2018-05-05

What to DO about big problems?

Clare M1 at today's head-to-head; they're good, but they aren't Maggie. Eric Steig, on Twatter:
Here's a question for those who are scientists & who teach. Many students want to figure out what to DO about big problems, but have little patience for hard-nosed science & analysis. How do you guide the former, without neglecting the latter? #weneedtochangetheworld.
Well, I'd start with "is a 140 (now 280) word medium a good place to ask difficult questions requiring subtle answers?", to which I'd give the obvious answer: "no". Why is why I'm writing this instead.

A disclaimer: I'm quite... compartmentalising, perhaps I'd put it. I like different people to have different tasks. A certain amount of cross-fertilisation is great, but carried too far it all turns to mush. So my initial offer would be... actually, let's just stop a moment. Because I can't possibly pass up have little patience for hard-nosed science & analysis. By implication, the question is about students of science, and yet they have no patience for, essentially, science. Perhaps they should seek a different path. Perhaps that's why they want to go into politics instead. Also, it seems rather irrelevant to the question at hand, which I suggest is better as "how should scientists go about helping solve problems like global warming, rather than just studying them?"

So back to my initial answer: don't. Your job as a scientist is to understand the problem, and present your analysis  - probably via the scientific literature - to the world. That's what your job is, it is what you've been trained to do, and it is - presumably - where your skills lie. But it gives you no special insight into how to solve the problem; or indeed, how to balance putting resources into solving that problem versus solving a variety of other problems. Quite the reverse: you are very likely to be biased. Most likely, you will think that your problem is the world's most exciting and most urgent. After all, that's why you're working on it, maybe.

Also, almost everyone underestimates how complicated and difficult the world is. There's a lot to be said for the idea that no-one under 40 should be allowed to vote (or 50, or 30, take your pick. There's also a lot to be said for the idea that voting isn't a good idea, either). Hordes of eager young bunnies rushing naively out into the world to "solve" problems isn't a good idea. HONEYBees2 frustrated that the evil world won't listen to their brilliant solutions and getting angry with said world also doesn't help. Further, in my jaundiced eyes, the honeybees are far too keen on solutions that involve them actively doing things and instructing other people to do things, and not keen enough on freedom.

Who else says "#weneedtochangetheworld"? Some bloke called Peter Jacobs says The politics of the status quo is still politics. Scientists, when you look back on your life, you will not regret being chided for "advocacy". You will regret saying nothing and I don't object to that; speaking out is fine, if you have something to say1. Someone else: Jennifer Glass says let’s switch from physical to virtual conferences & seminars. This is a sensible thought, which weirdly enough others have already thought of, but it is down in the trivia. Here's a bad answerWe can plan for 7 generations. No, we can't.

So what should you do, if you want to Make The World Better? The obvious first step is some level of understanding, because absent understanding you cannot do any good - simple passion is not enough. Understanding, inevitably, involves context, because the world is far too complex to understand without examples, which is to say History. And, inevitably, patience. Lack-of-patience was one of the constraints of the original formulation, but that must be discarded. Stepping slightly closer to specifics, Honeybees generally aim to solve problems by regulation; which is to say, force; rather than persuasion or providing access to better things. I may have said this before.

Notes


1. That link misses the important part; Marlow's respect that, at the end, Kurtz had something to say.

2. I realised that if I add "naive" between "of" and "eager" I can make an acronym, HONEYBs.

Refs


The Greatest Liberty Of Subjects, Dependeth On The Silence Of The Law.
Corruptissima re publica plurimae leges.
* Speaking of #H2H, here's us. As always, the video flatters: we are irritatingly down to bowside.
HOME,  HOME,  ON  DERANGE.
* Speaking out, by ATTP.

41 comments:

Nathan said...

So, do you have an example of how this works in practice?

William Connolley said...

That sounds like a sensible question, but I don't think it actually is. I could try to produce a meta-history of people influenced by history, but I don't know enough to do that. Nor (perhaps ironically) was it my intent to provide examples. I was hoping that I was saying something that was, in retrospect, obvious.

Phil Hays said...

Voting is a horrible idea.

All alternatives are far worse.

