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1 Buck  Mon, Sep 27, 2010 1:47:53pm

or is it REALLY the difference between central planning and capitalism?

In the USA the government doesn't just decide what is the winning tech, and start creating factories and jobs.

It might take a bit longer for the MARKET to pick the winner, but I think history shows that to be the better system.

2 Bob Levin  Mon, Sep 27, 2010 3:14:50pm

re: #1 Buck

Actually, history shows that whoever can innovate the fastest becomes the most prosperous. The advantage of capitalism is the rate of innovation compared to centrally planned economies.

Both parties should be on board with this notion. Republican talking points should revolve around scientific development, patents, innovation. The job of the government, as it has developed in the West, is to provide clarity regarding the short term future, and if wise, the long term future--which should guide investment.

Since WWII the government has been a major source of funding for scientific development, the growth of the research arms of universities, and the encouragement of patents. Both the arms race and the space race were scientific projects.

3 Interesting Times  Mon, Sep 27, 2010 4:09:50pm

re: #2 Bob Levin

Since WWII the government has been a major source of funding for scientific development, the growth of the research arms of universities, and the encouragement of patents. Both the arms race and the space race were scientific projects.

Excellent point - I was thinking of the space race myself, and how great a role sheer national pride played in America's success. Why is the same thing not happening now? There most certainly is a race toward a sustainable, post-oil future - a race for electric cars, a race for wind and solar power, a race for bioengineering - and China (a thoroughly non-democratic nation with a nightmarish human rights record) is leaving the US in the dust.

If only more people were out protesting this, instead of the latest Fox-News-manufactured outrage distraction du jour.

4 Buck  Mon, Sep 27, 2010 4:28:26pm

re: #2 Bob Levin

Actually, history shows that whoever can innovate the fastest becomes the most prosperous. The advantage of capitalism is the rate of innovation compared to centrally planned economies.

OK, that is my point, sort of. A few years ago everyone thought those twisted lightbulbs were the best and greenest.... now we know they are probably poisoning the world with mercury....It turns out that the winner is going to be LED (see Philips EnduraLED). (I agree that the market has not decided on this yet, but it is a great example of letting the market decide, not the government)

You want to buy an electric car? I bet it wont be from China. It seems that if you want to blow your PayPal fortune and you think there is a market, you can startup an electric car company. Let's face it.... Chevy Volt, Nissan Leaf, even "little" guys Telsa and Coda are ahead of China.

Windmills? Solar Panels? Sure China is going full bore... but maybe it is right, and maybe it is wrong....

This isn't about believing in AGW.

And I caution you about believing the obvious propaganda coming out of China, remember this is a closed society who is still censoring tiananmen square 20 years later. With no opposition, and no freedom of the press... you can't rely on data coming out of Beijing.

5 iossarian  Tue, Sep 28, 2010 6:18:29am

One small point: The amount of mercury released by accidentally breaking a compact fluorescent bulb is virtually zero compared to the amount released by burning the extra coal needed to power an incandescent bulb.

The US could set a 5-10-year "glide path" to a stiff gasoline tax (giving everyone plenty of notice and opportunity to upgrade fuel efficiency in the interim). A lot of the technology (e.g., turbo chargers) pays for itself under even moderate taxation levels. Plus, if you made the tax revenue neutral (say via new car tax credits) you would essentially be giving people something for nothing.

6 Obdicut  Tue, Sep 28, 2010 6:19:02am

re: #1 Buck


In the USA the government doesn't just decide what is the winning tech, and start creating factories and jobs.

Except for the many, many, may times it has, you mean, right?

Like the railroads, the airports, the telephone system, the internet, etc. etc. etc?

7 Obdicut  Tue, Sep 28, 2010 6:26:27am

We still have one great advantage over China:

They suck at science. They have almost no system of peer review, their science labs are plagued with fraud, and they don't have the freedom of information necessary for real scientific innovation.

That being said: the tech for renewable energy is mostly known. China can easily brute-force their way to being the clean-tech leader, especially while the US is dragged down by the hyperreligious and the GOP-led AGW denial. And if they do, we will fall hugely in power and prestige as a nation.

Planned economies, like China, are only as good as their planners. Their planners make many mistakes-- as Mao's destruction of their agricultural base shows-- but at the same time, it doesn't mean they're always wrong. In this case, they're quite right; they've identified the critical economic area of the coming age, and they're pounding away at it.

The market can't possibly, Buck, throw up an effective response to this, because the market is not forward-looking. Asking the market to create alternative energy before alternative energy is competitive with oil is foolishness in the extreme; alternative energy will be supported by the market only in conjunction with its cheapness in relationship to oil.

