Sunday, December 12, 2010

Whose Bread I Eat, His Song I Sing

I thought I'd leave the last post as a fun one, but then I went back to reading economics articles and couldn't resist when I saw this little blurb:

Another study, released in February 2010 by Navigant Consulting, was prepared for the RES Alliance for Jobs, a group whose members primarily include renewable generation manufacturers. The study examines the economic effects of adopting a mandatory national renewable portfolio standard of 25 percent of total generation by the year 2025. The report concluded that such a standard would “lead to job growth in all states, especially those currently without state-level renewable electricity standards,” and that it would create 274,000 new jobs in the renewables industry. (Gresham's Law of Green Energy, Jonathan A Lesser, Regulation, p.16)

To fully understand the cynical nature with which I view this paragraph, you need to understand that those subsidies may make no sense from an economics viewpoint (the net benefit may be slightly positive in the best case, and quite negative in the worst case). But let's just say that it would be odd that a consultancy, hired by a group of renewable generation manufacturers, would not produce a conclusion favorable to their business. Would you think the consultancy would endanger potential future work with a negative conclusion? Or would you think they'd put the best case they could think of forward, and maybe not account for all the costs?

At any rate, this really feels like a case of "Whose Bread I Eat, His Song I Sing," another one of those behavioral biases I like to know about. It's one of the more cynical ones, and I admit it doesn't hurt to have it if it helps you approach something with more skepticism than you otherwise might have. I also thought I saw hints of it when reading an article in an OB-GYN newspaper, but there's no need for me to publish my thoughts on that here.

I'll write brief blurbs about behavioral biases that I notice ad-hoc, as I notice them. I sincerely hope that in doing so, 1) I'll recognize them more often; and 2) you'll derive some benefit from reading about them and allow your curiosity to lead you to learn more about them. If there's one thing I want this blog to result in (for the very small audience), it's intellectual stimulation. And to that end, I try to keep myself abreast of my scholarly interests to keep things moving forward.

Well wishes to those whose eyes grace this page.

NB: I agree with the economic argument of the article, incidentally. Enough that I think it the clever response to every single bloody email I've been receiving from environmental groups asking me to email my senator to support renewal of green energy subsidies. And no, I don't support those subsidies, not just because of the distortions and the likelihood that the costs exceed the benefits, but also on the general principle that government is not the solution to everything, and I highly doubt the government's ability to pick winners (which it is doing with subsidies). If green energy can't be produced on a competitive cost right now, we should not have to pay for it, because we'll be paying more for it than we would for current energy resources, and have less capital available for other pursuits.

The more we pay for necessities, the less we have for enjoyment of life, in my book at least. One of the great stories of the past two centuries is how we have needed to devote less and less a proportion of our incomes to necessities because of economic growth. Green energy, as stated at present, represents a step backward from that trend, until it becomes efficient enough to compete. And I do not believe we need subsidies to encourage that, especially since the solution may come from a field no one is thinking of and hence not subsidizing. Which is why the article's reference to Gresham's Law (originating from the field of banking on the principle that bad underwriting drives out good underwriting, which we witnessed with our recent financial crisis) was quite clever. Bad energy policy potentially driving out good energy policy.

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