"Many forms of Gov­ern­ment have been tried, and will be tried in this world of sin and woe. No one pre­tends that democ­ra­cy is per­fect or all-wise. Indeed it has been said that democ­ra­cy is the worst form of Gov­ern­ment except for all those oth­er forms that have been tried from time to time.…" Winston Churchill

"There are many ways to skin a cat." My grandmother, commenting on many different issues. She never explained to me when or why anyone would want to skin a cat. But if you do, some hints are at:

https://www.nytimes.com/2015/12/06/magazine/how-to-skin-a-cat.html

Laws (aka regulations) are necessary. Laws protect our fundamental rights. That doesn't mean that "persuasion or providing access to better things" isn't needed as well.

There are many different types of laws. Taxes, subsidies and prohibitions all have different disadvantages. For small starts, subsidies often work best. For large changes, taxes may have an advantage. To stamp out the last part, prohibitions might be required.

I observe that many Libertarians often progress to something close to fascism once they realize that most people will never vote for their ideas, for the simple reason that their ideas would be disastrous for most people.

crandles said...

Which is why I'm writing this instead.

Since you are speaking of patience,
http://www.bbc.co.uk/news/business-44008098

The UK's car industry has hit out at the government over unconfirmed reports ministers will target hybrid vehicles as part of a new emissions crackdown.

New cars unable to do at least 50 miles on electric power may be banned by 2040, a ruling that would hit the UK's best-selling hybrid, Toyota's Prius.

The SMMT car trade body said "misleading" government messages were damaging the industry and hitting jobs.


Good grief, do people not realise lots of change is coming to cars over next 22 years?

It would be shocking if there weren't battery size upgrades over next 22 years. IMHO, 2040 is too late and government should be saying we will be doing it* sometime but we won't impose it too soon before car manufacturers can deliver sufficient volume of electric cars and providing information that if the transition continues to happen rapidly then it could begin as soon as 2025-2035 sort of timetable.

* 'it' being discouragement through taxes on ICE vehicles being ramped up and eventually being banned (bar a few possible exceptions).

That seems like the problem is too much patience not too little and even then being criticised for too much potential action.

William Connolley said...

As to cars, what the govt is proposing is both stupid and pointless, to no-one's great surprise. You are correct that change to 2040 will be considerable; having the govt, now, attempting to plan what cars we should have, then is utterly fuckwitted. It would be odd indeed if battery tech didn't improve, and self-driving cars reshape the landscape. I'm not too keen on specific taxes aimed at ICEs; I'd far prefer - yes, you guessed it - a general-purpose carbon tax.

William Connolley said...

Trotting out the quote from Churchill isn't a substitute for thought; people use it far too readily to defend democracy's flaws. I also think you're wrong that L ideas would be disastrous; quite the reverse. But I do admit that the propaganda against them has been efficient.

> Laws protect our fundamental rights

That isn't entirely wrong, but I think it is fundamentally the wrong way to look at it. Laws generally restrict our rights; I'm with Hobbes on that. Sometimes - for example, when they restrict our right to kill - we agree that the gains from the loss of our (and, of course, everyone else's loss too) right is a price worth paying. I think the approach, at least in the US, as looking on the constitution as protecting your rights against the law, for example freedom of speech, is sensible. That's regarding the constitution as having a status distinct from law.

James Annan said...

You should tell bow he’s late. Because he always is.

Nathan said...

In your post you say "the world is far too complex to understand without examples"
So I think it is fair to ask for an example.

Have there been any 'Big' problems solved using this technique?


"Laws generally restrict our rights"
Hmmm... Or perhaps they allow us to have rights...

William Connolley said...

> late

Punishment beatings will be administered later. Though as the cox-cam (https://www.youtube.com/watch?v=Jei2dvp4ECk) shows there are more flaws to go around.

> example

If I wanted to change something, I would. But I don't, other than people's minds. And clearly I'm not taking that seriously; if I were, I'd be studying rhetoric and so on. I would flatter my commentators and seek to persuade them, and I wouldn't insult my opponents.

> they allow us to have rights

That is the obvious and dare-I-say-it unthinking view of Joe Public and of course the Pols, but as I say I think it is wrong. I prefer the idea that you "naturally" have rights, such as the right to life. And the right to defend yourself. But that in exchange for living in society you give up some of those rights, so the right of armed defence is largely given up to the state. This avoids the problem of how can the state possibly give you the right to life? What sense would that make?

Nathan said...

I guess I was after an example of how a BIG problem is addressed without regulation.
I see what you're saying now, and agree. Would have been clearer without the commentary on regulation and freedom.

I would add though, that every time a BIG problem has been addressed through some form of regulation. If you can think of counter-examples, I would be interested.