Furthermore, thanks to Jevon's Paradox, we won't see a significant decrease in the demand for oil unless we very rapidly develop alternative energy sources; the market will not do so quickly enough unaided. The market is a wonderful thing for smooth, graceful transitions between technology levels-- over time. We don't have time. The market does not understand that we don't have time, it can't, it has no rationality or foresight.

So you are completely wrong.

8 iossarian  Tue, Sep 28, 2010 6:30:05am

Incidentally, the tech upgrade scenario is a great example of a situation where a government can unequivocally improve people's lives, essentially for free.

You figure out that, as a government, you are paying $0.01 per gallon for the infrastructure needed to distribute gas (I don't know what the exact figures are, these are hypothetical number, though I know that the example "works" in this specific case).

You then discover that a $10 dollar tire pressure sensor will prevent 200 gallons from being consumed over the lifetime of a vehicle. But manufacturers aren't putting the sensors in the vehicle, because consumers are not very sophisticated economic actors, and won't pay the extra $10 up front, even though it saves them money (tire pressure sensors have a roughly 1 year payback).

So you just pay the manufacturers to put the sensors in. You save $2 immediately from your infrastructure costs, and still have $8 to recoup. You do this by raising gas taxes by a small amount. The consumer ends up better off, because the tax increase is smaller than the fuel efficiency gain (in other words, the consumer is still paying less to travel the same distance).

Free market failure, corrected by government! Magic.

9 iossarian  Tue, Sep 28, 2010 6:33:07am

re: #7 Obdicut

Our science advantage is diminishing by the day. In the 50s, the Japanese car companies sent delegations to the US, where we happily showed them around our plants and other operations. "Yes, this is how we run an automated assembly line. And this is how we do market segmentation via multiple brands."

We all know how that turned out. Today, Chinese delegations are touring our universities, checking out how we run things (and what can be improved). They'll get there pretty soon, I think.

10 Obdicut  Tue, Sep 28, 2010 6:37:10am

re: #9 iossarian

Not without a fundamental change in their society; Japan isn't even close to the US's level in innovation, even though they have an open, Democratic society. China won't get there until they free up their society.

But they definitely can simply come over here and siphon off innovation as we come up with it-- or hire Americans to do their innovation, as many Japanese firms still do.

Excellent point about the tire sensor gauge, by the way. For too often, people talking about economic transactions pretend that all actors have all information and act on it rationally; you gave a great example of a case where, even though it always makes sense to pay for the cost of the sensor, the consumer would almost never do so.

11 iossarian  Tue, Sep 28, 2010 6:59:18am

re: #10 Obdicut

The two biggest problems with traditional free-market efficiency arguments, as taught to undergraduates (the "dead hand" stuff), are:

A) they assumes that everyone acts rationally, when in fact almost no-one does

B) they (usually) equate money with utility, and, crucially, assume a linear relation between the two, when it seems clear that the ability of money to produce happiness tails off significantly at some point (recent mainstream media reports suggest at the $75,000 individual income level), and also that there is a minimum income level that is required to prevent abject misery

But people don't have this pointed out to them in Econ 101, so they turn into little right-wing ideologues.

12 Obdicut  Tue, Sep 28, 2010 7:02:56am

re: #11 iossarian

I'd add a 2a:

That money in capitalism has two functions:

1. Ensuring human survival and happiness.

2. Acting as capital.

Most people never, ever reach the level of wealth where their money actually acts as capital. The utility of money as capital never has an end to it, and a lot of people conflate that with the utility of money for happiness and survival that you pointed out.

13 Bob Levin  Tue, Sep 28, 2010 12:53:23pm

It seems like folks are talking about capitalism and socialism in somewhat theoretical terms--basically saying what you might hear from theoreticians.

But neither the US nor China fit any particular model. History, though, tells us that occasionally the US can get very serious about a problem, and when we do, there is a staggering amount of innovation. This dynamic defined the 20th century.

During one of these creative spurts, everyone just gets on the same page. Government and the private sector agree that a certain problem needs to be tackled, and the government does what is does--provide funding, and the private sector does what it does, churn out the production.

And when the problem is solved to a general satisfaction, then we return to petty chaos.

Regarding Econ 101--my daughter is taking this right now. The problem is the insistence on putting things in mathematical terms, graphs, formulas. Do any of these actually predict anything, I ask? No, they're not predictive, but they are tools you use to understand what just happened. Then why not use history? And it gets down to, because history is not on the test.


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