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World Ended: revives me later.

And if the duel was long, and now I'm thinking how to stop the new River of Carrizo, Pavone, of Bertolo (?), Sosa (?). .. Dwarf.

For now, the only thing I thought of posting is to ask the audience to cry for the return of Lindahl (because I do not give ball).

We'll see.

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"Regulators are human ..."

economist Edward Glaeser has the great virtue of constantly writing about subjects that interest me particularly. In this case it does on " regulatory failure", especially when it comes to correct problems of bounded rationality.

The question is whether Glaeser is the propensity of people to make mistakes and have "irrationality" in certain business decisions, more attractive the idea of \u200b\u200ba "strong government" to deal with these excesses monitor private. Citing the Bureau of Consumer Financial Protection "that the government intends to launch Obama.

We talk about the irrational behavior of agents in the U.S. housing bubble (the reasoning is equally valid for Spain). And he says, quite rightly, the behavior of those who want a loan to buy a home that arguably can afford, may in fact perfectly rational because they think that in the event of insolvency, is another who assume debt. Or, and this I would add, because they think it is an investment, or because they assume that the bank is paying and the risks will be measured sufficiently. Glaeser says precisely that the hardest thing to understand is actually the behavior of banks, "so crazy as to make such loans."

In my opinion, however, it is also arguable that the banks' behavior was "irrational." As I have argued and on occasion in this blog , the problem of bubbles is not as simple, or not occur: is a problem of perverse incentives that cause almost all the agents involved inflating the bubble with perfectly rational behavior, which makes it difficult to "dismount it "

• floors buyers because they see their neighbors win money buying and selling properties, and will not be less. The bank, main course interested in monitoring the risk, given the low interest loan and low demands. Who will be the "foolish" not to take advantage?
• sponsors, political scam to get the soil and raise prices without limit, because they see that buyers are willing to pay anything and the banks are happy to give cheerfully both the buyer and the developer himself. Who will be the "foolish" not to take advantage of the business?
• The banks? With explicit objectives of its operators on the number of mortgages granted, with very low default rates, eyeing the ever-increasing bank's business across ... and some, without worrying about higher-risk mortgages, while this risk may be to package and sell to other unsuspecting camouflaged. In the case of banks, at least for some, not so much a game as a game irrational cheats. In any case, who is going to be "foolish" to lose business by abandoning the behavior how well you will all your competitors?
• Do Governments and the Administration? For municipalities to play with the ground were allowed to resolve their funding problems. For many local politicians corruptly enriched with the rezoning and awards. The government, meanwhile, saw the unemployment rate fell to historic lows and could present it as a success of his administration. Who will be the "stupid" that ... ? I do not insist.

Of course, floating in the whole thing a couple of dubious points sound like:

• Unrealistic expectations on the evolution of housing prices (which will continue to rise indefinitely, you can not download ...). But this, lest we forget, was a possible scenario (however unlikely) for everyone bet because I was making money by betting on him .
• irresponsible behavior of the majority of agents, consisting of something like "other risks will be watching" . That is, each agent involved felt that "someone" would be taking care of the risks, and meanwhile they had a free hand.

This is like the parable of the precipice: many people moving inexorably, through the fog toward a precipice while earning money to move forward based on the slope. Many believe there is no cliff ... others know that he must have, but they can always leave the race on time. Of course nobody wants to abandon the race while still making money, nobody wants to fail to win while the other runners still winning. Is this behavior irrational? Is debatable.

Turning to address the issue of a regulatory agency to oversee the irrational behavior of the agents, Glaeser's view is that such agencies are also subject to error and irrational behavior, and have examples to prove it. The solution is advocated by those agencies have modest goals and well defined, primarily to inform the most vulnerable, and have low functioning bureaucracy. The agency wants to avoid generating barriers to entry and limited innovation.

It is at this point, the conclusions, where I do not agree with Glaeser. I understand that what he advocates is something so low (something like that requires the agency to label the calorie content of food) very doubtful that anything will help.

