MIT Report on Solar Energy

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The executive summary says, in part,

to increase the contribution of solar energy to long-term climate change mitigation, we strongly recommend that a large fraction of federal resources available for solar research and development focus on environmentally benign, emerging thin-fi lm technologies that are based on Earth-abundant materials. The recent shift of federal dollars for solar R&D away from fundamental research of this sort to focus on near-term cost reductions in c-Si technology should be reversed.

Interesting, since there has been such a strong MIT connection at the Department of Energy in recent years.

Although at a high level the report is favorable toward government support for solar energy, in terms of specifics it is often highly critical. My guess is that the outlook for improvement is poor. The beneficiaries of the current inefficient system of subsidies know who they are. There is probably little or no benefit to politicians to be had from following the recommendations of the report. Still, it looks like a great report to have out there.

I Wish They Had Just Divested

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The Swarthmore College Board of Managers writes,

Following extensive preparation, analysis, and robust discussion and debate by managers on both sides of the issue, the Board of Managers of Swarthmore College reached consensus not to divest from fossil fuels. . .

The Board is fully committed to addressing the threat of climate change, however. To affirm our commitment, the College will intensify its sustainable practices as an institution. Our efforts will cut across all aspects of College operations including new construction, energy consumption, water usage, and recycling, and also the curriculum and investment practices. We will build upon important environmental efforts that have long been underway and expand upon them.

The email notifying alumni of this decision reads, in part,

The managers of Swarthmore College agree that climate change is the most pressing issue of our time and that Swarthmore College can — and must — play a leadership role in helping to curb the seemingly insatiable appetite for fossil fuel.

I think that a good rule of thumb is that if the board of managers of a college insists that something belongs in the curriculum, it doesn’t.

What I’m Reading

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The Aggregate Production Function and the Measurement of Technical Change: ‘Not Even Wrong’ by Jesus Felipe and John S.L. McCombie. It is a long technical book. Here is my attempt to summarize one of the main arguments.

Suppose I give you two observations, which might come from otherwise-similar economies or from the same economy at two different points in time:

1. Output per worker = 400, capital per worker = 100.

2. Output per worker = 410, capital per worker = 110.

Can you calculate the elasticity of output with respect to capital?

The answer is “yes” if we are measuring physical units. Bushels per worker. Tractors per worker.

But suppose that we are using national income accounting data. Then our measure of output is GDP. And our measure of capital is income not going to labor. Now, in addition to having well-known aggregation problems in computing output and a capital index, we have to assume implicitly that the marginal product of the 10 additional units of capital is the same as the average product of the first 100 units of capital. But that amounts to assuming that you knew the answer before you even had the second observation. You are only pretending to learn from the data.

This calls into question a whole lot of empirical research purporting to describe economic growth or cross-country productivity differentials.

On Hypocrisy

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Robert Trivers writes,

Recently something brand new has emerged about Steve that is astonishing. In his own empirical work attacking others for biased data analysis in the service of political ideology—it is he who is guilty of the same bias in service of political ideology. What is worse—and more shocking—is that Steve’s errors are very extensive and the bias very serious. A careful reanalysis of one case shows that his target is unblemished while his own attack is biased in all the ways Gould attributes to his victim.

Pointer from Jason Collins.

Paul Krugman writes,

what you should really look for, in a world that keeps throwing nasty surprises at us, is intellectual integrity: the willingness to face facts even if they’re at odds with one’s preconceptions, the willingness to admit mistakes and change course.

Pointer from Mark Thoma.

Is it a rule of thumb that if you accuse other people of committing an intellectual sin, then you yourself are committing it?

Acemoglu and others on Network Macro

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Noah Smith offers praise.

thanks to the hard work and insight of Acemoglu and others, the old dream of a network model of the economy is a little closer to reality. Someday we may draw maps of economic linkages the way we now draw circuit diagrams, and use supercomputers to simulate economic disturbances as they make their way through the web.

The paper is by Daron Acemoglu, Ufuk Akcigit, and William Kerr. Tyler Cowen was at the conference where the paper was presented, and he blogged some random comments.

My thoughts:

1. Because input-output tables do not incorporate prices or substitution, it is easy to get Keynesian multipliers out of them. To the extent that there is substitution and price adjustment, multipliers should vanish. The authors claim to find large multipliers, which suggests that that they have found some validity to the no-substitution, no-price-mechanism approach, at least in the context of their analysis.

2. While this is not treating the economy as a GDP factory, it is only slightly better. What they call demand shocks might be described as, respectively, a competing-with-Chinese-imports factory and a government purchases factory.

3. The task of coming up with new patterns of sustainable specialization and trade, which I think of as one of the central issues in the PSST story, is not captured in the input-output framework.

The Handle-Baumol Model of Stagnation

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Handle writes,

we have a savings glut – it’s on the demand side for capital, not the supply side. The savings rate in the US really hasn’t moved all that much, but there are fewer profitable places to invest the same amount of savings, so to clear the market, rates fall in the competition for yield.

Again, the point is that normal labor market forces gradually reallocate the labor force from higher-labor-productivity-growth industries to lower-labor-productivity growth sectors.

The NCH sectors are exactly those places, which for whatever reason, we can observe very low rates of labor productivity growth over time, and the reason is because they are dependent on human factors which cannot be easily sped up to any significant degree.

So, we have a lot of labor now working in sectors where the reduction in labor (or increase in output) that you get from an additional unit of capital is low. I can see where that would make the return on capital low. I think you still need to tell a story to explain why savers are willing to accept those low returns. And you have to explain why saving and investment does not gravitate toward India and other places where the opportunities to produce much more with less labor ought to still be there.

Finally, even if the story holds up, it is a story of supply-side stagnation, is it not? I suppose that you can say that with low investment you get a Keynesian demand-side shortfall, but that is just hand-waving, right? Or have I been into PSST so long that all Keynesian macro seems like hand-waving to me?

Stability of Government

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In this essay, I write,

Ultimately, it is the cultural beliefs of citizens that determines whether a limited-access order or an open-access order can remain stable. For a limited-access order, the necessity is for citizens to give enough legitimacy to the monarch to enable the monarch to rule without having to give way to an open-access order. For an open-access order the necessity is for citizens to withhold legitimacy from the government when it tries to expand too much.

Since I first composed that essay, I have come to think that open-access orders have two sources of stability. One is the fact that nearly everyone feels that they have a stake in the system. The other source is the set of norms and beliefs that had to develop to make an open-access order possible in the first place. Those layers of beliefs provide a strong counter-weight to disorderly political activism.

Adult-supervised Motivation

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Kentaro Toyama says,

I think one of the issues is we tend to think of education as being the content. We overemphasize the importance of content, as opposed to emphasizing the part that’s really difficult in any good education, which is adult-supervised motivation—the motivation of the child to learn something.

The interview, on the limits of technology as a solution for problems in underdeveloped areas, is wise throughout.

Larry White on Free Banking History

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His final sentence:

Central banks primarily arose, directly or indirectly, from legislation that created privileges to promote the fiscal interests of the state or the rent-seeking interests of privileged bankers, not from market forces.

Pointer from Mark Thoma (!).

I think that one could write essentially the same sentence to explain quantitative easing.