Why ban lightbulbs?

You could make a case for mandating energy efficiency requirements for lightbulbs and banning less-efficient incandescent bulbs in a country without an effective carbon tax or emissions trading regime.

But can you make the same case where we already have emission trading? It's a bit more difficult.

Bryan Walker hopes the government is ashamed of having failed to ban incandescent bulbs. He writes:

It’s hard to make any sense of the reversal of former Government policy on incandescents other than in the most cynical of political terms. It is in direct contradiction to any concern they express to tackle climate change. Lighting has been estimated to use nearly 20% of the world’s electricity and six years ago the International Energy Agency produced a report which concluded that a global switch to efficient lighting systems would trim the world’s electricity bill by nearly one-tenth. It is a low-hanging fruit in the reduction of carbon emissions. Even the US is to phase out incandescents.
Many people are making the switch to efficient bulbs without Government direction. It makes economic sense to do so after all, in addition to the clear environmental benefits involved. But Government also has a responsibility to advance energy efficiency by appropriate regulation, as other free market economies have recognised.

Let's go back to first principles.

A lightbulb has three sets of associated cost. The first is a fixed cost for the bulb; the second is the ongoing cost of electricity to run it. A third and today largely ignored cost is disposal at end-of-life: some of the fancier lightbulbs come with greater risk of leaching nasty stuff into landfills and so either impose that cost or impose the cost of more careful disposal.

Power generation has some associated external cost to the world through carbon emission. While most electricity generated in New Zealand comes from renewable sources, the marginal unit often comes from coal-fired generation. And so emission abatement has some external benefit. Absent the full costs of power generation being internalised into the price of electricity, you can make a second-best case for regulatory interventions to push people to the choices that they would have been making in a full-carbon-costing world. Now, there's a problem in that electricity is also used in the production of lightbulbs, and if the non-priced carbon embodied in the production and distribution of more efficient bulbs sufficiently outweighs the non-priced carbon embodied in incandescent bulbs, the result could reverse. I have no clue about either, but it would be awfully surprising if fluorescent and LED bulbs did not have more carbon emissions associated with their production than comparable incandescent bulbs - I would expect that differences in embodied non-priced carbon would be proportionate to differences in the cost of the bulbs. But let's stipulate for now that the ongoing flow of carbon is lower for the more modern bulbs, especially as they have a longer replacement cycle. Always keep in mind that it's not easy being green: when prices don't fully incorporate costs, alternative methods of calculation have non-trivial associated problems.

But this doesn't hold when we already have a reasonably comprehensive emissions trading scheme. Electricity is in the system, even if farming isn't quite there. If the permit system is working well, there is absolutely no case for banning incandescent bulbs. Even if incandescents are less efficient at producing light, they're not all that bad at producing heat. And for two thirds of the year, at least here in the South Island, that isn't all waste. 

If power prices incorporate carbon charges via the ETS, then there's no real economic case for pushing consumers to choose bulbs they don't want. If the ETS isn't working well, then all kinds of consumer and producer decisions will be out of kilter and we do far better by trying to make the ETS as clean across the board as possible rather than mucking about in individual markets. You're then forced into a political second-best argument that it's impossible to fix the ETS but perhaps possible to get political support for pushing on a few important markets. But, again, it's awfully hard to tell in any of those individual cases whether we're doing net good in doing so. The UK thought it was doing good in adding food miles; they'd missed that our pastoral systems have lower overall greenhouse gas emissions. 

In very important ways, the problem facing somebody wanting to intervene in particular individual markets to try and fix the problems caused by not having a good ETS are similar to the problems facing somebody trying to run the old Soviet economy. I'm not trying to make a dumb ideological point about Greenies here: rather, it's about information and its dissemination through a system. The Soviet planners had to figure out how rationally to allocate scarce investment resources in a world where they couldn't really tell how much consumers valued anything; that's a hard-to-impossible problem to solve. An environmental planner working in a world without either a comprehensive carbon tax or an equivalent ETS has a parallel problem in trying to figure out all of the environmental upstream and downstream costs of any product, its substitutes and its complements, and of all the processes used to produce it and its substitutes and its complements. Art Carden explains it in more depth. Product-by-product intervention is awfully likely to produce environmental absurdities. You don't have to be a climate change denier to oppose piecemeal interventions of this sort.