"I prefer the idea that you "naturally" have rights, such as the right to life."

I guess it raises the question of what rights actually exist without agreement. Those agreements need to be codified. Anything else is anarchy and then there are no rights, just existence.

Nathan said...

...that every time a BIG problem has been addressed (it has been) through some form of regulation...

crandles said...

>" I'm not too keen on specific taxes aimed at ICEs; I'd far prefer - yes, you guessed it - a general-purpose carbon tax."

There is certainly something in this. I am hopeful that a long list of benefits for electric (better driving experience, less maintenance, cheaper fuel, smoother ride, more convenient refueling at home rather than having to go to dangerous, smell fuel station and so on) will mean demand for electric will take off and make ICE cars and f.fuel stations rare making range anxiety a problem for ICE vehicles not electric.

However, unlike you it seems, I do still see a role or two for govt. Firstly there is information on the way things are likely to go and regulation around fuel efficiency numbers. Do you believe different manufacturers should be allowed to compute differently calculated misleading fuel efficiency numbers with whatever devious misleading ways that they can think of or is this unnecessary regulation? (*cough*diesel defeat devices*cough*)

While I am hoping that demand given cheaper costs that are coming will see almost complete conversion to electric and the other possible govt role of placing taxes on ICE vehicles to discourage people continuing with ICE vehicles is not needed. I am not completely discounting this being a possible necessary govt role because what happens if a sizeable proportion of people are rich enough and want to retain use of gas guzzling muscle ICE cars as status symbols despite high carbon taxes while it also becomes clear we need to get to zero net emissions? I accept that this is far enough away that we don't really need to start to worry about it yet.

William Connolley said...

> a BIG problem is addressed without regulation

You keep saying "regulation" and I'm uncertain if you're aware of the distinction between regulation and law. Law is "thou shalt not kill". Regulation is "the minimum wage for those under 20 is X". The constitution is meta-law: "congress shall make no law respecting religion".

When you say "no big problem addressed without..." you're sort of cheating, without realising, because if you're thinking of a specific problem, then it is natural to think of directing attention to it, and this is naturally done by regulation. But you are thinking too small. Consider the problem of the bulk of humanity living in grinding poverty. This was solved without regulation.

> diesel defeat devices

Those are effectively illegal: selling something as other than advertised; deliberate deception. There's no particular role for govt there, other than to make misrepresentation illegal, which it already is. As for carbon taxes, if people are willing to pay them, then they do. That's the way it goes, and seems reasonable to me. The govt is there to represent it's citizens. It is not some all-knowing all-benign despot who can patronise the oiks and tell them what to do.

crandles said...

>"There's no particular role for govt there, other than to make misrepresentation illegal, which it already is."

I note this doesn't address issue of different manufacturers each doing their own thing with fuel efficiency numbers so that they are not comparable.

>"As for carbon taxes, if people are willing to pay them, then they do. That's the way it goes, and seems reasonable to me."

If it works to reduce consumption of undesirables down to acceptable level, yes. But if we get to point where electric can do everything needed and taxes whether on engines or carbon are not getting use down low enough then at some distant point (that we are not close to) govt might prefer to implement ban rather than continually raising carbon tax rate.

>"The govt is there to represent it's citizens. It is not some all-knowing all-benign despot who can patronise the oiks and tell them what to do."

It is certainly a mistake to go too much nanny state. But does this mean there is no role for govt at all in trying to signal what should be considered anti-social and only a role in saying what is illegal?

William Connolley said...

> I note

Well spotted. My hard-line inclination would be to say that standardised comparable scores make sense for everyone, so manufacturers should want to do them anyway. A slightly less hard line is that there exist a wide variety of consumer/ independent test organisations. So I'm dubious govt-mandated std tests are required.

> govt might prefer to

Why: you're speaking as if "govt" was, as I said, some benign despot. But it isn't. It is there to represent it's citizens. If the citizens don't want it done, why should the govt do it? Just because you want it done?

> trying to signal

The govt does more signalling than it should; arguably the latest nonsense about hybrid's is signalling. But fundamentally: why should the flow of signalling be from the govt to the plebs? Why not the other way round?

Nathan said...


"Law is "thou shalt not kill". Regulation is "the minimum wage for those under 20 is X". The constitution is meta-law: "congress shall make no law respecting religion"."

