admit what brought this about: one of my housemates is an alumna of Bowdoin College, a liberal arts college in Maine, which recently came under attack by the Neocon pressure group National Association of Scholars for exemplifying what they believe has "failed" about modern liberal arts education.  Reading the report is a sometimes hilarious, sometimes soul-crushing reminder of the non sequitors that build up in a movement that only listens to itself*. But rather than dismissing the entire report as simply another episode of "Those Neocons say the darndest things!" I found myself thinking about one point that was often (shrilly, bleatingly) raised.  I am paraphrasing, but the report repeatedly implied that Bowdoin failed to teach students any sense of academic skepticism using two different examples: first, by proceeding from an unexamined assumption that gender is an inherently social construct (rather than being determined by "biology") and second, by not teaching any of the controversy over global warming.

I don't want to discuss either of these issues in this post.  Instead, I want to discuss how the nature of skepticism in each of these issues is different, and why it's impossible to apply the label of "skepticism" as expressed by the anti-AGW movement to scientific issues like climate change, the safety of GMO foods, or many other inherently technical controversies.