Germany passed a plan last year to shut down all nuclear plants by 2022. Not that Germany had built a new plant in many years; like the U.S. the nuclear plants are older. There has been a strong anti-nuclear movement in Germany since Chernobyl. But, plans for the change are behind schedule. Part of the reason may be that the euro crisis has consumed so much time of the government leaders.
The plans include a much greater reliance on renewable energy. The goal is 50% of energy produced by renewable sources by 2030. This is mostly wind power generated mostly by turbines in the North Sea. But much of industry is in the southern part of Germany so a new network of power lines are needed. This will requires an investment of $25 billion over the next decade. This process has been slowed by paperwork and regulations in the various German states. Also, farmers are demanding more money for the land taken for the power lines. As a spokesman for the German Farmers Federation notes--land is limited.
For those who are concerned about global climate change, nuclear power is a good option to replace coal plants, but the Green Party in Germany is also very anti nuclear. But relying so heavily on wind power presents problems too. Since electricity cannot be stored, what happens when the wnds are down? Another problem is that there is power loss as the electricity flows through power lines, so the further the power has to travel, the greater the loss.
After the earthquake and tsunami in Japan hit last year, Warrren Buffet said that many died in the tsunami and few will die from the troubles at the nuclear power plants. But, people will still build homes on the coast but nucelar power will be killed. At the time I heard him say this, I thought he was right. I still do.
Thursday, May 31, 2012
Wednesday, May 30, 2012
Martin Wolf on German Self-Interest
Martin Wolf has an interesting piece in today's Financial Times. The newspaper also has a series on the euro crisis, including a diagram showing how Greece could exit the euro zone and what the consequences would be. I believe a subscription is necessary to see the full column though so I will briefly summarize Wolf's column, "The Riddle of German Self-Interest."
Wolf says the crisis is clear, and he focuses on Spain and Italy because of their size. They are unable to manage their debts without some assistance. Much of the government's debt is held by the banks in the countries.Some of the debt has been generated to help the financially weak banks. Wolf uses a common metaphor to describe this--two drunks trying to hold each other up. Wolf argues that the austerity required by the EU is ineffective because the private sector has already gone to austerity and declining government spending keeps GDP going down. As he puts it, "The reward for pain today is pain tomorrow."
He then looks at how Germany wants the euro zone organized. He believes it is no to eurobonds, no to increase in funds for the European Stability Mechanism, no to monetary expansion, and yes to austerity. So how do the German authorities think the slide in the periphery nations will be halted? Wolf offers two hypotheses. First, Germany believes the weaker nations will eventually pull out of the euro leaving a smaller but more stable euro. Second, they think their policies will work and things will turn around. Wolf doesn't think it will work. In fact, he thinks Germany is shooting itself in the foot since Germany relies on exports to other EU countries so heavily.
Wolf's final paragraph is:
"In October 1939, Winston Churchill said: “I cannot forecast to you the action of Russia. It is a riddle, wrapped in a mystery, inside an enigma; but perhaps there is a key. That key is Russian national interest.” The key in Europe today is Germany’s perception of its national interest. Once it becomes evident that their conditions will not work, German leaders will have to choose between a shipwreck and a change in course. I do not know which Germany will choose. I do not know whether its leaders know. But on that choice hangs the fate of Europe."
Wolf says the crisis is clear, and he focuses on Spain and Italy because of their size. They are unable to manage their debts without some assistance. Much of the government's debt is held by the banks in the countries.Some of the debt has been generated to help the financially weak banks. Wolf uses a common metaphor to describe this--two drunks trying to hold each other up. Wolf argues that the austerity required by the EU is ineffective because the private sector has already gone to austerity and declining government spending keeps GDP going down. As he puts it, "The reward for pain today is pain tomorrow."
He then looks at how Germany wants the euro zone organized. He believes it is no to eurobonds, no to increase in funds for the European Stability Mechanism, no to monetary expansion, and yes to austerity. So how do the German authorities think the slide in the periphery nations will be halted? Wolf offers two hypotheses. First, Germany believes the weaker nations will eventually pull out of the euro leaving a smaller but more stable euro. Second, they think their policies will work and things will turn around. Wolf doesn't think it will work. In fact, he thinks Germany is shooting itself in the foot since Germany relies on exports to other EU countries so heavily.
Wolf's final paragraph is:
"In October 1939, Winston Churchill said: “I cannot forecast to you the action of Russia. It is a riddle, wrapped in a mystery, inside an enigma; but perhaps there is a key. That key is Russian national interest.” The key in Europe today is Germany’s perception of its national interest. Once it becomes evident that their conditions will not work, German leaders will have to choose between a shipwreck and a change in course. I do not know which Germany will choose. I do not know whether its leaders know. But on that choice hangs the fate of Europe."
Tuesday, May 29, 2012
Feldstein on the Euro
Martin Feldstein has a column on the euro and how France had wanted it to encourage more political integration. Of course, France thought they would lead the political union. Things are not working out as France had hoped.
Given the crisis in Greece and the realization that a breakup of the euro zone could happen, we are getting a lot more analysis of the issues.
Given the crisis in Greece and the realization that a breakup of the euro zone could happen, we are getting a lot more analysis of the issues.
The Role of Government
David Brooks' column in today's NY Times discusses Hamilton's approach to government, arguing that it was a healthy one. I don't know enough about Hamilton, and presume that when people use a historical figure as a model, they often convert the historical figure into the image they want. Even so, I think Brook's arguments are interesting. He sees the problem as one in which government has over reached several times in the past, which has led to a more antigovernment approach by the current Republican Party, especially the Tea Party members in it. Instead of focusing on government as good or bad, Brooks argues for discussing what government can do, which I presume also means what government cannot do well.