Ignatieff on evil

Michael Ignatieff's essay on political evil reminds me of a great article by Lskvayan. Here's Ignatieff:

So, Wolfe’s first lesson is a very old one, but worth repeating. There is method in apparent madness. The world is not divided between a sane world of deliberative politics and an insane world of apocalyptic violence. It is all politics, all the way down. To call a terrorist attack “senseless” is merely to admit that you have not understood its purpose.

Lskvayan provided a nice rational choice story for Stalin's Great Terror. Stalin couldn't tell which of his workers were shirking and which were working. But instituting random draw exile to Siberian death camps with reduced probability of being sent to Siberia for turning in a shirker turns the workers into the monitors and helps solve the principal-agent problem that otherwise obtains. From Lskvayan's abstract:

There is no agreement about the reasons for Stalin's Great Terror of 1937–1939. This paper argues that the problem faced by Stalin was similar to the standard principal–agent problem: the country was run as one enormous firm with Stalin as the only residual claimant. The monetary incentive structure was inadequate and the threat of mass shirking by the agents was real. A simple model of a principal with two agents is developed to address the problem. Assuming that the agents can observe and can reveal each other's shirking, it is shown that, under some assumptions, an equilibrium exists with the following strategy profiles: unless someone's shirking is revealed, the principal is committed to randomly punishing one of the agents with positive probability; an individual agent never shirks and always reveals a co-worker's shirking. A case study of the period is used to check the plausibility of this hypothesis.

The very real output costs of exterminating a lot of workers in Siberia was a second-best solution to the very real output costs of Stalin's slaves' shirking. Other solutions aren't great either; it's the existence of such principal-agent problems and imperfections in Stalin's monitoring ability that provided the space within which small amounts of freedom could exist.

Meanwhile, some neuroscientists say evil doesn't exist.

Stupid dictators

When a dictator is evil, it's best that's he's less than fully competent. A fully competent evil dictator will extract maximally, leaving subjects with only enough utility to keep them above revolt or suicide. When Farrant and I made that argument about Stalin, and how the impossibility of socialist calculation made the Soviet Union a better place to live, some folks worried that if a dictator were stupid enough, starvation could result through planner error. Stalin's famines were deliberate. But you can imagine a dictator incompetent enough that the famines would be accidental. We'd also expect a dictator that stupid to be replaced by a competent one: a competent one could effectively launch a hostile takeover, promising greater rents to the current dictator's supporters in exchange for taking the helm.

Maybe Venezuela is ripe for that kind of hostile takeover. Chávez apparently has sold oil to China at $5 per barrel out of stupidity rather than as an attempt to buy favour. Writes Caracas Chronicle (HT: Xavier Marquez):

One story that should be getting more play abroad is the simply amazing tale of the oil Venezuela is selling to China for $5/barrel…only for the Chinese to turn around and sell it on to third-parties (read: gringos) at a markup of over 1000%. (And no, that is not a typo.)

The whole crazy story, revealed in the Wikileaks data dump, beggars belief in so many directions at once your head almost spins. Venezuela is sending foreign aid – to China! – to the tune, potentially, of tens of millions of dollars per day! in the form of oil that ends up in your gas tank!

The obvious question is “why?!” And the answer, as far as I can tell, is “just because…”

And that, I think , is why stories like this don’t get more play. Narratively, they’re just deeply unsatisfying. You can’t fit them into any of the tropes that dominate public understandings of Chávez abroad: Chávez-the-Budding-Dictator, Chávez-the-Buffoon and Chávez-the-Dashing-Champion-of-the-Poor. Basically, they don’t make any sense.

It isn’t because Chávez is a despot that Venezuela is handing over gobs of free cash to the Chinese. And it isn’t because he’s enamored of Chinese communism, either.

