PKT message, Re: Paul D. on this year's Nobel--especially V. Smith

>From: Sven R Larson

>Date: Thu, 17 Oct 2002 12:56:27 -0400

>"William B. Ryan" wrote:

> > [Ryan] This has nothing to do with uncertainty.

>It definitely has to do with uncertainty. Every market is

>fundamentally an institution for uncertainty management. It helps you

>predict what product is going to be delivered where when and at what

>price.

[Ryan] I suppose you could say that any purposeful action is "uncertainty management." I might concur. But isn't that something quite different than Professor Davidson's concept of fundamental uncertainty, or non-ergodicity? And isn't Davidson's concept ultimately a rationale for government intervention since the "hidden hand" of the market cannot exist? And doesn't the concept purport to explain why Say's Law is a myth? I don't happen to agree - there are ways to repudiate Say's Law that do not require the rejection of the ergodic axiom or the hidden hand - but isn't that the idea behind it?

When taken away the market institutions leave all economic

>agents, not just consumers, completely uncertain as to how they will

>be able to satisfy their needs tomorrow. When fundamentally changed,

>the market institutions alter the premises upon which we rely on the

>market for uncertainty management. Regulation is one way of solving

>the uncertainty management problem, a free market another.

[Ryan] But the natural monopoly concept is that some things - the natural monopolies - are most efficient when regulated, and the other things are most efficient when unfettered.

Free

>markets normally converge towards sticky prices or semi-sticky prices

>precisely because it helps consumers and producers predict future cash

>flows (costs and revenues). This is also why hedge instruments were

>invented. In California complete deregulation was thwarted by, e.g.,

>intervention by the FERC but also by incomplete moves by California

>legislators. I'm not opposed to preserving regulation, but I do think

>it is important to look at the deregulation alternative without

>ideological bias.

[Ryan] By this, it seems you have swallowed the deregulation propaganda, hook, line and sinker. By the way, in my opinion,
"hedge instruments," of whatever form and description, have almost universally been the instrument for fraud. In particular I am thinking of "derivatives." The speculative securities markets should be greatly simplified and certain forms of securities and speculation should be prohibited.

> > Electric power is a natural monopoly, an old concept that should be revived by

> > economists.

>This is only partly true. New technology has downscaled production

>facilities and reduced the fixed cost obstacle to new entries.

[Ryan] If the "new technology" is truly more efficient then it would be cost effective for it to be introduced by the regulated utility. What is actually happening is that the "new technology" - that is to say, deregulation - is causing the scraping and dismantling of already existing infrastructure, much of it not yet fully amortized, that could have functioned for many years to come with minimal maintenance, at very little real cost to the community.

This

>technology development is likely to proceed, and thereby improve the

>case for competition. There are still big fixed investments and

>therefore costs needed, in particular on the grid side of the

>electricity market, but with more small-scale technology

[Ryan] The "small-scale technology" is not, from an engineering standpoint, more efficient.

electricity

>production and consumption can to a larger extent become a local

>matter than it is today.

>--

>Dr. Sven R Larson

>Department of Economics

>Skidmore College

>815, North Broadway

>Saratoga Springs, NY 12866

>(518) 580-5278