Is this your own definition? On Dictionary.com it is : "the system of rules which a particular country or community recognizes as regulating the actions of its members and which it may enforce by the imposition of penalties."

A regulation is defined as "a rule or directive made and maintained by an authority."
Not sure the difference is that great or real.

I assume a carbon tax is law, and not regulation?

" Consider the problem of the bulk of humanity living in grinding poverty. This was solved without regulation."
How was it solved? Capitalism? That is governed by laws and regulation?
I would suggest the best time to be alive in human history is now, and it is highly regulated. I am not sure you can say we solved grinding poverty without regulation.

Also, it took a hundred years or so 'solve' that problem, and it is still a work in progress. What about if the BIG problem was urgent - such as with climate change.

William Connolley said...

> Is this your own definition?

No. For one thing, that wasn't a definition, it was examples. But hopefully you get the idea: law is potentially-eternal principles, which apply to all in all circumstances. Regulations is specific, fiddly, distinguishes different people, and likely to expire. The clearest exposition I'm aware of is Hayek's. You ought to understand that on matters like that, d.c is likely to fail to provide subtlety.

> Capitalism?

That was clearly part of it. And yes, it was solved in societies that were bound by both law and regulation; but it wasn't solved *by* regulation (one might argue that limited-liability companies played a large part). I agree that the best time to be alive is now. And that now is the most highly regulated. I disagree that the regulation causes the best. Correlation is not causation is a proverb you should be familiar with.

As to urgency: why would people dying young in poverty be any less urgent than GW? But anyway, GW will be solved when people want to solve it. That means, being able to solve it without losing too much that they value. Improvements in tech may permit that.

Nathan said...

I think you have missed the point, "And yes, it was solved in societies that were bound by both law and regulation; but it wasn't solved *by* regulation (one might argue that limited-liability companies played a large part)."

Regulations and Laws provided the framework through which solutions could be found. It created the environment that provided education and a safe society.
I understand that it is trivially boring to list regulations that are pointless or counter-effective, but by the same token let's not let perfect be the enemy of good.

I work in a well-regulated industry, water supply, in Western Australia. I can see the outcomes would have been far worse without regulation. People like the freedom to build piggeries, egg farms or carrot farms on top of aquifers. Without regulation the water supply here would have turned to sh*t (literally) years ago.

That being said a lot of the regulation around swimming pools here is stupid.

Regulation is a useful tool. But like all tools can be mis-used.

William Connolley said...

There's no doubt that rule of law is important. Indeed, one of the proposed explanations for the IR is indeed the strong legal framework that protected entrepreneurs against expropriation by elites. And (it seems I have to say this every now and again, because people lack subtlety) I have never suggested that there should be no laws or no regulations; indeed, I'd oppose either of those ideas.

Regulation is clearly necessary for the day-to-day functioning of the State, just as instructions from above are necessary to the functioning of any organisation. As as life gets more complex, more regulation is required.

Nathan said...

sounds like we're pretty much in agreement...

crandles said...

>"As to cars, what the govt is proposing is both stupid and pointless, to no-one's great surprise. You are correct that change to 2040 will be considerable; having the govt, now, attempting to plan what cars we should have, then is utterly fuckwitted."

An update? or is it just more of the same at
http://www.bbc.co.uk/news/business-44169650

Seems there is a range of views available including great to have targets, targets not ambitious enough, targets ill considered, and so on.

It seems there should be something to encourage car makers to move towards lower emissions but is a set date target the right way? This seems wrong to me, as in too likely to make target date too soon or too late.

Government should announce there will be a progression of government action from recommendations through climate change warning notices and possibly even bans if this becomes necessary. But rather than fixed timetable it should be as and when most car manufacturers have made enough progress such that demand can continue to be satisfied.

This is intended to put pressure on manufacturers such that if they are and remain in the worst say 20% (slack that 80% can take up) government might take action that effectively wipes them out.

Are there worse problems with this than with the fixed target date plan? (For this question please assume carbon tax is not a politically possible alternative.)

(Basically I am not agreeing with your "utterly fuckwitted" but what is appropriate in 2040 is a hard problem to answer but this doesn't mean no action/signalling.)

>"If the citizens don't want it done, why should the govt do it? Just because you want it done?"
If I am in minority, I don't expect any special treatment. But what if in general people want sufficient appropriate action on CC, but don't really know what is appropriate so that when it comes to specific measures, it is interest groups that shout the loudest. ie on cars, manufacturers lobby for little change and environmentalists lobby for lots of change.