In my humble opinion, what is needed is an agency with sufficient capacity to establish and follow some sort of warning indicator of systemic risk, and capacity to act "irrationally" (forgive the boutade ) and prick bubbles. This means few people but highly educated and well paid, with political independence and discretion, something like the Bank of Spain at the time of Luis Angel Rojo , he was able to piss off our counter-provision imposing bankers at a time that this seemed "irrational." With which it has fallen and is falling, the last thing we should worry about is "to limit the innovation" ... On the contrary, innovation is likely to monitor and in the light of events, the target. About

difficulty setting up such agencies, and whether it should or should not be the Bank of Spain, one of them, Jesus Fdez Villaverde has discussed in the blog Nothing is free, in a series ( I , II , III and IV ) which I highly recommend reading despite being far more technical.


UPDATE 07/22/1910: An article by Robert J. Shiller in which advocates a strong regulatory and assigns responsibility to central banks.

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The natural gas futures

Massachusetts Institute of Technology (MIT) has published a report on the future of natural gas as an energy source in the same line that has already released reports on nuclear power, coal and photovoltaics. You can download it here .

As the topic of energy is a favorite of this blog, and we've spent some s recent entries confrontation natural gas - renewable, I will summarize what I find most striking about the report or relevant .

natural gas as an energy source "bridge" to a low carbon economy

The authors focus their estimates in 2050, and consider natural gas as a source of energy bridge to a low carbon world. This World "low carbon" will consist of renewable, nuclear and fossil gas and coal, but the latter equipped with technologies of "carbon capture and storage (CCS)

This is striking because many feel that the energy" bridge "would have to be nuclear, ruling out in advance gas because fossil energy. The MIT report makes clear that this view is not realistic, given the maturity of technology-based power generation and availability of gas reserves, which classifies as sufficient for the present century.

The importance of natural gas, according to the report of MIT, is expected reduce emissions of CO 2 significantly, but as long as massively replacing the most inefficient coal plants by Combined Cycle Gas. More specifically, the report says that natural gas will replace hard coal in electricity generation in 2050, provided that emissions of CO 2 are priced enough to accomplish the following:

• countries Industrialized reduced by 50% by 2050
• developing countries to reduce it by 50% by 2070

also assumes price reductions options: renewables, nuclear and CCS (the latter technologies, by the way, are being incipient and still is far from clear their economic viability and even technology in some cases).

Reservations

On the issue of reservations, the report attaches great importance to gas "unconventional", whose reserves, just harvested, is estimated higher than conventional ( tight gas, coal bed methane, gas shales ) or much higher (carbohydrates). About hydrates are large uncertainties regarding technology exploitation, but not on earlier. The report focuses enough on gas shales (associated with rocks), the main environmental problem is exploitation. For MIT, however, environmental problems related to unconventional gas (mainly pollution of surface and groundwater) are "manageable, but challenging."

Interaction with renewable power generation

The report warns that the introduction of much intermittent renewable generation could have an undesirable effect in the short term : to reduce gas generation could force the boot "on base" for central coal, and thus undermine, paradoxically, the CO 2 .

On the problem of intermittency of renewables and in alertábamos this entry, and its effects on gas stations also are discussed in this other . This risk is even greater (this is what I say, not the report of MIT) in systems that are committed to the basic nuclear energy , as seems the case in our country (at least judging by the statements by some, because then the reality is stubborn ...).

In the long run, however, the report's authors predict a world in which the get to be renewable "energy base" , in which case the gas serve to modulate demand, ie serve as support for renewable peaks, running in short periods of time . This requires regulatory structures that ensure the reliability of the system and install the necessary gas capacity, ie to ensure the profitability of the gas stations though they have a running time.

