Category Archives: Blog

Toward an Anti-fragile Electric Grid: Reassessing Environmental Policy

September 12, 2013 By in Blog, Energy, Policy Tags: , , , , , , , , , Leave a comment

I had a revelation last night about the electrical grid. I was responding to an old friend’s comment where he stated that we needed distributed generation. I could have used the example of Mao’s Great Leap Forward with the blast furnaces in everyone’s yard, but I wanted to maintain our friendship, and stuck to Riccardo’s comparative advantage argument instead.

Then it hit me. Prior to 1970, electric generators were located very close to the point of consumption (I am talking US here). This minimized the line losses. Interconnects were put in to allow for some power sharing especially in the event of a forced outage. In general, the system was stable and one outage in one location would not necessarily affect another.  It was also characterized by a larger number of smaller generators, this applied to every thermal generator. Continue reading →

Regulatory Applications for Bitcoin: Environmental and Spectrum Allocation

August 24, 2013 By in Blog, Economic Theory, Energy, Policy Tags: , , , , , , , , , Leave a comment

I recently wrote a post about using property rights to avoid the tragedy of the commons.  Jesse Jenkins, of The Energy Collective, responded to my draft post that he thought my idea of allocating property rights based off of land use was too complex. I assured him that it was not and gave a logical and concise rebuttal. However, his challenge to me left me thinking about how to simplify the regulatory approach. This post is my effort to sketch out such a simplified approach. Continue reading →

Allowing Complexity: A Liberal Response to Climate Change

August 15, 2013 By in Blog, Policy Tags: , , , , , , , , , , , 2 Comments

In the essay below, I explore the consequences of current energy and environmental policy and suggest an alternative set of solutions based on private property rights to resolve cost externalities and foster innovation.  The essay is a little longer than I hoped.  It is in two parts, the first identifies the failures in current policy, and the second part identifies how we can implement a more enlightened environmental policy.

Continue reading →

Defining Scieince

August 10, 2013 By in Blog Tags: , , , , Leave a comment

I often wondered about what is the nature and purpose of science. While researching what was to become the foundations of statistical economics, I stumbled across an author that I hadn’t heard of before, Edwin Jaynes.  His work has become a profound influence on my research and thinking.  In one of his works, he asks, “How shall we best think about Nature and most efficiently predict her behavior, given only our incomplete knowledge?” Continue reading →

Measuring Privacy

August 9, 2013 By in Blog Tags: , , , , , , , , , 1 Comment

Edward Snowden’s revelations about the scope of government surveillance made me think about how we can quantify privacy between each other and our government.  Here statistical economics can provide the framework needed to do so, through the use of measuring the index of probability of human action, and specifying that government knowledge of an individual cannot be less than some minimum index, without the use of a warrant to obtain specific information delineated in the warrant. Continue reading →

A Network Analogy for Currency

July 25, 2013 By in Blog, Economic Theory Tags: , , , , , , , , 3 Comments

Continuing my recent currency posts, I want to provide an analogy for what Bitcoin is as I understand it. This analogy may exist elsewhere on the web. To those authors who’s ideas I may be infringing upon it is not intentional and please notify me so that I may give the appropriate credit.  I read a great deal and don’t know where ideas come from, weather inside or outside my head.

Bitcoin is not so much a currency as it is a network protocol where the number of packets that can be exchanged grows at some fixed rate to a defined maximum. There are rules for how the packets are exchanged on a peer to peer basis to ensure that packets aren’t duplicated or lost. This is the genius of Satoshi Nakamoto. This is what he created. In this context the lines with what Bitcoin can become are very blurry. As I understand there are portions of the original source code that leverage the network analogy. Continue reading →

The Price of Gold and the Federal Reserve

July 17, 2013 By in Blog Tags: , , , , , , , , 1 Comment

I read a Zero Hedge article on the price of gold and the removal of gold form bullion banks. What was not made very clear in that article was why there is a depression in the price of gold along with increased demand. Using a statistical economic framework, I think there is a correlation. First, I need to begin by borrowing from Hayek’s theories on money. The key point here is that private money created is indistinguishable from specie or reserve notes issued by a central banks. This is a cornerstone of the fractional reserve banking system. I don’t even really want to call it that name, because the phenomena is not necessarily a construct of man, but rather man’s response to statistical economic laws.

We create money as a means of exchanging action–utility. This money that is created has its value determined through exchange. In a sense the money introduced becomes aware of the economy and the economy becomes aware of the money. This can be represented in a statistical economic sense using Langevin diffusion. This is a method of stochastic sampling, like what is used in methods of numerical quadrature, such as Markov Chain Monte Carlo.  In the economy, certain individuals collect some of this money as a society begins to accumulate wealth, we call them bankers. Continue reading →

NSA Monitoring: The Beat Cop Pandemic

June 30, 2013 By in Blog Tags: , , , , , , Leave a comment
NSA Monitoring: The Beat Cop Pandemic

In all that is the “Meh” of the revelations of the extent of NSA monitoring domestic communications, here is an analogy to help better understand what it is that we are dismissing.

The NSA is not engaging in direct action, where active monitoring and interception of communications is done.  Whew! But what is it that they are doing? Our understanding of the space that is cyber space is giving society a bit of a conceptual block.  To resolve this understanding of the problem we will use analogy.  We are going to transform cyberspace into the real world of three dimensions. Here, the geeks running the NSA data centers are the beat cops, the sort we see driving around town. Continue reading →

Natural Gas Price “Spike”

March 28, 2013 By in Blog, Data Analysis, Energy, Natural Gas Tags: , , , , , , , , 2 Comments

Recent news reports heralding higher natural gas prices at 19-month highs (Bloomberg) due to cold weather (Reuters) and diminished inventories (even reports of the shale boom ending CSM) piqued my interest. There is hope that natural gas futures are bright (Forth Worth Star Telegram).  I wanted to check these narratives against some of my models.

Estimating the marginal utility of money plagues my understanding of economics and greatly affects my ability to model it. However, I developed an alternative deflator called the Energy Price Index (EPI). I took historical Energy Information Agency (EIA) data and performed a regression of the data against the price of oil and natural gas for each fuel source, and then aggregated them based on fraction of total primary energy consumption to get the average price of primary energy delivered to the economy. I tied this model then to the daily WTI crude oil prices and the Henry Hub spot market. Here is an early attempt trying to describe this Economics for Engineers.  This model has several problems first it ignores technological change in the conversion of energy to useful work, it assumes that the distribution between energy and non energy feedstocks is fixed, and it uses an adiabatic model of the US economy. The last assumption only affects the estimation of wealth, I perform a more rigorous derivation of the price and money relationships in The Effect of Price in Macroeconomics and have not had time to rebuild my models based on this work.  The other two assumptions are a function of my own ignorance. Ayers and Warr estimate the necessary information to fix this error. Continue reading →