Kozinski, Amar, Niskanen: Still Rockin'

Cato Unbound is still rolling, and the titans ars still clashing. We're in the informal phase of our conversation. Check out Judge Kozinski's new post. And check out the exchange between Amar and Niskanen on the 17th Amendment.

  • I appreciate Will’s skepticism. Social democracy needs auditors.

    Note that Will isn’t arguing that the government should do nothing about our energy technology, but that we should do smart things and not dumb things. I wish Will would be a little more specific about exactly which new policies he’s against, but on the whole I’m glad he’s on the side of progress.

    Anyway, this is obviously an excellent area for liberaltarian program. Death to ethanol!

    • Chris, I can be pretty specific. I’m against all subsidies for wind, solar, etc. generation. (That’s winner picking.) But I’m happy if the NSF keeps giving out research grants for work in physics or chemistry or materials engineering that may pertain to the development of, say, better battery technology, as long as that research is left in the public domain for anyone to use.

      • Unit

        Once you open the pandora’s box of strings-attached to tax-payer funded research, you’ll never get out of it. Question: what if some crucial research will only be pursued by people who are confident that they can keep their findings secret?

  • Paul G. Brown

    Frankly, my understanding of the “technology” in “green technology” is that, quite to the contrary of Will’s beliefs, it’s mostly very, very “low tech”. The first 80% of the improvement will come at 20% of the cost, and won’t require any great technological leaps forward.

    It’s stuff like installing a short coil of pipe between where the plumbing comes out of the ground and the top of the water heater (or better yet, a small tank). Why? Because the energy used to heat water to hot from air temperature is almost always a lot less than what it takes to heat water from ground temperature. The point is that there are an enormous number of these small, simple, even primitive design changes that will end up contributing the bulk of the difference. Historically, the price of energy has always been very low, so the capital cost these kinds of designs implied didn’t pay off. Now they will.

    If we get a carbon tax, you’ll begin to see a lot more, really, really boring things like home insulation, replacing antiquated civic water supply systems, putting solar panels on roof to supplement (not replace) centralized power generation, public transportation, bike lanes, and so on. Most of these changes will take the form of new goods and services supplied by the private sector. Some will involve public funding.

    At least, that’s my prediction. But I’m a boring engineer – not a philosopher.

    • Nathan Scott

      Your house is heated by… heat. As an engineer you should know energy is not free. Heating your house to heat some pipes to heat some water before you heat it in a big tank is not any better than sucking it directly out of the ground and heating it in the tank.

      More accurately the water heater should be the only source of heat in your home. The larger a hot water heater the more efficient it is at storage. Surface area to volume goes down as size increases.

      If you were to suggest a catch basin for warm waste water that incoming water was piped through you might be onto something with the 80/20 argument.

  • Jason M.

    “My position is not that government investment in technology has zero returns. My position is that on average it does worse than returns to private investement. This should not be controversial. It is the consensus view of economists who study innovation and growth.”

    On behalf of the non-economists who read your blog, a few charts and graphs bearing out these views would be nice…

    • Jason M.

      …and I’d be interested in knowing how the amorphous “private investment” is accounted for in comparison to what I assume is a pretty straightforward accounting of “government investment”

  • I confused if Will’s beef is with government interference with innovation or only with the way it does so. Given the negative externalities associated with carbon-based energy sources, a social policy of “going green” is a no-brainer. The issue is with how to implement such a policy. I think everyone can agree that picking winners is the wrong way to go about it, but that is not the only policy instrument available (e.g. Pigovian taxes).

    • The point of pricing the externality isn’t to “go green” it is to internalize the externality. If the change in relative prices due to a pigouvian tax helps alternative energy sources, then great! But I don’t think the AIM should be to indirectly subsidize technology through the carbon tax, but simply to get the prices right and then leave things alone.I happen to think the net negative externality is at the very low end of estimates, so my optimal pigouvian tax wouldn’t be much a humdinger, and wouldn’t do all that much to bring carbon and non-carbon prices toward convergence. But nobody listens to anyone who doesn’t want to include the unbearable ESSENTIAL EVIL of CO2 into its price.

      • I say getting the prices right is “going green”. Is the normative fight about words alone?

        • Call it “going green” if you want. Indeed, let’s just say that we’ve already gone green since we pay a lot of taxes on gas and subsidize windmills. We’re there!