The reason China gets those $5 oil barrels is more banal and, in its own way, far more tragic: the people now charged with reaching international supply agreements on PDVSA’s behalf couldn’t negotiate their way out of a wet paper bag. This is happening because PDVSA is now so criminally mismanaged that the government ends up signing multimillion dollar deals before anybody’s really grasped what they’ll mean.

Nick Rowe on campus administration

It's not enough (in some cases) to put the carrot in front of the donkey. You have to point to the carrot, tell the donkey it is a carrot, and that he can eat it. And work out marginal revenue and marginal cost for the donkey too. And repeat this several times. This is most true for departments in subjects that economists' prejudices tell us are less likely think like economists.

Nick Rowe explaining one of the lessons of his Associate Deanship. He also gives some nice anecdotes about the principal-agent problems within academia.

The university as a whole faces a hard budget constraint. Individual departments face a soft budget constraint. Individual profs face none.
...
The very worst case I saw was when Barney was cancelled. Barney, a very large first year course, about dinosaurs or something, was one of the most profitable courses in the university. And it was cancelled, by the department.....to save money. There was any number of prissy little boutique courses that could have been cancelled. But they cancelled Barney. We had to go all the way up to the VP Finance to get Barney a reprieve.

The problem is obvious. Barney made tons of money for the university. But the individual department saved money by cancelling Barney, since nearly all the students taking Barney came from other departments and faculties. The incentives just didn't line up.

Fortunately, Canterbury's internal funding model has been a fair bit more sensible than that: departments pay a per-student tax to the centre for centrally provided services and keep the rest. That works because government funding varies by type of student, so the bench sciences' usual excuse for cross-subsidization, kit costs for students, are already factored into the per-student government subsidy. We do find other ways to make life difficult though.

Inevitable serfdom

Andrew Sullivan picks up on Farrant and McPhail's argument, via Barkley Rosser. Boettke also weighs in.

Rosser:

Anyway, they [Farrant & McPhail] say that Samuelson was right all along, and that one can find passages in RTS where Hayek certainly looks like he is making the strong version of the slippery slope argument that he later realized was an embarrassment, even if it is probably the source of the renewed sales. Thus, Farrant and McPhail would say that Limbaugh and Beck are more on the money here than Caldwell, even if they are ignoring Hayek's call for social insurance (a clear sign that he did not view any and all such moves as going onto the slippery slope).
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(in comments} The fact is that Hayek says one thing in one place, but then says things in other places that appear to contradict what he said in that first place. This is part of why Samuelson and others have had trouble taking Hayek seriously when he got all in a dither over such people suggesting he was making the slippery slope argument. In some places he denies doing so, but in other places he sure as heck looks like he is making it. Needless to say, Hayek is hardly the first or only prominent economist to find himself contradicting himself, especially over long periods of time, and Hayek's views on some of these mattters did change over the course of his long life.

Sullivan:

Whatever Hayek meant, it's best to read "The Road to Serfdom" as a rhetorical exercise that can ground your thinking about the motivation behind socialist policies. It's worst to think of it as a playbook for how this stuff plays out -- i.e., passing social insurance leads inexorably to tyranny. And it's easy to whine about Glenn Beck pounding home the wrong lesson by having his viewers buy the book. But let's remember who these viewers are. They already think that modest social insurance of the type a European Christian Democrat party might introduce is going to bring about serfdom. Sending these viewers to a non-crazy (that is, non-Skousen) text is one of the best public services Beck has performed.

Boettke (from comments, where his best stuff often winds up):

Barkley's position that Hayek's warning of the slippery slope has been proven bunk runs into a problem -- what Ulrich Witt referred to as the "endogenous public choice theorist.". In other words, the warning itself altered the path.

Hayek does distinguish between hot socialism which is more or less Soviet and Nazi, and cold socialism which is milder forms of social democracy. But I believe the commentators are missing Hayek's limits on democratic agreement argument. When cold socialist policies are pushed beyond general rules, the ability to get democratic consensus collapses. Then we are faced by a Hayekian form of Arrow's theorem; I first made this argument in my EEJ paper (1995) and then again in more detail in a paper with Pete Leeson on Hayek, Arrow, and Democratic Decision-Making.

