Wednesday, October 28, 2009

Obama's Alpha Delusion

From the WSJ:
The Obama administration launched a clean-energy blitz Tuesday, with President Barack Obama sweeping into this Central Florida hamlet to unveil $3.4 billion in stimulus grants for advanced electricity-grid projects

This PR parade relies on the idea that this administration, if not Obama himself, gets into details, and chooses the right cutting edge technologies and methods. Look at Obama above, with his sleeves rolled up, giving pointers to an appreciative bunch of field managers (perhaps the NEA can get to work on some Soviet Realism in this context). In this case, Obama merely has to allocate some of our money to a select list of projects that are aligned with the buzzwords 'clean energy', and we get the increasing returns to scale that Paul Krugman won his Nobel Prize for (too bad Ann Krueger didn't win a Nobel for showing the same 'infant industry' argument has been a pretext to protect inefficient industries for over 200 years).

It never occured to any of these guys that there aren't any magic solutions to our energy problem. They act as if we only tried to develop batteries, we could have ten times the power. See this video from Zocalo, and at the end of the critical discussion about the oil industry an audience member earnestly asks: "can't we develop energy out of water?" as if the only reason we use oil is because the Rich Uncle Pennybags character from the Monopoly Game is not letting us do anything else. The electric car predates the internal combustion engine. My laptop and cell phone routinely run out of energy, highlighting the high reward waiting for the next battery innovation. There has been and continues to be research, and incentives, to increase the efficiencies of batteries.

Obama hates being compared to socialists, so I'll refrain and compare him to a communist. In the state published hagiography, Divine Stories About the Dear Leader, Kim Jong-Il is presented as someone excellent at golf, pistol shooting, technology, and battlefield courage. He's basically better than everyone at everything. For a communist state that belief is necessary, otherwise their system is too centralized.

Obama and his experts are presumably more efficient than the market at allocating more resources to productive technologies. The idea that since the market won't provide funds, perhaps the informed expected return on battery investment is truly low, seems absurd: how could selfish oafs who run business know better than an articulate, caring, public servant? It's The Secret writ large: think it true, and it becomes so. No wonder it's a popular idea: would that it were true.

Unfortunately, the bien pensants who adore Obama (or really, adore that they adore Obama), see his value add being multifaceted micromanagement. There are countless $3.4B special investment targets to do, each one with dreams of cold-fusion, high-speed trains, and the end to the achievement gap. Most people think that 'good smart people' are better in almost every way than your average businessman, and most people think they vote for such people, thus these politicians should be directing activities the way a coach directs a football team.

Alas, the value of extreme intelligence and knowledge of detail, does not scale at the managerial level. It runs out of benefit to a ruler, because they cannot and should not try to micromanage things. Thus, the best developer of a new technology is often a lousy director for a state or large corporation, and the best managers are often not the best developers. Indeed, a key advantage of those who are smart—but not too smart—is they know they don't know more than everyone. The Barak Obamas and Paul Krugmans, having excelled at Harvard or MIT, can more easily think they actually know more than everyone else, leading to the classic Fatal Conceit of planners everywhere.

The idea that the only feasible alpha for a leader of a large collective, is to enforce rules and get out of the way, is simply preposterous for those who think the Invisible Hand is merely a theory used by conservatives to excuse their indifference. This reflects a failure to appreciate the complex, homeostatic mechanisms of self interested agents within a free market, and the infinite number of ways top-down rules are worked around when applied to the masses. As Hayek noted, the biggest flaw with the free market is that it wasn't designed, it emerged spontaneously, which causes people to dismiss its value. Thus, they have 1000 page plans like our health care bill, or ideas about new committees that will assess issues intelligently and disinterestedly.


Anonymous said...

If this is right, you chose a bad time to complain about the failure of battery power - and public/private partnerships:

J Mann said...

Eric, the standard hand-wave in response to your argument is to say "externalities" and then move on to do whatever it was you wanted to do in the first place. For example, if I was an Obamanaut, I would say that there are positive externalities created by better batters and negative externalities imposed by storing energy in gas tanks, and that the market does not prive these.

The second handwave is foriegn competition - those crafty Europeans and Brazilians have public support, against which our fragile local capitalists cannot hope to compete.

(I don't buy either argument of course, but wanted to be the first to make them).

user said...

Excellent! except what was a 1000 page plan has increased an order of magnitude and has become a 2000 page plan! Wait until the House and Senate get to conference committee and see if the bill can increase an additional order of magnitude!

Anonymous said...

I quite enjoyed the rant. However, government does have a role. I am influenced by the "tragedy of the commons" argument. There is a cost to having dirty air. There is a cost to having impure chemicals in the drinking water. These, to the market operator are real externalities. Here, there should be government focus, and it can indeed be beneficial to the society at large. Take an extreme case. A company in the next state decides to build a nuclear power plant, but their CEO decides the odds of a meltdown are slight, (and he lives far away), so he goes bare bones on disaster planning. Without government, this happens, but it is not optimal for me. I bear a huge risk based on his development for which I am not compensated.

Karl K said...

Eric, as the principals secretary said about Ferris Bueller -- you are a righteous dude!

Ton anonymous's point about the commons tragedy and role of government, government's responsobilities are general safety, basic infrastructure, and common defense.

Meat should be free of e-coli, nuclear powerplants should have safeguards, and car gas tanks should not explode in a fender bender.

After than, it's every company for itself.

Government should never EVER be in the business of picking winners and discarding losers. EVER.

Anonymous said...

This is just silly.

Fossil fuels are now significantly more subsidized than alternative energy sources.

Interesting that NYC is now recognizing that at some point, they may have to build a sea wall around the entire metropolis to the tune of hundreds of billions of dollars. So it's ok to spend money on anything that retains the status quo (artifically propping up housing prices, sending trillions of dollars in funding for military actions in regions that just happen to have most of the world's oil, saving banks run by idiots that almost destroyed our economy with other people's money, etc.) If you really believe that things should be truely run by the free market, then lets turn every road into a toll road and equip every car with a transponder. A study was once done that showed that every doubling in output of pv's leads to a 10% reduction in their cost. Of course, you need to develop a certain economy of scale before a technology can compete. Fossil fuels run the world, and scientists almost unanimously agree on some level, that ultimately, they have the potential to destroy it. There is NO legitimate reason why the government shouldn't invest a LOT MORE into new technologies to power our planet. It's the only way to move toward leveling the playing field. Fossil fuels have many unfair advantages right now.
I'm amazed by educated people that can't see this. If those that voted in and support obama are blind followers, then those that bow at the alter of b.s. right wing or libertarian economics are deaf, dumb and gagged by ignorance.