Category: One-handed!

Dutch political leaders have announced a program to limit energy prices to households, up to a limit (the average family’s use, calculated to be 1,200 m3 of gas and 2,400 kWh), after which they will face spot market prices

Since we use around 300 m2 and 1,600 kWh, I was a bit angry that others will receive more subsidy. I still think that a straight subsidy (to people poorer than us, by the way) would be better than an energy-targeted subsidy, but there’s a significant advantage to the government’s proposal, in the way it reduces risk. (I’m now assuming I understand the proposal, but  may be wrong on details.)

Put simply, the government is taking on all the price risk above its target prices (€1.50/m3 and $0.70/kWh) for the target number of units. Knowing this, people will not turn off all their energy in fear of high spot prices, but will be very careful about reducing their consumption.

I therefore think that their plan is a better “second best” than my theoretical “first best” — in terms of psychological impact but also reducing risk, which my first best doesn’t include.

Also note that the government, which announced “sufficient” supplies in storage for the winter, may also benefit from a fall in energy prices, thereby reducing its downside (or “up price”) risk. So this structure really resembles an insurance scheme. (This article also points out how people may “rush” to improve their energy efficiency in order to make sure they stay below the ceiling.)

One critique of the policy is how it is aimed at households rather than individuals, which means that a household of one will get the subsidy but a household of five may exceed the “consumption ceiling” and face much higher prices. This same issue exists for increasing block rates in pricing water, which is one reason (there are more) I recommend against them.

But an easy solution is available for the government’s energy subsidy scheme: using registration data (you’re required by law to tell the government where you live) to determine how many people live “behind the meter” and then scale the subsidy to a per capita consumption. That would help with the large household problem.

Such a program would also encourage people to register where they live so they can get the subsidy where they are consuming energy. Since many people (maybe 10 percent?) register at an address with lower taxes or to avoid utility charges, this might also improve finances in cities (such as Amsterdam) where these costs are high.

My one-handed conclusion is that the government’s policy (as I now understand it) has a good balance of reducing risk and discouraging energy use.

Where are the fails? Let me count the ways:

1. The government (a part owner in the airport) has neither banned short-haul flights nor raised the “landing charge” high enough to wipe out cheap (but environmentally terrible) flights.
2. Amsterdam wants everyone to be “gas free” by 2040, but has not used a price signal (such as an exponentially increasing tax on natural gas) to push in this direction.
3. Amsterdam’s “circular economy” strategy is a disaster of wishful thinking (“encouraging change”), Soviet planning (tracking tons of materials rather than environmental harms), and irrelevance in the face of citizen’s massive consumption of fossil fuels, shit from everywhere, etc.
4. The government was so busy making hundreds of billions in profits from its natural gas royalties that it ignored the earthquakes that were damaging everyone’s homes.
5. Energy use (and pollution) from the oversized agricultural industry is socializing the costs of private profits.
6. There are probably more, and the US is worse, but let’s call a spade a “spade.”

Oh, and there are some wins, e.g., high gasoline taxes (which may be dropped, to “protect motorists”) and the way energy taxes (were?) charged on consumption and rebated per household (per my policy advice for water).

 

“Replacement theory” is a semi-racist, often-hysterical belief that — in the US — White Christians will be “replaced” by others.

The racist part arises from the vapid conception of “race” and/or “White” which rests on no biological or scientific facts. As anyone can tell you, every country (or tribe or community) has its own ideas of race, purity, etc. (Here are some of my earlier thoughts on race.)

In the US, “race” discussions are dominated by its history of slavery, bigotry, migration and inequality, which means that “race” is often a code-word for some other issue that people would prefer not to address or solve, since that would require concern, action and sacrifice. Race, as a fixed label (recall octoroon and related nonsense), makes it easy to ignore change as an option.

The hysterical part arises with the implication of “replacement,” i.e., that Whites will be killed/subsumed into a non-White population. Although this definition includes genocide, let not forget that most (all?) genocides involve a majority trying to annihilate the minority, which often means Whites genociding non-Whites, e.g., English settlers and Native Americans/Aboriginals, Turks and Armenians, Nazis and Jews, etc. This fact leads me to think that Whites are projecting what they’ve done in the past to a fear of what may be done to them in the future. Either way, there’s little sign of anyone caring about “replacement” except White racists.