So Hayek's analysis is applicable to both hot and cold socialism and cold socialism has exhibited many of the problems predicted. As Lavoie argued in National Economic Planning (1985), one of the real issues is militarization of the economy. This result is not only a result of bad intentions, but the logic of the situation -- check out the Wash Post series on the secret military world in the US since 9/11.

Commitment to the generality norm plus the endogenous process of heeding the warning, results in cold socialism not becoming hot socialism.

The whole comments thread over at Boettke's post is excellent, with Koppl, Rosser, Ebeling and others arguing the case.

Boettke wonders if my post has an inconsistency in conflating inevitability with very high probability. What I'd been, perhaps hamfistedly, trying to say was that Beck and the like are making an inevitability argument, that a very reasonable interpretation of RTS is that there's a very high probability that we can't avoid serfdom if we start down the road, and that that high probability is closer to Beck's reading of Hayek than to readings that take Hayek as offering only a cautionary tale. I follow Farrant in finding the inevitability / very high probability reading the more natural reading of RTS, though Hayek, as Rosser points out, does contradict himself more than a few times.

I'm also a bit curious about the endogenous public choice claim. I can buy that RTS acted as a cautionary tale, and may have affected folks decisions to pull back from planning in the mid 20th century. But isn't that kinda like the claims that, but for all the Y2K fearmongering, the world really would have ended with planes falling from the sky and electricity shutting down on 1 January 2000? As I'd noted last go-round:

I really like Hayek's "The Use of Knowledge in Society". The Road to Serfdom provides a nice explanation of why central planning is incompatible with personal liberty. But reading beyond that, following what Hayek seems to have intended, in reckoning that every divergence from market liberalism runs great risk of totalitarianism, is simply wrong. It's the right reading of Hayek, but the wrong reading of the world.

Arguing that RTS was critical in stopping the Road to Serfdom I think requires that planners, when push came to shove, would have preferred totalitarianism to liberalism, but only would have held that preference after getting past some critical stopping point.

If planners preferred liberalism to totalitarianism all along, the RTS mechanism fails and we'd just see the retreat from planning experienced in the mid twentieth century regardless of the publication of RTS. This is consistent with both the outrage of western social democrats at the argument made in RTS, and with the path in the real world.

If planners always preferred totalitarianism to liberalism, then RTS could never have made a difference.

It's only in the case that planner preferences between totalitarianism and liberalism shift as we move along the path to socialism that the publication of RTS could have prevented further moves. And the only plausible mechanism for this is Hayek's "Why the worst get on top": otherwise, you're having to specify that the planners' individual preferences shift. But that mechanism is inconsistent with the real world experience of socialism in the twentieth century. In places that went for full-blown socialism, the worst started on top. In places that retreated, the worst never got to the top. And, I can't think of a single case that's consistent with the RTS mechanism: well-intentioned planners being supplanted by nasty folks. Lenin was terrible, he started on top. Pol Pot was terrible, he started on top. Mao was terrible, he started on top. Even if RTS cautioned some Western planners against going farther, I'd love to hear of a single case that followed the basic Hayek mechanism: failures of planning (where planning was led by the well-intentioned) followed by the rise of the demagogue. In all the ones I can think of, the demagogue starts on top having won command of the communist party before the communist party took over the country, and the communist party hardly takes over because of the failures of an existing welfare state's planning apparatus.

Stalin trusted prices too much

Milt at No Minister has been doing some reading. And this bit from Suvorov's account of Soviet Second World War planning is very interesting. Milt highlights Golikov's (Chief of GRU, military intelligence) early warning signals that the Nazis might be gearing up to attack the Soviets:

p249:
One of the vital things Germany would need, if it were to be ready to fight such a war, was sheepskin coats - no fewer than six million of them. As soon as Hitler decided to attack the Soviet Union, his General Staff would have to order industry to begin producing millions of sheepskin coats. This would be reflected immediately on the European markets. In spite of the war, mutton prices would fall because of the simultaneous slaughter of millions of animals, while sheepskin prices would rise sharply.

