Tag Archives: economics

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Downsizing the city

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Abandoned building, Flint, MichiganTough times call for tough decisions: faced with long-term urban decline accelerated by the global economic SNAFU, the US Government is considering razing sections of some failing cities in order to keep them from collapsing. What were once bustling industrial towns  are now underpopulated, underfunded and poorly maintained, and pruning them back like a rosebush might just enable them to survive.

Mr Kildee said he will concentrate on 50 cities, identified in a recent study by the Brookings Institution, an influential Washington think-tank, as potentially needing to shrink substantially to cope with their declining fortunes.

Most are former industrial cities in the “rust belt” of America’s Mid-West and North East. They include Detroit, Philadelphia, Pittsburgh, Baltimore and Memphis.

In Detroit, shattered by the woes of the US car industry, there are already plans to split it into a collection of small urban centres separated from each other by countryside.

“The real question is not whether these cities shrink – we’re all shrinking – but whether we let it happen in a destructive or sustainable way,” said Mr Kildee. “Decline is a fact of life in Flint. Resisting it is like resisting gravity.”

If things don’t get a lot better very soon, I imagine there will be some small cities that collapse entirely, littering the country with hollow remnants of the late industrial age, a series of Twentieth Century ghost-towns inhabited by wildlife and a few back-to-the-land loners. Meanwhile the larger cosmopolitan centres – anywhere with a diverse enough economy to attract a newly itinerant workforce – will presumably keep growing as the ongoing urbanisation of the world gathers pace.

It’ll be interesting to see whether we’ve gotten much better at urban planning in the last half century or so; many of Britain’s planned cities of the post-war period were less than glowing successes, as the architectural philosophies of the day were based on principles that we’d now consider naive at best. But downsizing for survival is a time-honoured tactic in nature as well as economics; perhaps we’re living in the last days of suburbia. [via Slashdot; image by NESJumpman]

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Metaverse bank chairman does a runner with the cash

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Starship screenshot from EVE OnlineYeah, so we’re all tired of hearing about crooks in charge of banks shafting their depositors and borrowers at the same time… but this story’s a little different, given that the bank in question exists in the virtual universe of science fiction MMO EVE Online.

That’s not to say no real money was involved, though; RMT, or Real Money Trading, is one of the few things frowned upon in EVE‘s laissez-faire economy, but it still takes place – and as such there may be a lesson for real-world economists in the story:

Because players often do not have the interstellar credits — abbreviated to ISK, also the official abbreviation of the Icelandic kroner — they need to expand their fleets, an enterprising player created a bank that would accept deposits and lend to players who would pledge assets, like their spacecraft, as collateral.

The bank was a success. According to its Web site (yes, it has one), Ebank accumulated about 8.9 trillion ISK in deposits in 13,000 accounts belonging to 6,000 users. That was far more than it was able to lend out — there were around 1 trillion ISK of loans.

Somewhere along the way Ebank’s top executive, who went by the online handle Ricdic, apparently got greedy. According to CCP, he made off with deposits, which he then sold for real cash to gamers on a sort of black-market exchange separate from Eve.

CCP kicked Ricdic out of the game. And Ebank has temporarily shut down while its board of directors (yes, it had one of those too) tries to sort out the mess. Depositors, meanwhile, appear to have pulled 5.5 trillion ISK of deposits.

It’s not clear how much of that virtual money was embezzled and now needs to be found, somehow, by Ebank. But if the Eve chatter is accurate, it could amount to 10 percent of deposits withdrawn. That could wipe out whatever capital was used to finance Ebank’s loan book. As in the real world, that would spell insolvency.

[…]

As in the real economy, the customers could be tempted to appeal to a higher authority — Eve’s creators. That would probably involve appealing to the Council of Stellar Management — a body of nine members chosen by Eve players to represent them in discussions with CCP.

But the word from Reykjavik isn’t likely to comfort Ebank’s depositors. Eve’s creators at CCP — which employs its own economist and philosopher — take a laissez-faire approach, leaving most such matters to the game’s users to sort out. Unlike the Icelandic government, which allowed three local banks to nearly bankrupt Iceland with unchecked expansion, CCP is determined not to encourage entities to become too big to fail.

This is similar to a nasty incident in Second Life a while back, but SL’s banks are governed by US banking law, and so Linden Lab takes a much more hands-on approach to its economy.

It’ll be interesting to see how this pans out; it’s easy to dismiss the travails of a metaverse bank as irrelevant, but as they become more complex (not to mention valuable in real-world terms), metaverse economies may become a valuable testing ground for alternative economic theories. Anything that helps us avoid another real-world clusterfuck has got to be worth keeping an eye on, right? [via MetaFilter; image by Pentadact]

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The romance of steam power returns

steam valveDespite its association with a bygone era of anachronistic and bulky (but very stylish) technology, steam power is making a comeback thanks to stimulus money from the US government. Combined Heat and Power (CHP) systems are appealing to large organisations because of the efficiency they offer, but the same logic could apply to more domestic situations as well:

Today, most of the time, we make electricity and generate heat in different places. We get our electricity for lighting and power from a central station located far away and transmitted to us through the grid. Heating or cooling, on the other hand, is often accomplished with on-site boilers or electric radiators. Both systems work less efficiently when they stand alone. Together, waste heat generated during the process of making electricity can be scavenged and piped around to provide climate control.