So with that pre-amble aside, let’s look into some data.*

First Whites and Non-whites in the US:

Disaster?! Let’s look a little deeper into White’s fall between 2010 and 2020:

So it’s more like people reclassifying themselves as less than 100% white more than “Whites” getting genocided.

What about the Hispanics? Although “Hispanic” is a vague and practically worthless descriptor, it seems like there’s a combination of self-identification and perhaps migration (kinda flat since 2005, assuming Mexico is representative) , so more like statistical displacement than physical replacement:

Now to religion…

At first glance, Christians appear to be losing market share:

… but a closer look at the data shows that they are more likely to be replaced by indifference (“none”) than Jews, Mormons and Other (Muslims, but also Pastafarians):

With more than two out of three Americans identifying with Jesus, it’s unclear how they are a threatened minority.

As usual, let’s remember the following caveats:

1. All humans are more complicated in their thoughts and actions than a single demographic statistic.
2. All demagogues try to ignore this while rallying “followers” to their scams, lies and shenanigans.
3. Some people like to belong, so they forget (1) because they want to feel like they belong somewhere.
4. The best way to overcome tribalism and othering is to “play on the same team” with other people (per my research [pdf]), which helps them see the complex human behind the cardboard facade projected onto them.

My one-handed conclusion is that “replacement theory” is not just silly and dangerous, but a misinterpretation of data struggling to display Americans’ evolving understanding of themselves.

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*I used race data from Wikipedia and religion data from Gallup. Here’s my spreadsheet, in Numbers, PDF and .csv formats. (Excel is too bloated.)

Long ago (in 2006!), I wrote a blog post proposing that property taxes should replace other taxes (e.g., on income). Some people suggested that I was following in the footsteps of Henry George (1839-1897), a self-taught economist who proposed a single tax on land as a replacement of all other taxes. I had never heard of George (!) and disagreed on taxing land (his idea) vs taxing land+improvements (mine), but I made a note to look him up some day.

Well, this weekend brought that day, and I started to read his Progress and Poverty (1879) — the third (!) most popular book of the 19th century. (It’s available for free download due to its expired copyright.)

While reading, I realized that (a) George was just as upset about inequality and poverty as Marx but that (b) he identified an equally — and perhaps more realistic — “engine of inequality” — land and other natural resources (water, oil, minerals and metals).

NB: George wrote without knowledge of Marx’s work (Vol I was published in German in 1867 and English in 1887) — and vice versa (Marx was very sick in the years before his death in 1883), so we’re talking about a classic case of “ships passing in the night.”

Marx had focussed on capitalists using their marker power to take advantage of a “reserve army of labor” that was oversupplied due to the Malthusian trap, but he undermined his own argument (this is distilling thousands of pages, some not written by Marx, and not always in agreement) by claiming that capital would get richer over time but still command enough market power (via “scarcity rents”) to continue to take advantage of labor.

Anyways, I am fascinated by George’s claim that those who own land/resources can take advantage of both capital and labor due to their control of the scarcer resource. Economists say that such control allows the owner to charge (or make) “rents,” i.e., profits that cannot be competed away through competition.

The value of land, for example, depends on “location, location, location,” so landlords in Amsterdam need not fear competition from landlords in Halfweg (a small town outside A’dam). The same can be said for owners of water in some parts of California vs those with water in Missouri, or owners of natural gas these days in Europe. Transport and other technology can bring competition, but it’s not nearly as easy to bring competition against land as it it is against labor (“I’ll hire that guy just off the bus”) or capital (“I can borrow money from that guy”).

My one-handed conclusion is that George was onto something when he identified land (and resources) as a source of rents, and thus a driver of inequality due to the extra profits and market power of those owners. His proposal to tax such rents and distribute them to citizens also makes sense, which is why I proposed such taxes as a way to fund basic income in 2014.

I can’t wait to read more of his book 🙂

NN mentioned that Macron used a familiar phrase in a speech last month:

“What we are currently living through is a kind of major tipping point or a great upheaval … we are living the end of what could have seemed an era of abundance … the end of the abundance of products of technologies that seemed always available … the end of the abundance of land and materials including water,” he said.

In the original French, he said:

Les Français face à “une grande bascule que nous vivons”, Emmanuel Macron a employé l’expression “fin de l’abondance” pour qualifier la période.