As we said in our posts linked above, this problem is already happening here and now, although renewable energy is not based on the English system (it is, still, nuclear, hydro and water in good years), enter the pool almost as if they were, it is preferential entry standard, which moves gas combined cycle to work only a few hours to cover the intermittency of renewables, becoming unprofitable to plants that were built to work many more hours. That is the problem that MIT wants to see resolved in the longer term, through regulatory measures.
also in other countries without sufficient nuclear generation, this problem can cause the entry of coal plants to meet basic demand, producing the opposite effect, as well alert MIT.

Transportation

One thing I particularly striking is the limited role the report gives the natural gas in the transport sector . Although among the measures recommended to advise governments remove administrative obstacles to the use of gas in transport, in fact almost dismiss it as a global solution for transportation, citing the high cost of converting cars to enable them to consume gas.

say that catches my attention because, although I had always considered this alternative as "low resolution" until now had never read an opinion as qualified as the almost-discarded clearly. Do not forget that transportation is the great workhorse of the use of petroleum, a problem not solved, and it passes gas might also be a "bridge" to a private world of electric vehicles, for example. Given that technology is known and long used in many countries (Argentina, India ...) its widespread implementation would never be as expensive or difficult as the mass deployment of electric vehicles.

However, despite possibly much against the minimal reduction of CO 2 that occurs in the substitution of liquid fuels by natural gas in vehicles, only 25%, much less than when you replace coal with natural gas in a power plant .. . why I say that if the goal is a low-carbon world, this solution is "a little solution." Although countries have implemented and will continue to upgrade it.

supply and geopolitical

It is important to comment need to change the operation of global natural gas market, mainly to make it clear liquid.

who does not know much about may not give you an idea of \u200b\u200bthe importance of this point, and the enormous differences between the market oil and gas. Try to summarize a bit:

The oil market is very liquid, there are many boats sailing around the world crude oil at all times, which often change hands several times based on interests and needs of buyers and sellers. The international prices of crude and products are known and are open to consultation for the whole world. It is true that many mysteries remain, like how much oil is left and who has it, and especially how conforms the price and who and how it affects him at all times (say, mid-long term, the trend in prices is explained well enough mediente curve supply and demand. In short, however, myriads of small variables and decisions affecting the variability, which is very similar to random motion). But for anyone who needs to buy or sell crude oil or products, rules of operation of the market are reasonably clear for everyone: Any operator can buy a boat of crude, or resell send anywhere as it nears its destination, and agree on the price of the transaction: there is a market spot sufficiently developed.

In natural gas, however, this is not true. Understand that natural gas historically was considered a byproduct of oil without economic value, and burned at the wellhead without any use. According to many countries began to use natural gas, he began to assign economic value, but to make it effective it was necessary that the site was near the demand, because a pipeline is very expensive and the technology to liquefy and transport natural gas in boats were still emerging. Were imposed in this environment, supply contracts closed long-term relationship between a producer and a buyer of gas, which would allow recovery the cost of developing the transport infrastructure to the point of consumption, often with clauses "take or pay" whereby the buyer pays what he was going to consume, consume it or not.

is, therefore, a contract market closed, where there is hardly the spot market. Gradually, as they develop the LNG (liquefied natural gas) as the distances do not allow the construction of pipelines, and proliferate in our oceans LNG vessels, is expected to start generating a spot market similar to the oil, with daily prices open to everyone and no "hidden" in private contracts.

For natural gas have the weight it deserves as an energy source for global use, of course MIT considers this necessary, as well as to recommend that this objective is part of the agenda of foreign affairs U.S. government ... which, if we review recent developments and switched to Obama from Bush and the oil and gas, is not very reassuring ...

industrial policy

Finally, the report makes recommendations relating to "industrial policy" that it is worth noting as they also are burning in our country and in many others.

While on the one hand encourage encourage through tax incentives, subsidies or regulation setting it up source of energy to replace coal, warn of the danger of these policies if not measured very well. Summarizing much, ideas would be two:

• not favor one energy source which in turn measures harm to another, especially if both pursue similar goals in terms of efficiency and emission reduction.
• implement a "cost of CO 2 " for all, and that each hold your candle stick ... and no long-term subsidy.