>"arguably the latest nonsense about hybrid's is signalling. But fundamentally: why should the flow of signalling be from the govt to the plebs? Why not the other way round?"

Yes Captain Obvious, it should ideally be mostly other way round. But see above. Also if public suddenly demanded 100% renewable electric cars, does this become available instantly or does it take time to build battery gigafactories?


Phil Hays said...

There currently is a Li-ion cell shortage. Has been going on since December 2017 at minimum. Several car makers are restricting production.

https://www.greencarreports.com/news/1116505_battery-shortage-interrupts-hyundai-ioniq-electric-sales

William Connolley said...

> Basically I am not agreeing with you...

That's all right. You don't have too. But I wish govt felt the same way. Unfortunately govts, and heads of the UK Energy Research Centre, have a bias towards doing and saying things, otherwise people would ignore them. Although to be fair if the head of the said prestigious centre hadn't said anything, we'd never have heard from him. He could have said "why worry? The market and carbon taxes will sort this out" but perhaps he would then have been an ex-head.

> what if in general people want sufficient appropriate action on CC, but don't really know what is appropriate so that when it comes to specific measures, it is interest groups that shout the loudest.

I fear that is the problem, and always is: that this form of action leads to pandering to special interests. Which is why rules should be general, not specific: carbon taxes, not banning mopeds.

> or does it take time to build battery gigafactories?

It takes time, as PH's story nicely points out. But that's true whether it is the public, or the govt, that suddenly makes the demand. Entrepreneurs are astute in their search for opportunity.

Phil Hays said...

"Entrepreneurs are astute in their search for opportunity."

No.

Entrepreneurs are astute in their search for _profitable_ opportunities.

Opportunities that don't lead to lasting market advantage are not worth anything to an entrepreneur, even if it reduces costs directly or otherwise (such as climate change).

Opportunities that lead to lasting market advantage are worth following if it leads to a market advantage, even if the net impact is to increase costs to society.

Consider a disease. Which is more profitable, a vaccine that cures and prevents the disease, or a drug that makes the symptoms tolerable?

William Connolley said...

> Consider a disease

Why? The issue is car batteries. Stay on topic and consider a "public [that] suddenly demanded 100% renewable electric cars". Would that call forth electric batteries? Yes.

Phil Hays said...

And I thought the issue was economics. Silly me.

So why would the "public suddenly" or otherwise demand 100% renewable electric electric cars?

So what about car batteries? The cost of a battery isn't a constant with time, but falls with increasing production history and production levels. If none are produced, the cost is very high. This leads to the economy being "sticky", and having many possible equilibriums, some rather better than others. Libertarians are sure that the equilibrium we are in is the best of all possible equilibriums.

No one sane is going to demand the first electric car. High cost, engineering issues, and so forth. Not until the volumes are increased to the point where cost is comparable, most issues are resolved and so forth.

No sane investor is going to start production of an electric car. The initial cost is high, there is no market and long term there is no lasting market advantage.

Without either an mandate/subsidy/incentives OR lucky positive externality, a carbon tax isn't likely to start production of electric cars. The initial cost is high, there is little to no lasting market advantage. And a carbon tax doesn't fix this.

William Connolley said...

> So why would the "public suddenly" or otherwise demand 100% renewable electric electric cars?

I don't know. You'll have to ask CR, it was his hypothetical.

Apart from that, you say a lot of things that aren't true.

> Libertarians are sure that the equilibrium we are in is the best

Of course they don't. Firstly, we aren't in an equilibrium. Secondly, the current world is massively affected by non-L stuff like tariffs. Third, any L would accept the possibility of improvement-through-tech; car-"eq" displacing the horse_n_buggy-"eq" for example.

> No sane investor is going to start production of an electric car

But people have started producing electric cars.

Phil Hays said...

"Firstly, we aren't in an equilibrium."

You might consider how much Libertarianism depends on economic equilibrium analysis. In a short term sense, we are close to an equilibrium. We can never get there, exactly, due to chaotic factors, even in the absence of other changes, of which there are always plenty. Note that actual economic system is rather more complex than the simplistic Libertarian ideas.

"Secondly, the current world is massively affected by non-L stuff like tariffs. Third, any L would accept the possibility of improvement-through-tech; car-"eq" displacing the horse_n_buggy-"eq" for example."