  • The problem with ethanol (and early wind power) was not so much that they funded research, but that they funded production. Production subsidies rapidly swell beyond reason, and beyond any authentic research budget.

    Actually, examples are wall to wall. Look at the hydrogen car fiasco. Some small amounts went to research, but some much larger amount went to “premature infrastructure” and a “hydrogen highway.”

    We can also note that “hydrogen highway” attempts are more about value-group self-promotion than advancing the science. They were $100B for a photo-op, literally.

    So I agree with Will. Keep the research “pre-commercial” and let the IP run free. Keep production subsidies out of it. I guarantee with those two rules you’d slash your cash flows 10:1.

    (I don’t object to “green jobs” only because some good projects fall under that umbrella – projects that fit my (and Will’s) criteria. It is most often a slur, by people who say “I can’t tell you what ‘green jobs’ are, but I’m again’ them!)

  • Will, have you read Terence Kealey’s excellent book ‘The Economic Laws of Scientific Research’? If it doesn’t convince you that governments have no place funding even ‘pure’ research, I don’t think anything will.

    • We don’t have any test cases for that suggestion though, do we? Every large nation funds research, at least to the university level. Smaller nations (without public universities) free ride.

      Without having read the book ;-), I’ll say Mr. Kealey makes a classically non-scientific claim. It is a naked assertion, unprovable by any planet not foolish enough to try it. (Any political sub-division smaller than “planet” would just free ride off other countries’ scientific research.)

    • BTW Dan, I think a better argument for libertarians is how to “right-size” pure science.

      There are some things, like finding new moth species in the amazon, that maybe should be given back to rich amateurs. I mean, why not leave that to Microsoft alumni?

      At least force the moth-discoverers to prove that their particular project is important in this time and place.

      • DMonteith

        First of all, why is picking winners at the basic research level philosophically any better than picking winners further downstream? Secondly, aren’t we already doing this? Don’t moth discoverers have to prove the value of their research in order to get grants now? I don’t think there’s a compelling case to be made that shrinking current research funding to a level such that “unimportant” moth discovery is defunded but “important” something else discovery is funded would result in much greater savings or efficiencies versus changes in other forms of government spending (can you say f-22?). This is especially true given that it’s hard to know in advance what the future holds for the relative importance of current research projects. I thought that the recent McCain/Palin brand of know-nothing demagoguery (grizzly genetics/beaver management/cricket control) had highlighted the flaws of this kind of thinking

        • I like small science, many bets spread broadly. With that kind of thing I don’t think we would be really picking winners. If we think battery tech will be big in the future, then we should spread small on battery related chemistry and physics. (When I was a student in the chem department (80’s) a small grant was $40K, but that’s probably gone up a bit)

          On the moths I’m sure someone is deciding at the national academy of sciences what fraction goes to moths … but I think DOE and DOD fund a lot of the battery stuff currently.

          I am neither a grant maker nor a grant receiver, but I suspect that we could trim without eliminating all valuable research.

    • Kealey also wrote a Cato opinion on the subject in 97:

      http://www.cato.org/pub_display.php?pub_id=6168

      I think the case against government funding of even basic (non-defense) research is very strong.

  • I quite agree, Will. It is only private private-directed investment that has magical powers.

    • Yes, because that’s what “higher average return” implies: magic!

      • Sleight of invisible hand?

        • What card am I holding? Yes.Wily capitalist tricks such as making investment decisions on the basis of expected returns rather than on the pull of political constituencies; or tricks like abandoning sunk costs when its looks like things aren’t going to pan out after all, rather than vested interests bullying the government into doubling down. There are a multitude of ways in which personal skin in the game can be expected to lead magically to more efficient capital allocation.

          • You have a good hand, Will, though you’ve palmed at least a couple of facts. One, the card sharps of private enterprise have butter fingers too. (Examples can be multiplied.) And two, government has it all over private enterprise when it comes to building the really big apparatus needed by smaller concerns to do some of their magic.

          • Dan

            The point isn’t that private investment is all good and public investment is all bad. The point is that private investment will be more efficient on average.

            I find this to be true simply by looking at incentives. What’s the profit motive for each actor? Private business makes money by finding the most efficient investment. Politicians profit by providing favors to special interests, who in turn give campaign donations to help politicians win elections. Public choice theory FTW.

