Wednesday, October 13, 2010

It's all about balance...

David Lenhardt of the New York Times has a really great article (HT to Marginal Revolution) that explores alternatives to cap and trade. What makes this article really good in that it is incredibly balanced and nuanced in the different ideologies present in the discussion. Leonhardt is clearly a fan of markets, but there is a grudging acceptance that government funding in directed efforts can lead to breakthroughs citing the internet, radar and microchips.

What I find interesting is that the conventional wisdom is that you should make the externalities pay to encourage competitors to come in at the same or less price. What government directed investment does is create solutions that are actually less than the price of current market leaders. In effect what it does it changes the time horizon of investment. Most technology innovation investment operates on some functionally defined time horizon, most private parties can only stay solvent for so long. The government can make continuous investment over a longer period of time. And if a breakthrough does happen, it can afford a longer recoup time.

The real winner for technology investment proposed is that it changes the conversation universally. Cap and trade in effect is a universal taxation system, suspect to cheating by parties. There are temptations to undercut. A new technology that is cheaper and created by public investment gets distributed globally. Think the microchip under the Bell System or the internet. This makes cheating irrelevant. As the old saying goes, the stone age didn't end because of a lack of stone. The same will be true of the age of oil.

Lest we get too depressed, Andrew Revkin of the Dot Earth Blog has a nice post taking elation in the rescue of the Chilean miners. As a species when tested, we unite and can do amazing things. But it has to be identifiable and believably tractable problems that unite us, but really the argument in the end is that this is just a matter of perspective.


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