Economic Policy Panel, October 2015

Papers are available here.

3 replies on “Economic Policy Panel, October 2015”

I see that Philip Lane has moved on ….

… spose we need to find him a more substantial local post! Any vacancies at the mo?

The Blind Biddy Hedge Fund is considering a bid for the blog … should any conflicts of interest emerge ….

@Kevin O’Rourke

Text from Blind Biddy: Kevin, you might mention to Herr Prof. Sinn, if and when you must share an editorial space, that Biddy never, ever, forgets. In the spirit of EU Solidarity I’m also prepared to offer H-W a few tutorials on economics and other sundry social scientific issues where he is somewhat ordoliberally challenged.

Keep up the good work; ‘economic policy’ is a wonderful idea … wonderful!

Interesting paper on Climate Policy. .

“Its (almost) all about coal. A conventional oil or gas reserve is an asset with a positive value. As we all know, finding oil reserves has made countries rich. This reflects the fact that the average extraction cost for conventional oil and gas for a long time as been much lower than the consumer price – and this consumer price has a rent component. As long as a tax does not eliminate this rent, i.e., does not drive the consumer price net of taxes below the extraction cost, extraction remains profitable and is then likely to continue. Even quite high global carbon taxes are unlikely to eliminate the rent for a large share of existing conventional oil and gas reserves. These will therefore be exploited regardless of whether global carbon taxes were introduced or not.”

Perhaps we need to alter our observation point by 180 degrees and concentrate on the consumer; that is, what proportion of the consumer’s income can be spent on food and ‘energy’ without a significant impact on their other (after tax) consumption expenditures. Have any of these increased significantly?

” … it is unlikely that R&D focusing on green technologies will be profitable without subsidies.”

Correct. But that ‘profit’ comes as an increased cost to the consumer – unless they are also ‘subsidized’.

“Under these conditions, Acemoglu et al. show that even a temporary (but perhaps large) subsidy toward green technology would succeed in producing a permanent technology shift away from fossil fuel.”

I’m not sure what they are getting at here. The energy generating technology associated with fossil fuels is quite sophisticated. It might be improved, but only marginally. Coal is used for electricity generation and industrial productions. So is gas. But oil and its chemical cousins are primarily used for transportation and the manufacture of countless everyday items. Green technologies are almost exclusively concerned with electricity generation. Bit of a puzzle.

“People, and the economy in general, will adjust by relying less on fossil fuel.”

I sincerely doubt this. Our economies have been built on the increasing consumption of fossil fuels. If we consume less, our economies will axiomatically exhibit slowing growth rates, will stagnate and eventually enter a decline phase.

“One can hope that green technology, particularly through improvements in the production of energy not based on fossil fuel, will be the way forward.”

“You can’t be serious!” There is this little problem: its called the second law of thermodynamics. I won’t bore you with it at the present time. Put bluntly – it prohibits getting as much energy out of a generating process as you put into it. So-called ‘Green technologies’ are low density energy sources – you need a lot of them. Whereas coal and oil are very high density energy sources. You can get by with a lot less of them. Natural gas is about 4 times less energy dense than coal or oil.

“Those who receive money (green-tech companies or green-energy users) are happy about the subsidies and presumably the general public would only have to pay slightly higher taxes on other items …”

Eh? – I think what you should have said, is that the cost of the energy – I presume electricity, will be such that it will approach the affordability margin of the consumer.

Most folk (including myself) expected that the consumer cost of fossil fuels would increase steadily, but so also would consumer’s incomes so that the consumers could afford to consume more and more energy – to drive economic activity. Look like we were – like Rick, mistaken. Commodity prices – especially fossil fuels, have decreased sharply. Consumer wages and salaries have stagnated or fallen. And demand for fossil fuels has stagnated or declined and our developed (and developing) economies have exhibited sluggish or stagnant economic growth. Bit of a conundrum here.

If consumers are demanding less energy, is it possible that they might not be able to afford the cost, so consumed less? Did this loss of demand then cause a glut in supply? Which in turn, led to a decline in the commodity price? But the consumer has not responded to the lower price? Yet? This anomaly bears close observation, especially since extraction costs have increased steadily as the raw fuels have become more difficult to extract.

Well be back at these issues before long.

@Brian Woods Snr.

Consumerism is an ideology. It is a socialized addiction. Earthlings, as Seven_of_9 used to point out, consume too much rubbish … unnecessary rubbish. Rarely discussed is the fact that Earthlings appear to reproduce exponentially (well, almost) …

The perma-growth which is so obvious that it remains (largely intentionally by the vultures who control resources on the planet) latent and invisible is growth in thought.

Wonder is it possible to consume less, think more, do less unnecessary activity, and question the whole nature of ‘value’?

Methinks it is.

Time to bank up that fire with more turf! Nite Earthlings.

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