          • Dan, I completely agree that private businesses on average are more efficient than government. But then I think the (very simplified and subject to caveats, etc., etc.) thing to say is that (1) government shouldn’t occupy the investment space in which private firms dare to tread, and (2) private firms generally leave empty the space of private goods. (And I think this space includes the vast transformative shifts in infrastructure needed to implement a “greener” economy.)

          • Steve C

            Well said

  • Trey

    If the government wanted to promote green technologies, wouldn’t a prize be better than subsidies anyway? It seems like many (but not all) of your concerns would be allayed if the government set a cost target for ANY clean energy to hit, and then committed to giving x number of dollars to whoever hit it. This seems like an obvious area where PRIZE beats SUBSIDY.

  • mk

    You make some good points here. Despite the fact that I think I was one of the people who annoyed you so much, I agree with much of what you wrote.

    I especially agree with the idea that while certain high-risk, long-term basic research is subject to the traditional Arrow/Nelson economic argument for public research subsidy, as the technology gets more “applied” one should be progressively more skeptical of government’s role.

    But how quickly should we become more skeptical? Hard to know. Where should we draw the line between “research that is long-term and/or risky and/or high-spillover enough to merit subsidy” and “research best left to private industry?” I would again postulate that any ideology (libertarianism, liberalism, conservatism, whatever) is too impoverished to supply a reliable answer to such a messy real-world problem.

    I’ll admit to not being deeply acquainted with the literature, and I was intrigued by your comment:
    My position is that on average [gov’t investment] does worse than returns to private investement. This should not be controversial. It is the consensus view of economists who study innovation and growth.

    First, I heartily endorse your empiricism. Second, can you be more specific, or provide pointers to the literature in question? For what levels of “applied-ness” have growth economists come to a settled consensus that government R&D funding is inefficient? Or, when you say “investment” do you just mean things like “building a windmill?” Unfortunately the word “investment” has many meanings depending on the context, and I’m not sure which one you mean here.

    • mk

      Whoops, I didn’t close that link, sorry

    • mk

      Since that’s annoying to read here’s the same comment with link fixed:
      —-

      You make some good points here. Despite the fact that I think I was one of the people who annoyed you so much, I agree with much of what you wrote.

      I especially agree with the idea that while certain high-risk, long-term basic research is subject to the traditional Arrow/Nelson economic argument for public research subsidy, as the technology gets more “applied” one should be progressively more skeptical of government’s role.

      But how quickly should we become more skeptical? Hard to know. Where should we draw the line between “research that is long-term and/or risky and/or high-spillover enough to merit subsidy” and “research best left to private industry?” I would again postulate that any ideology (libertarianism, liberalism, conservatism, whatever) is too impoverished to supply a reliable answer to such a messy real-world problem.

      I’ll admit to not being deeply acquainted with the literature, and I was intrigued by your comment:
      My position is that on average [gov’t investment] does worse than returns to private investement. This should not be controversial. It is the consensus view of economists who study innovation and growth.

      First, I heartily endorse your empiricism. Second, can you be more specific, or provide pointers to the literature in question? For what levels of “applied-ness” have growth economists come to a settled consensus that government R&D funding is inefficient? Or, when you say “investment” do you just mean things like “building a windmill?” Unfortunately the word “investment” has many meanings depending on the context, and I’m not sure which one you mean here.

  • By the by, new Energy Secretary Stephen Chu has stated that he is, indeed, counting on scientific breakthroughs, not incremental progress.

    http://www.latimes.com/news/custom/scimedemail/la-na-energy-future23-2009feb23,0,2703234.story

  • Will,
    Would it make sense to have no subsidies for wind, solar, etc., but have a modest carbon tax to make the playing field a little easier for alternative energy?

    Tom

    • Yes, but I wouldn’t put it that way. The reason to have a carbon tax is not to level the playing field, but simply to account for the negative effects of carbon emissions in its price. Depending on the estimate of the size of the negative externality from a certain amount of carbon emissions, the optimal tax could be zero or a lot. But the important thing is to internalize the externality because it’s the most efficient thing to do. Alternative energy sources will get a boost as a matter of course (if the optimal tax is positive), and that’s part of the improvement in efficiency.

  • Mike

    I assume Will is against the abolition of all oil and gas subsidies then?

    • Mike

      For their abolition, I mean?