Note that improvement though technology has been triggered by non-Libertarian stuff like prizes, subsidies, tariffs and similar. Is the world worse off because of subsidies for LED light bulbs? If so, why?

"But people have started producing electric cars."

Looking at Tesla's finances, it is not clear the investors are sane. Most car companies are producing electric cars and many if not most people are buying electric cars only because of mandates/subsidies/car lane access/parking preferences/free ferry tolls/other non Libertarian stuff.

However, we can hope that this will shift the economy from a gasoline/diesel (near) equilibrium to an electric car (near) equilibrium. Maybe it will work. Much as the incandescent equilibrium to LED equilibrium shift. Even if so, it doesn't mean that Tesla will be a profitable investment long term.

crandles said...

>"Entrepreneurs are astute in their search for opportunity."

I would say a very high percentage of business start ups fail. This suggests not so astute, but large numbers of start ups still gets to the desired end point of the opportunities being found.

.

Tesla investors not sane shouldn't go unchallenged.

Given Tesla role appears to be that of ICE killer, it isn't surprising they have accumulated large numbers of detractors giving rise to lots of stuff leading to people saying things like 'Tesla investors are not sane'. Look at any company that makes large investment and before the income starts to flow from those investments then the accounts look awful. If the investments fail and don't allow Tesla to reach 5000 M3 cars manufactured per week then they could well be in trouble. The indications seem to be that they will be able to reach that level so it is only appropriate to consider their financial position with the income stream that this should generate. Detractors may have to move on from this 'look at Tesla losses' position fairly soon.


With a battery shortage, already having operating gigafactory could be an important competitive edge from being able to rapidly replicate.

So I would take "No sane investor is going to start production of an electric car" to mean from before any development of Li ion batteries. If you had all the up-front costs of all the grants awarded to battery technology to pay for, it would be mad to start Tesla then. At some point it obviously does make sense to start an EV company.

William Connolley said...

> still gets to the desired end point of the opportunities being found

Yes, this is better than my version. The process, insofar as it is a process, is effectively astute; individuals may or may not be; but non-astute ones are unlikely to last long. The apparently-wasteful trial-and-error rather than command-and-control aspects seem to upset some. The aspect of being able to fail, and be replaced, is vital.

Harry said...

" Consider the problem of the bulk of humanity living in grinding poverty. This was solved without regulation."

No. Solved means we have a permanent solution. All we have at the moment is quite obviously a temporary work around.

rconnor said...

> “Consider the problem of the bulk of humanity living in grinding poverty. This was solved without regulation."

> “it was solved in societies that were bound by both law and regulation; but it wasn't solved *by* regulation”

> “Regulation is clearly necessary for the day-to-day functioning of the State”

WC, based on the second and third statement, do you feel you misspoke in the first statement?

William Connolley said...

The day-to-day functioning of the state isn't what solved grinding poverty. We had day-to-day functioning states for millennia with grinding poverty. "This was solved without regulation" should be read as "It wasn't regulation that solved the problem". This is clear from the context of the original.

rconnor said...

> “”This was solved without regulation" should be read as "It wasn't regulation that solved the problem”. This is clear from the context of the original.”

The original context was Nathan asking for an example of a BIG problem that was addressed without regulation. “Without” seems to have a pretty clear meaning in the context – in absence of.

If we move to your revised claim that “it wasn’t regulation that solved the problem”, when we should ask did free public education play a part in solving the problem? Of course it did. That’s public education that is run by the State, funded by taxes and bound by regulations.

A key factor in the level of “grinding poverty” is the (lack of) stability of the nation’s institutions. Do you agree that good laws and regulations are necessary for stable institutions? Conversely, can these institutions be stable “without regulations”? Somalia is about as “without regulation” as you get – have they solved “grinding poverty”?

Now of course it wasn’t *solely* “solved” by regulations or public education but neither was it *solely* “solved” by some economic theory. It’s a combination of many factors. Economic policy is one, regulations are another.

(To be clear – “grinding poverty” hasn’t been “solved”. But I will assume that by “solved” you meant “reduced in some parts of the world”.)

Phil Hays said...

"So I would take "No sane investor is going to start production of an electric car" to mean from before any development of Li ion batteries. If you had all the up-front costs of all the grants awarded to battery technology to pay for, it would be mad to start Tesla then. At some point it obviously does make sense to start an EV company."

I'm not sure it ever makes sense to start an automobile (EV or not) company, unless there are no incumbent manufacturers (such as in the early 1900's), or if in a country protected by tariffs or other regulations (like Japan after WW2 or China in recent years).

