Donut Holes?

Watched a TED video by the woman who developed this idea of doughnut economics (see book). Seems to be all the rage among the save the planet crowd.

TED Talk Kate Raworth

Interesting, but I think she’s tilting at a straw man. This is a measurement problem, not a mechanistic problem. First, GDP is a very blunt instrument for measuring improvements to the human condition, but it’s the only yardstick the politicians and policymakers have and they are judged based on these metrics. Same with U6 and CPI and PPI and poverty, etc. We get GPD numbers every week of the year and our information channels repeat them as grade reports.

Second, Ms. Raworth uses the word growth as a proxy for measuring change and consuming energy resources. Not all growth or GDP measurement is expansion of goods and services. Recycling is a measure of growth; developing alternative sources of energy is a measure of growth. What we are truly dealing with is how to manage positive CHANGE. When we mismanage change, we get negative GDP growth rates. When we manage it productively, we get positive changes in GDP, among other measurements of life quality, like leisure time and cultural and technological innovation.

Economics is the fine art of managing change through exchange. So we need better measurements that include those subjective values that are not so easy to measure.
Everything else here is fantastic hyperbole, saving the planet and all that…dollars to donuts?

Energy Markets and Politics

Good quote on our current politics of energy (William Tucker writing in the American Spectator, April 20):

On Tuesday [President Obama] stood in the Rose Garden . . . and announced the solution to our energy problems will be hunting down and prosecuting evil “oil speculators” who are responsible for driving up the price of gas in the U.S. . . .

Before we go any further with this, perhaps we should ask, just what are “oil speculators” and why is it so important that they be hunted down? Here is the answer. Oil speculators are investors who think the price of oil is going to go even higher in the future. For whatever reason, they expect supplies to get tighter. Therefore they are willing to buy oil at a premium today in the anticipation that prices are going to go even higher tomorrow. It’s a gamble. You don’t automatically make money. Sometimes you lose a whole lot.

What speculators do, however, if they guess right, is smooth out the availability of supplies between the present and the future. By paying a higher price now, they assure that prices will be lower in the future. In effect, they hold supplies off the market today so that they will be available next week or next year when things become even more scarce. Adam Smith described this as preventing a “dearth” from becoming a “famine”:

When the government, in order to remedy the inconveniences of a dearth, orders all the dealers to sell their corn at what it supposes a reasonable price, it either hinders them from bringing it to market, which may sometimes produce a famine even in the beginning of the season; or if they bring it thither, it enables the people, and thereby encourages them to consume it so fast as must necessarily produce a famine before the end of the season. . . . No trade deserves more the full protection of the law, and no trade requires it so much, because no trade is so much exposed to popular odium.

Unfortunately, there are always politicians around . . . who are willing to encourage that odium for political purposes.

(Note: the analysis of macro markets over time is the foundation of the book Common Cent$: A Citizen’s SURVIVAL Guide. We need the “big picture” in order to avoid these errors of omission from the political class.)