Pretty reasonable, if we expected the Nazis to behave reasonably. They didn't count on Hitler's overoptimism about a quick victory in a summer invasion that wouldn't require winter preparations. And so the price of sheepskins didn't move, there was no evidence of Nazi battalions gearing up for winter combat, and the Soviets were surprised.

It's rather neat though that the Soviets understood the operation of prices well enough to watch them as military intelligence.

Had they reckoned Hitler to have even more foresight, they might have expected little change in mutton prices as the Nazis might reasonably have bought up excess mutton for freezing or canning to feed the armies.

Gaming the socialist calculation debate - update

I'd previously noted a game reviewer's discovery of the socialist calculation problem in Dawn of Discovery. Loyal reader Max Marty bought the game and emails the following:

I've always been a fan of city-building sims so when I read your post on the "Dawn of Discovery" game I decided to go try it for myself.

So you might find this interesting, the game rates the size of your city on I think it was a 5 point scale or such, from a tiny borough to a metropolis. The problems don't start showing up till somewhere around stars 2-3, at which point the issues behind the socialist calculation debate start becoming evident. And the worst part is that if you have an accident happen, which could include a fire or forgetting to check your storeroom for the 30 different goods you must keep stocked at all times, it will lead to a cascading effect that can destroy the entire province. Towards the end of the game I even downloaded a special program that ran in the background which could grant me all sorts of resources (infinite money, different kinds of goods), and I was still spending nearly all my time using the cheat program just to stay alive and maintain the status quo (The bailouts always required more bailouts!).

Anyway! I thought you might be interested in reading up on a new one that seems to be coming out in October. Its called "Cities XL", its billed as a "social-networking online city building experience", or some such business. The screenshots look amazing, and from what I've read, its going to be a fantastic game - but it doesn't seem like its going to involve spontaneous order of any sort. Though apparently folks can trade across their cities between on the social-network, so the "agent" level here may be the city itself and Hayek may get some screen-time after all.

Cool findings on Dawn of Discovery. No way I'm going to try Cities XL though: a version of SimCity that's full time social play? Too perilous.

Gaming the Socialist Calculation Debate

Marginal Revolution today links to a review of a new video game: Dawn of Discovery.

Trying to figure out whether I'd be best advised to find the PC or the Wii version, I did a quick check of other reviews and found this gem.

Sadly, managing the resources you need to produce isn't straightforward, which makes the otherwise delightful business of city building occasionally irksome. With any of your production facilities, you can tell at a glance at what percentage of their peak efficiency they're operating. However, it's not clear how this translates into tons of goods produced. Naturally, as your population grows, so too does the amount of each good that the population consumes, but there's no clear way to determine just how many tons of a particular good your residents require. This makes it needlessly difficult to anticipate upcoming shortages, and it's easy to get frustrated when you find yourself in the midst of a dairy crisis or similar shortage that could have been avoided with clearer information regarding supply and demand. Scrambling to create more facilities to produce whatever you're suddenly lacking works, and over time, through trial and error, you'll develop a better sense of how many production facilities you'll need for each of your goods, but that's hardly an ideal way to handle this important aspect of gameplay.

Indeed. And, it's an even worse problem if you're trying to run a real economy this way rather than a video game one. I've always been troubled by this aspect of games like SimCity and Civilization. If you as central planner don't build things like airports, ports, libraries, universities, temples or a colosseum, they just don't get built. If your workers don't build farms and mines, no entrepreneur steps in to do it. In SimCity, or at least the version I played more than a decade ago now, you have to specify rigid zoning and can't just let the city evolve. Unfortunately, any realistic game that requires the central planner to make all of these decisions will require that we encounter the calculation problem; it's neat to see the game reviewer complaining about it. Of course, the gaming would be a bit more boring for the player if he could just set some basic laws, a low tax rate, and try to stay on good terms with the other civilizations out there: the game is designed to maximize fun for the player, not to maximize utility for the simulated persons within the game. The more that games disguise the inefficiencies caused by the "economic planning" approach, the less will today's players appreciate Hayek.