Makes sense, right? It sure does – and it’s environmentally sound as well.

A DOE report released late last year found that CHP was already responsible for reducing American emissions by 248 million metric tons of CO2, which is equivalent to taking 45 million cars off the road. That’s a lot more than wind, solar or any of the other renewables. They have such a big impact because they effectively double the amount of work that we get from burning the same amount of fossil fuel.

With the extra impetus to reduce carbon dioxide emissions to combat global warming, these electric plants that also use their excess heat could experience a lot more growth over the next 30 years. To do so, though, they have substantial challenges to overcome.

For one, many of the regional benefits of CHP are not recognized by existing environmental and utility regulations. Utilities resist CHP systems because they complicate their transmission infrastructure and they say that’s costly. And people have grown used to having their power generated in some far off place and often object to the installation of a power plant nearby.

Ah, good old NIMBYism… but perhaps those complaints will be fainter once the markets have made fossil fuels into ludicrously expensive commodities again. [image by waddie]

It’s interesting to note yet another field of concern and endeavour where the solution might involve a move back from centralised provision to localised. Economics, politics and now energy… is it time for the return of the city-state?

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Will peak oil solve global warming?

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desert oil rigHere’s a contentious idea from the intersection of climate-change pragmatism and free-market ideology: what if Peak Oil is a no-brainer no-effort fix for global warming?

The drop in oil prices since last summer doesn’t affect the validity of the Peak Oil hypothesis. Peak Oil only says that the rate of oil extraction is peaking, not that the price will never go down. In fact, the peaking of oil supply will result in the same boom-and-bust cycle that characterizes real estate markets, as Henry George noted over a century ago. Real estate speculators will hold land off the market in anticipation of a future price rise, just as the oil companies sit on those untapped offshore oil reserves. The amount of drilling and exploration has actually dropped considerably in response to the lower prices, which means that when demand gets back to Summer 2008 levels the price rebound will be even more vicious.

And if a fluctuation of a few percentage points in demand can cause oil to fall from $140 to $40 a barrel, imagine what will happen when the supply falls by half or more over the next generation!

Now, I’ll confess to having a fair degree of faith in truly free markets, but I’m not convinced that the energy markets as they stand under the current geopolitical and economic climate are currently anywhere near as free as they’d need to be to self-regulate effectively; I only need look at my gas bills for the last couple of years to find evidence of that. Nor am I convinced that the reduction in carbon output resulting from declining oil reserves and the escalating prices thereof would be sufficient to pull retrieve our bacon from the campfire quickly enough to prevent significant change to the environment. [image by Janz Images]

That said, the idea of market forces working hand in hand with scarcity to wean us off of our oil dependence is seductively appealing. So seductive, in fact, that I’m inclined not to trust the idea on that basis alone. But the notion that using less oil derivatives will become a matter of simple economic logic for businesses and end-users alike? That seems like common sense, as well as the only way we’ll break the addiction. Hell knows that explaining the consequences of failure hasn’t had much of an effect as yet.

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Your new credit card, courtesy the US Treasury

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There’s no shortage of weird and wonderful ideas flying around with regard to fixing the financial systems and making them fairer for the end users (i.e. most of us), but this is the first time I’ve heard this one crop up: state-backed interest-free transactional credit – or, in layman’s terms, a credit card issued by the government.

Access to revolving credit should be rationed, but transactional credit should indeed be ubiquitous. Not having to carry and count cash, deal with paper checks, or even worry about some particular account’s balance at the time of purchase are important benefits. Indeed, an efficient payments system is a public good. That’s why states are in the business of establishing currencies, right?

In fact, while transactional credit provision is a perfectly good business, it might be reasonable for the state to offer basic transactional credit as a public good. This would be very simple to do. Every adult would be offered a Treasury Express card, which would have, say, a $1000 limit. Balances would be payable in full monthly. The only penalty for nonpayment would be denial of access of further credit, both by the government and by private creditors. (Private creditors would be expected to inquire whether a person is in arrears on their public card when making credit decisions, but would not be permitted to obtain or retain historical information. Nonpayment of public advances would not constitute default, but the exercise of an explicit forbearance option in exchange for denial of further credit.) Unpaid balances would be forgiven automatically after a period of five years. No interest would ever be charged.

As is immediately pointed out in the resulting comment thread at MetaFilter, there’s a strong aroma of socialism around that idea which would prevent its adoption… not to mention the fierce anger of the credit card companies, should the idea be tabled seriously. But if there’s one thing we should have learned over the last few years, it’s that schemes which frighten the companies who make a killing by lending us money are well worth considering more closely.