…which emphasizes his focus on a “new normal” in which fewer natural resources (and potentially the damages of climate chaos and the political strife that entails) will lead to a change in living.

In my dissertation (2008, page 2), I wrote:

Note that a club good is similar to a private good with excess supply, i.e., supply greater than demand at a zero price. In both cases, non-rivalry or excess supply can end: Club goods become rival with congestion; excess supply ends when supply is less than demand at a price of zero. Although there is no need to manage demand with abundance, the end of abundance can lead to problems if institutions of abundance do not change to ration demand when there is congestion or excess demand at zero prices (Ciriacy-Wantrup and Bishop, 1975).

In fact, I liked this phrase so much that I made it the title of my 2011 book (free PDF since 2020 :), which came with the following blurb:

In a past of abundance, we had clean water to meet our demands for showers, pools, farms and rivers. Our laws and customs did not need to regulate or ration demand. Over time, our demand has grown, and scarcity has replaced abundance. We don’t have as much clean water as we want. We can respond to the end of abundance with old ideas or adopt new tools specifically designed to address water scarcity.

So that’s what I said around 10 years ago, but how does it line up with Macron’s thought? (Or, more properly, did Macron understand my point?)

He did, as my point was that growing water scarcity would either lead to (a) necessary changes in lifestyles to reflect scarcity, or (b) shortages due to people ignoring (the admittedly faint) signals of water scarcity.

Those signals are not faint to anyone paying attention, but Americans, seem determined to rush in the wrong direction: moving from places with water to places without it. (This is partially due to an ongoing failure to reflect water scarcity in utility water prices as well as an inadequate and counterproductive regulatory regime with respect to groundwater and agricultural demand.)

Is the long delay between my pronouncement (I’ve been taking Moses lessons) and action? As someone who sees the glass as half-empty, I tend to see (or worry about) issues long before other people do (another case-in-point: cyber crime), and it’s taken me awhile to realize that (a) some people need more time to worry about stuff and (b) lots of people will never worry (consequences or not). Politicians, as leaders (rather than vote-whores), have an important role in highlighting issues and calling for action — looking at you Jimmy! Of course, they need to be careful about getting out too far in advance of voters (Obama’s flip flop on gay marriage is a clear example), so it’s impressive to see Macron stepping up on the need to change expectations and actions.

My one-handed conclusion is that leaders such as Macron are right to talk about an end of abundance, as that fact is bringing consequences, and failure to engage with facts will only make more people (especially the poor) more miserable. Bien dit, Monsieur President!

Some thoughts from my train ride home…

I live in a country known for tulips, clogs and weed.

The reality is obviously different.

“We are a blunt people,” but heaven forbid you talk directly.

Past disasters has forced cooperation, but present comfort avoids confrontation.

Maybe just take a vacation?

The farmers pollute land and water to export cheap meat.

The politicians argue over coalition agreements down to the last detail, but then ignore the elephant standing in the Tweede Kamer.

Festivals are joyous but don’t slip in the slush of smashed drink cups.

Drugs are legal — not. The mafia kills. Parties are great. Love your dealer.

Education separates the promising and the workers. Elite fraternities plan insider trades; the poor get ahead, turning internships into jobs.

Cars are everywhere, but we love bikes.

The Dutch are totally green — unless it costs extra.

The handelskultuur puts profits over people, with exceptions for gay marriage and vegan junk food.

Welcome refugees, but not too many. There’s a housing crisis. Romanian farm workers are fair game for exploitation.

It’s obvious that politics has a problem with responsibility, when Rutte is on his fourth, Wilders preens for foreign donors, and Thierry echoes his collaborator ancestors.

Nederland has fought the sea for centuries, but most citizens are ignorant of the battles to come.

Gehackte? Yes! and cheap.

Sure the Belgians are disorganized, but are they hypocrites?

I’d rather live here — especially since the weather is better than in California — but I wonder if shared spaces will replace parking places.

God made the Earth and the Dutch made the Nederland, but who will act if everyone is on “burn out”?

