tag:blogger.com,1999:blog-1110014885778996459.post1875700290720688990..comments2024-03-28T11:48:09.419-07:00Comments on Idiosyncratic Whisk: Keystone Pipeline: Politics is not about policyKevin Erdmannhttp://www.blogger.com/profile/07431566729667544886noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-1110014885778996459.post-17019958367371258312015-03-03T00:45:51.070-07:002015-03-03T00:45:51.070-07:00thanks for sharing the great link.thanks for sharing the great link.Archiveshttps://www.blogger.com/profile/06967547587186559116noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-75641160600928763432015-02-06T08:58:52.560-07:002015-02-06T08:58:52.560-07:00That's a great point, Tom. I was a little slo...That's a great point, Tom. I was a little sloppy. Profit isn't a perfect measure of surplus. Sometimes it's just producers and owners capturing more of it. But, not all rents are equal. I think we have a much different feeling about the rents Jackie Robinson captured because of his abilities as a baseball player than we do about the rents captured by the player he replaced, which came from excluding Jackie from the game.<br /><br />And, here we see all the same errors coming out of conventional biases. The worst rents here are the rents that are being captured now by other producers (pipelines, rail, etc.) by excluding this new pipeline. Rents will be reduced by adding this pipeline, and to the extent that the pipeline creates rents, they will be replacing rents of the "worse" kind (legislative exclusion). Since capital is treated with contempt, its antagonists have an overdeveloped fear of its power to accrue gains for itself. But, of course, capital retains few excess gains when access is open. So they see the new profit as a cost instead of a measure of added value, and they don't account for the reduction of other rents that comes from its creation.<br /><br />But, when we turn to labor, rents are seen as a benefit. Some argue for the pipeline because it will create "good" jobs. Some unions are for it. But, those are guild rents that come from legislated exclusion.<br /><br />So, only the worst kind of rents gather support from the public, because they line up well with the labor vs. capital bias. And, this bias leads to poor decision making.Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-56887843414657170712015-02-06T04:10:57.940-07:002015-02-06T04:10:57.940-07:00The reaping of millions of profit is an indication...The reaping of millions of profit is an indication of rent extraction surely? If it were easy to do, then others would do it and bid down the profits - the gains would therefore be spread to the consumer - which would be great! You're conflating huge profits from rent extraction with the wider benefit created by competitive markets?<br />TomAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-90019406696970938492015-02-05T14:09:44.735-07:002015-02-05T14:09:44.735-07:00"In an economy made up of revolutionary softw..."In an economy made up of revolutionary software and app improvements, we have no way of measuring the gains to consumers."<br /><br />Ask consumers how much they would have to be compensated to give up their iPhones. Deduct up-front and ongoing costs associated with keeping it.<br /><br />But this isn't anywhere near as attractive as, say, "jobs created or saved".<br /><br />In the case of Keystone, the metric is particularly absurd. This is an infrastructure project meant to move energy from where it is useless (the frozen deserts of Saskatchewan, or whatever, to where it is useful). The first best - as you say - is for this to be done at de minimis cost, to capital and labor, freeing up more resources for turning out final product wherever that potential energy can be put to good use.<br /><br />However, the popular capacity to connect, say, the availability of cheap patio furniture at Target to the existence of container ships larger than a football field with an 11-man crew is tenuous. We are more or less ignorant of the supply chains between us and our products. Considered from this light, then, "all else equal" a container ship with a 12-man crew beats a container ship with an 11-man (just ask the marginal guy).<br /><br />Hence Keystone's best hope being maximization of the number of union workers put to work laying steel.Glennnoreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-4433374551002456232015-02-05T12:59:59.174-07:002015-02-05T12:59:59.174-07:00Kevin, this post reminds me of Scott Sumner's ...Kevin, this post reminds me of Scott Sumner's tirades against the cognitive illusions that prevent most people from thinking clearly about monetary economics. You raise many great points.<br /><br />> boring my wife to sleep with hour-long speeches about equity premiums...<br /><br />haha, let me tell you how much my wife likes hearing about the relationship between low interest rates and the stance of monetary policy. :-)<br /><br /> -Ken<br />Kenneth Dudahttps://www.blogger.com/profile/10593455504357461005noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-38194864457598060252015-02-05T12:35:36.432-07:002015-02-05T12:35:36.432-07:00Thinking more about your Apple example, there woul...Thinking more about your Apple example, there would be some local benefits from having those jobs here instead of in another city. And, capital follows the same logic. It would be even better if they could produce the same product with only a $2 million investment. But, given that it's $2 billion, it's probably better to have the capital in your city as opposed to somewhere else.<br /><br />In fact, this is what is happening with the tech revolution. Improvements are made with very little capital. And this is screwing up our methods of measurement. Before, we could measure producer surplus with profit, and we could get pretty close to consumer surplus by making hedonic comparisons over time, and estimating real growth by seeing how much extra consumption was available after purchasing the same real level of goods over time. The rate of innovation, and the balance between producer and consumer surplus were pretty stable.<br /><br />But, now, there is no possible way to make hedonic comparisons between, say, boring my wife to sleep with hour-long speeches about equity premiums and having a global conversation on a blogger platform. Not only is the value not comparable, but there isn't even a monetary transaction with which to begin measuring it. And, the marginal capital required to provide it was insignificant.<br /><br />So, before, half a trillion dollars in capital might have been spent, combined with a stable level of innovation that goosed its value, and consumers would have seen $700 billion gains, inferred from higher real incomes, capital would have seen $250 billion in profits and interest income, and entrepreneurs would have seen $50 billion in new capital earned through creation, and measured by its market price.<br /><br />In an economy made up of revolutionary software and app improvements, we have no way of measuring the gains to consumers. There are insignificant profits to capital. And, an entrepreneur squeezes his $50 billion out of some sort of advertising or subscription revenue.<br /><br />This is an economy that looks like all the gains are going to the top 1%, and it looks like the capital's share is expanding faster than labor's, even though legacy capital isn't earning particularly good returns.<br /><br />And, guess what, that's exactly what this economy looks like!<br /><br />Now, there is a complex and interesting conversation to be had about that, regarding the creation and distribution of income and wealth. Since the left end of the political spectrum is satisfied using the inequality meme as an excuse to wet their pants and play act like they're Robin Hood, nobody is having that conversation.Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-89289863207014860602015-02-05T11:15:08.130-07:002015-02-05T11:15:08.130-07:00I completely agree, Glenn. But, most sectarian or...I completely agree, Glenn. But, most sectarian or bigoted behavior is not done maliciously. That's the most dangerous aspect of it. Most harm is inflicted by people with the most strident sense of morals and self-righteousness.Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-85766658374885626752015-02-05T10:50:54.405-07:002015-02-05T10:50:54.405-07:00I faced a similar circumstance in scoring the rece...I faced a similar circumstance in scoring the recently announced Apple project in Mesa ($2B over 30 years). Ignore for a moment the weakness of the Apple commitment across time and the 30-year projected investment period.<br /><br />The common issue raised was that this would "only" employ 150 new workers. I proposed it was miraculous that 150 employees could efficiently manage a $2B investment, and that the money had to go somewhere. Conveying the argument intelligently and convincingly to those outside this discipline, however, is not easy.<br /><br />I do not think the intent is malicious. I blame naivete. The metric of interest in politics is always going to be "net jobs created". Discussion of outside options seldom enters the argument. This is why government contracts are (often) explicitly made labor INEFFICIENT.Glennnoreply@blogger.com