I take the approach that people are people. The people who go into government are not less self-interested than people who go into business. Constraints are needed on them. In the economic sector, competition provides the needed constraints. In the government sector, compeition is also involved, but so is the structure of govenrment. Hence, the need for separation of powers and a reliance on federalism. The end result for me is that the private sector does a lot of things well, but also needs basic support from the government in terms of property rights, rule of law, and so on. There remains things that government can contribute, with obvious ones like national defense. For the rest, more discussion on the level of government that should be involved for a particular program would be helpful. The federal government should not always be the first option.
My mentor, Harold Demsetz, wrote an article in which he argued for a comparative institutional approach. In situtaion where we recognize that the market system is not functioning as well as we would like, we should not automatically turn to government for a solution. We have to examine the actual solution government would provide (rather than some ideal solution), and determine which is better. I would add, we also need to look at what level of government would actually be providing the solution. In a world of information costs, asymmetric information, an uncertain future, and so on in the real world, the information problems and uncertainty apply to business and government personnel.
I take the approach that people are people. The people who go into government are not less self-interested than people who go into business. Constraints are needed on them. In the economic sector, competition provides the needed constraints. In the government sector, compeition is also involved, but so is the structure of govenrment. Hence, the need for separation of powers and a reliance on federalism. The end result for me is that the private sector does a lot of things well, but also needs basic support from the government in terms of property rights, rule of law, and so on. There remains things that government can contribute, with obvious ones like national defense. For the rest, more discussion on the level of government that should be involved for a particular program would be helpful. The federal government should not always be the first option.
My mentor, Harold Demsetz, wrote an article in which he argued for a comparative institutional approach. In situtaion where we recognize that the market system is not functioning as well as we would like, we should not automatically turn to government for a solution. We have to examine the actual solution government would provide (rather than some ideal solution), and determine which is better. I would add, we also need to look at what level of government would actually be providing the solution. In a world of information costs, asymmetric information, an uncertain future, and so on in the real world, the information problems and uncertainty apply to business and government personnel.
Monday, May 28, 2012
Is Jack White an Economist?
The rocker, Jack White, issued a vinyl album and limited the number of albums produced to meet the demand from some fans for something rare, ineresting and valuable. He recognized that rare and valuable had to go together. Instead of selling them for a regular price, and letting the price rise in the secondary market, his company sold them on e-Bay and captured the higher price themselves. As one might expected, many fans were upset and complained of exploitation. He countered with some basic economic analysis. For an article on this in Forbes, see here
There have been economics articles on why ticket prices for concerts or sporting events are not higher when the demand for the event is much greater than the supply at the sale price. Examples include concert tours of big acts and the Super Bowl. Selling ticket prices for a concert at the market-clearing price may not be the long-run profit-maximizing strategy because the fans who buy the CDs may not be able to afford the concert tickets, and the group wants to keep them as fans. Even if they fail to obtain a ticket to the concert, they blame it on the popularity of the group rather than the ticket price. In the Jack White example, the album is probably a one-time thing so the long-term consequences are likely to be slight. Another rationale for the lower ticket prices for concerts is that there are other revenues to be had. For example, t-shirts and gear advertising that the fan attended the concert. The profits from these are likely to be greater if the fans at the concert and younger.
Question: the article refers to a rock star who attended the London School of Economics and you can see who the star is by clicking on the link. Do you know who it is? (I did, and actually used it in an extra-credit question in History of Economic Thought. No one got it right.).
There have been economics articles on why ticket prices for concerts or sporting events are not higher when the demand for the event is much greater than the supply at the sale price. Examples include concert tours of big acts and the Super Bowl. Selling ticket prices for a concert at the market-clearing price may not be the long-run profit-maximizing strategy because the fans who buy the CDs may not be able to afford the concert tickets, and the group wants to keep them as fans. Even if they fail to obtain a ticket to the concert, they blame it on the popularity of the group rather than the ticket price. In the Jack White example, the album is probably a one-time thing so the long-term consequences are likely to be slight. Another rationale for the lower ticket prices for concerts is that there are other revenues to be had. For example, t-shirts and gear advertising that the fan attended the concert. The profits from these are likely to be greater if the fans at the concert and younger.
Question: the article refers to a rock star who attended the London School of Economics and you can see who the star is by clicking on the link. Do you know who it is? (I did, and actually used it in an extra-credit question in History of Economic Thought. No one got it right.).
Sunday, May 27, 2012
Tyler Cowen on the Euro Zone
Tyler Cowen has an interesting column in today's business section of the NY Times. He describes the euro zone's instititutional failure in dealing with the crisis. While the euro creates a "monetary nation", it does not create a true nation. The governments of Greece and Spain are sovereign so all the agreements that brought about the euro are international agreements. The nation that should be the leader of the group is Germany, but Germany's past makes it difficult for Germany to exert such leadership. (Another leader could be Britain where there is a great deal of human capital in international financial arrangements, but they aren't in the euro zone). Cowen's piece is pretty negative regarding the prospects for a solution that is not very costly. I am visiting Germany to teach a course for the third consecutive May and the Greek crisis has been in the news each time. The first time I thought it was interesting but not terribly important, last year I thought it was important and would probably lead to further integration in the EU. This year, I am much more pessimistic about prospects for a successful solution. Something I began to think about being in Germany is that the unification of Germany over two decades ago now offers insight into what is happening in the euro-zone today. After a little research, I'll write more on it in a future post.
Thursday, May 24, 2012
Euro Leading to Political Union?
I have written a couple of times about how I thought the creation of the euro was a political and not an economic act. There is a column on CNBC's http:/ /www.cnbc.com/id/47547082 that says the same thing. To see it, go to http:/ /www.cnbc.com/id/47547082
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