During a weekend in Berlin, I was speaking with a few Germans who spontaneously mentioned their angst at potential blackouts and loss of heating in the months ahead. Their anxiety reflects current discussions over falling supplies of Russian natural gas against a background of the need to burn less coal, an ideological decision (post Fukushima) to shut down functional nuclear stations, and the many impacts of drought (less hydropower, problems with shipping coal on drying rivers, etc)

What bothers me is the government’s waffling around how to deal with these problems (similar to governments all over Europe) in an attempt to avoid the price increases necessary to balance falling supply with demand. These price increases are often condemned as “gouging” by the “eat-your-cake-and-have-it” crowd that cannot stand the real politiek of Dismal Scientists.

Politicians are legitimately worried that poor people will suffer with 200% increases in their energy bills and terrified that voters might punish them for failures that (mostly) have nothing to do with political decisions. (Some politicians are allowing higher prices but sending extra money to the poor; this is my advice. Others are capping price increases or sending money to all energy users, which is counterproductive and stupid.)

But the overall dynamic, it seems, is for politicians to limit price increases in order to “protect” people and hoping that some miracle of supply (Putin dying?) or demand (a majority of people voluntarily reducing use) will close the gap.

It is said that second marriages demonstrate the triumph of hope over experience, and some second marriages work. But many do not — feeding discussions and debates of “I told you so” from various in-laws.

In this case, price controls as a strategy of hope are unlikely to work, which will lead to the blackouts that many fear.

At that point, politicians will throw up their hands and say “we did our best but the world is unfair and you now have to suffer, but don’t blame us.”

This is not just cowardly, but a dereliction of duty.

Not so long ago, politicians were happy to shut down entire economies and lock people at home to stop the spread of Covid (the Chinese are still at it), so why is this different? I’d say it was because politicians were able to borrow huge sums on fighting Covid; when it comes to energy, that strategy won’t work, since more spending would just raise prices in a fight over a fixed quantity of energy. Politicians didn’t ask people to pay more for Covid (those debts come due later), and they cannot  will not ask people to pay more for energy, so they close their eyes and hope that the light at the end of the tunnel is not a speeding train.

My one-handed conclusion is that it’s better to allow price gouging scarcity pricing to avoid shortages than holding prices too low and hoping for a miracle. Hope is not a plan; using higher prices to ration energy is.

Addendum (11 Sep): The Economist has a good article on how to reduce the damage from high prices. The main points are (1) do NOT cap prices and (2) transfer money to poorer households.

1. Higher prices will reduce quantity demanded (“walking down the demand curve”) and demand (“demand destruction”) while encouraging supply (“walking up the supply curve” as well as shifting supply out, e.g., restarting German nuclear plants). Caps on prices will encourage demand and discourage supply, leading to shortage.
2. When it comes to helping the poor, cash transfers are much more useful, since they can use money in many ways whereas “cheap energy” only helps in a limited way.

Finally, I will add that California already made the biggest mistake (capping retail prices while wholesale prices soared) back in 2000-01. It didn’t go well.

Farmers are having a hard time in Europe. Production (“yield”) is falling due to drought:

1. In this video [in Dutch], an organic farmer near Amsterdam discusses the low yields of crops in drought-hardened clay soil. (We are in his CSA.)
2. Meanwhile, English farmers complain that householders are not being told to use less water. The farmers think that hosepipe (outdoor-watering) bans would “free” water for suffering crops. Sadly, I think the water companies oppose the hosepipe ban because they earn far more from selling water to households. Farmers would pay them little or nothing in the current system (raise prices! water markets!) so food security is getting short shrift.

I could easily find many more examples from around the world, since various chaoses (droughts, floods) are disrupting agriculture everywhere.

The traditional hedge against food insecurity is storage (“after 7 years of fat, come 7 years of lean”), but markets are more efficient for storage if they can replace local losses at a reasonable price.

The criterion of “local losses” vs “market supply” is usually easy to meet, as global agricultural production is, by definition, far greater than any local production, but it weakens if/when many crops are failing in many places and/or politicians “protect” their citizens by banning exports that could help other citizens. As of June 2022, 34 countries were doing this.

The criterion of “reasonable price” brings me to the title of this post, i.e., to the role of speculators in markets.

In general, market traders and speculators help markets by smoothing spikes in supply and demand. They buy when prices are low and sell when prices are high; they arbitrage between markets where prices are not well matched (usually due to legal or logistical barriers); they bet on future scarcity… and thereby reduce it.