Simple, right?

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on strikes for the privileged ...

is having many reactions to the ongoing strike in Madrid Metro, especially in the wake of the failure of the minimum service by striking the first days of the week, which led to a rush hour chaos in the city.

Most reactions have been very critical of the position of unions and strikers. Therefore José Rodríguez has written a post , I recommend reading, trying to clarify some important points.

I would make two comments:

1) The bottom line: what has caused the strike is the intention of applying Madrid subway workers a pay cut in line with the declared by the government for all public officials, since it violates the Convention agreed reduction and running until 2012.
must be said that the reduction does not apply to government workers, not public officials, such as Metro and Renfe, for example. It could be considered fair, from this point of view, the workers' protest, as the claim of the CAM would violate the Convention agreed.

However, for me it load only reason to think (think) that the current mechanism of collective bargaining and the rigidity of the Conventions is a drag when adjusting the salary conditions in a company to fluctuations in the economy due to procyclical. is inconceivable that in a situation of widespread cutbacks and rising unemployment, a group of workers cling to a text, however it is agreed (at a time when that was not anticipated the current situation) to be excluded from the general environment and maintaining a situation now could be considered privileged over other employees, as well their jobs are guaranteed. Although the decision on this point rests with the employees concerned, it is very difficult for the rest of the workers gives them an understanding that call, especially if we consider the point 2)

2) Failure minimum services. By law, minimum services of competent authority orders the service is considered essential (although it is recommended covenants). And here's the problem: for the Metro de Madrid CAM is an essential service for trade union representatives from Metro, no.
For me it is clear that meter is an essential service in rush hours a big city, not just to "reduce the convenience of citizens at the time of going to work": the number of problems, economic and all types, which generates the total suspension of the subway in a city like Madrid is incalculable. The Metro may not be an essential service in Rome, where only three lines with a greater or less marginal, but in Madrid, London, Paris, etc., is an essential service, again, at rush hour.

minimum services are acceptable, if I remember correctly, 50% at peak times and 0% the rest. They are not abusive. Halve the rush-hour service means very painful conditions for travelers in many lines of the Madrid underground, already strained in normal times, and delays to get to work for most people. If the minimum services intended CAM (70% at peak and 30% for the rest, quotes Joseph in his post), the problem is that the law gives this power, and who defaulting, exposed to sanctions. And in any case, I think workers might well have decided to comply with 50-0, then knowing that a judge would give them reason. The decision by defaulting I think it's completely unjustifiable, and that does not respond, as opposed to what he believes Jose, to protest against alleged abusive services by the CAM, but purely and simply the desire to inflict as much damage as possible, they know perfectly well that the city suffers, not Esperanza Aguirre. And they do, let's be clear, because they can. As they have done on other occasions. As they have done before Renfe train drivers. And SEPLA pilots. It is a typical performance of "union Privileged: they know they have the power to collapse Madrid and do so, the rest is excuses.

ave A lawyer, also a public official, he even questioned the right to strike of public workers, with good reason , (basically the biggest loser is not the company against which the protest, but the city, and also has secured the job). I'm not going that far. But I do think that when a group of workers has that power so important, you must apply a great responsibility to exercise it. And well explain to the public the reasons for its position. That's all I can do than other citizens who are suffering from the strike, are comprehensive: they understand well what the situation and motivations, and to see that act responsibly. None of these things has occurred in this case: no more than to hear the statements of some union representatives especially halters ("we will paralyze Madrid", "this lady is going to know who we are", etc.), To doubt very much of their responsibility and that injury to the citizen really care a whit.

So, the disciplinary measures that can make the CAM against Metro workers I'm afraid that will be applauded by everyone. Victoria Aguirre policy, unions lost opportunity to demonstrate responsibility in my previous post I gave them.