But some speculators go farther, pursuing profits in ways that can destabilize markets:

We spoke to experts, whistleblowers and industry veterans, who expressed concerns that current levels of speculation may be driving and exacerbating price increases. Experts also helped to identify how structural weaknesses have remained unaddressed since the 2007-2008 food crisis, and how attempts by regulators to curb excessive speculation since then have withered in the face of determined industry lobbying.

In the past, I have dismissed these types of claims, since speculators — who often trade “paper” commodities without any intention of taking physical possession of the underlying good — do not represent “final” (in-the-mouth) demand. I assumed that a speculator buying @ $50 per unit would have to sell @ $30 per unit if that price represented physical demand, but my “equilibrium” thinking was wrong. Here’s why.

If the speculator buys at $50, then there’s less supply for other buyers. If that supply is greater than remaining demand, then prices will fall in equilibrium (when everything is lined up and matched); if supply is lower, then prices will rise in equilibrium.

But what about “before equilibrium”? At that point, buyers are not sure of where prices will end up. They are not sure of supply (more drought? more trade restrictions?), and demand can rise if others are buying due to panic, new crop failures and/or greater risk aversion (i.e., buying to store), so it’s easily possible that prices can keep rising.

Few buyers will be able to hold out for lower (hoped for) equilibrium prices when there’s a risk of (a) higher prices and/or (b) falling short in meeting known future needs.* So those buyers will jump in “early” and “high” to avoid the chance of a future disaster.

In these cases, the speculators can make a killing.

tl;dr: If speculators “mop up” supply by purchasing at low prices at the start of a crisis, then they can resell for profit before they are forced to take delivery (the “chicken game” in game theory). If buyers are afraid of losing out to faster buyers (a “prisoners dilemma” in game theory), then some will  buy quickly, at “spectator prices,” to avoid the risks of even higher prices  — or no food at all.

Market note: Unlike the case with a non-perishable commodity like silver whose supply and demand is not time sensitive (remember the Hunt Brothers), food is perishable (hence the haste and angst over Ukrainian crops) and overall demand (“hunger”) is easier to predict, so the speculators can forecast demand, supply and shortfalls.

None of these “squeeze the hungry” trades are ethical, but they are legal. Although it might be tempting to regulate them, such actions can easily backfire (law of unintended consequences) or fail (food is traded in global markets without a single regulator).

What if some traders denounce speculation, as a means of helping the poor? That won’t help as long as others don’t care — or care more about their poor  (another prisoners dilemma) — so that’s no solution.

My one-handed conclusion is that fragile food markets and volatile prices** mean that many people will spend more on food while others go hungry or starve.

H/T to PB

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* Governor Gray Davis signed long-term contracts in the middle of California’s 2000 energy crisis, locking the state into  high prices for a decade or more.

** Don’t mix up cause and effect here! Far too much food is used as biofuel and animal feed. Excess emphasis on industrial agriculture increases crop-risk-failure. Climate chaos is disrupting all farms. This “speculators-will-fuck-you” post wouldn’t exist without those three causes increasing risk!

Addendum (6 Sep): An interesting (but over-hostile-to-markets) article on this topic

… when that costs you something.

So anytime that someone claims it’s easy, or a win-win, then I’d suggest replying with: “No, it’s not easy, but I’ll do it because it’s the right thing to do.”

That’s why humans everywhere are familiar with some version of the Golden Rule: Do unto others as you would have them do unto you.

Ignorance of this reality, whether it’s willful or hopeful, is counter-productive. Some people do look out for others, of course, but those others are often family, friends or people with whom we have an ongoing (reputational) relationship. Those others are not strangers, people on the other side of the planet, or those not yet born, which is relevant to most discussions of local and global commons.

This post may seem obvious to most of you, but maybe not so obvious is how its lesson explains war, theft, violence, bad behavior and even just laziness.

In all these cases, you’ve got people taking benefits for themselves and leaving costs to others, e.g.,

• Stealing.
• Violence.
• Rape and war.
• Littering.
• Cheating.
• …and any other activity with negative externalities (everything from eating meat or fish to emitting carbon or excess consumption).

How can we steer people away from their default desire to have something for nothing? Moral education is a good start, but many people lack such intrinsic motivations. That leaves extrinsic motivations such as rules, regulations, taxes and social stigma.

My one-handed conclusion is that humans who cannot be “civilized” need to be “caged” in some way, for the good of the community.

In 2001, I was lucky to see George Carlin (1937-2008) live in Las Vegas, as he is (or was) one of the sharpest commentators on contemporary life. I recently watched the 2021 documentary about his life, American Dream, and came across the clip below, which captures his “trick” of staying sane in our current world.

In his 1997 book, Brain Droppings, he explained it as:

“I frankly don’t give a fuck how it all turns out in this country—or anywhere else, for that matter. I think the human game was up a long time ago (when the high priests and traders took over), and now we’re just playing out the string. And that is, of course, precisely what I find so amusing: the slow circling of the drain by a once promising species.”

I find this perspective to be quite healthy for me, mentally. Although I only recently decided that I was more of a pessimist than a realist, it’s been clear to me for some time now that humans are miraculous not for their achievements and good works (many of them in the “excludable goods” side of life) but merely for not destroying themselves so far. Unlike other species, we experience, tolerate and choose for war, genocide, inequality, corruption and other nasty ways of harming each other (in the “non-excludable goods” side of life), but it’s in our war on the environment where the wheels are truly coming off. I’ve written plenty about this, so I’ll leave it to Carlin to summarize.

(Note how many of the people listening to him continue to insist that he’s trying to “help” us with his comments. He’s not. He’s written our species off.)

Here’s a direct link if you want to download

Social consciousness can overtake rational calculation and lead to tipping points that overwhelm all planning.

These tipping points, which may not look very different from mass panic or mania, can be useful or destructive. Consider:

• How anti-vaxxers were able to convince many people to avoid Covid jabs.
• How people have rushed in, then out, then into (and out) of crypto.
• How Instagram has replaced Facebook (sadly, also the owner of IG) for young people wanting to hang out with friends and for advertisers chasing them (network effects)
• How “nobody” wants to buy a house in Flint (lead poisoning) or Groningen (fracking-related earthquakes)
• The rise of K-pop
• How Americans facing higher gasoline prices didn’t just pay $100 extra per week or month for gasoline, but paid $10-20k to buy a smaller car. (This was in 2009 and maybe also today…)
• Etc., forever.

Now these trends can be helpful (more fuel efficient cars) or harmful (anti-vaxxers), but they share one common element: those people are not making calculated guesses based on data, risk and modeling (Thinking Slow). They are reacting emotionally and following the mob (Thinking Fast).

All of this means that government and scientific models of “climate change” (which have their own flaws) are likely to be ignored or overwhelmed in a way that leads to “climate chaos,” i.e.,

• People will abandon an area due to a single weather event.
• People will suddenly become vegan.
• Politicians will block food markets, “for safety”
• People will follow a (cult) leader promising protection or redemption.
• Etc.

This post is inspired by an event I attended in Amsterdam that focused on land management in response to climate change. At the event, there were discussions that focussed on millimetres of sea level rise or percentage changes in risk. Those discussions were NOT looking at long-term CC impacts (e.g., depopulating coastal areas — the Randstad being most notable in the Netherlands — as they flood), but how to “manage” that inevitability.

IMO, that sort of mierenneuken (focussing on tiny details) was ignoring the potential for tipping points that would screw up all plans. Imagine everyone in Amsterdam trying to drive or bike out of the city. The roads would be too crowded to work. (We saw this in Ukraine’s western borders with people trying to flee the Russians.)

In short: one big storm surge, and the Randstad depopulates 100x faster than predicted.

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Aside: What was ironic, or perhaps calculated, in the Dutch discussion is how much energy politicians and banks are putting into the story (or myth) of protecting people’s homes real estate values. What we know is that those values will drop like a rock as soon as owners realize that nobody wants to buy. Such a drop will have a very big impact on bank finances and the government’s ability to raise taxes and pay for all the nice people who work for it. We saw this in Flint and Groningen recently but also in Detroit over the past decades.

That’s one irony. The other is that the Dutch government is now doing “everything it can” to make housing more affordable. The easiest way to do that is announce how fast (currently expensive) areas could be underwater. That would drop prices to affordable in a hurry. Problem solved, eh?

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My one-handed conclusion is that most of our work on climate chaos may be worthless in the face of tipping points.

Thanks to PB and TR for chatting about these topics with me