Tesla might well be successful, but that doesn't mean that the buyers of TSLA stock will achieve a risk adjusted return better than a broad benchmark, such as the S&P 500. Tesla (or any other automotive startup) must spend huge piles of money to get into the automobile business on production lines, designs, tooling and so on. If successful, then you have a cyclical business with strong competition and significant economies of scale. As a small automotive manufacture you are on the wrong end of economies of scale. Unless you have big piles of cash in the bank, a down cycle in the economy can kill the company.

Even if Tesla dies and the investors get nothing, in a broader sense Tesla is already a success. By having even one successful, profitable, compelling electric car (the Model S), all the other auto makers are on notice that they had better develop similar cars before the other major auto makers beat them to one. Sure, electric cars are likely to stay at the luxury end of the market for a decade or more. Assuming that, as seems likely to me, the increasing production history and production rates drives down the cost of electric cars, and as depletion (and perhaps carbon taxes) drives up the cost of oil, eventually we may transition between the internal combustion equilibrium to the electric vehicle equilibrium, then Tesla has made this transition faster.


Other than Tesla and all of the limited numbers of "compliance EVs" produced only to meet California's regulations or the rather larger number produced due to China's regulations, only GM and Nissan have produced a general market EV. It is not clear if these ever would have been produced without the regulations.


"The apparently-wasteful trial-and-error rather than command-and-control aspects seem to upset some. The aspect of being able to fail, and be replaced, is vital."

Maybe both are needed.

William Connolley said...

> Tesla might well be successful, but that doesn't mean that the buyers of TSLA stock will...

Precisely. And this is why we want a free market, and experimentation, not top-down direction. If people want to make electric cars, and other people want to invest in that, then let them. Maybe it works and they get rich. Maybe it fails and they lose their money. That's up to them.

I wonder if that's what people don't like: the idea that it really is just up to them, and the opinions of kibitzers are irrelevant :-?

Phil Hays said...

Tesla isn't a good example of a free market. Without government subsidies, regulations, loans and such Tesla wouldn't exist today.

Which would be a shame.

Economic reasons for decisions are not the only valid reasons for decisions.

crandles said...

>"Tesla might well be successful, but that doesn't mean that the buyers of TSLA stock will achieve a risk adjusted return better than a broad benchmark, such as the S&P 500."

This is an unfair test. Individual companies are always going to be riskier than a portfolio. However much of the risk is specific to the company and this sort of risk can be diversified away by holding a portfolio rather than being over extended in one stock. Basically the market price adjusts to reflect the market risks rather than the specific company risks.

Anyway have you considered running the numbers. 5000 M3 a week at $35,000+ * 25% gross margin (may not be making that now while they sort out teething issues) * 50 weeks

gets you well past $2.3 billion per year. There is $14 billion fixed assets and $5 billion retained losses. While that is over 8 years payback period, this hasn't brought in Model S or X or various battery storage products, solar panels/tiles etc.

If it doesn't keep selling for 10 years because newer and better vehicles are launched, I will be surprised because they will be able to keep cutting the price as cost of batteries falls.

I am unsure why you are unsure it ever makes sense to start an automobile (EV or not) company. Your previous response was

"The initial cost is high, there is no market and long term there is no lasting market advantage."

Initial cost is high but similarly high for an incumbent. No market? Tesla has 2 year waiting list without conventional advertising. Long term there is no lasting market advantage for any company but in the long term we are all dead. In the short term Tesla has gigafactory producing batteries which solves battery shortage problems for them and an advantage in knowing how to replicate such factories.

Phil Hays said...

"Individual companies are always going to be riskier than a portfolio."

Of course. That is why I said risk adjusted. This isn't a simple comparison. But consider that the total stock market value of Tesla is already is greater than that of Ford. If Tesla grows, increases car production and matches the profitability of Ford, and Ford converts to produce electric vehicles at similar profitability, then Ford and Tesla might be become very similar companies and should have similar valuations in 20 or 30 years or so. Sure, Ford might fail in the distant future. Tesla might fail this year or next. Ford stock pays a 5% dividend as well. Tesla is likely to issue new stock, which is effectively the reverse of a dividend.

Incumbents should have large bank accounts after the good years so they can survive the bad years. Ford has $25+ billion. Tesla is mortgaged to the hilt.


The costs per car are lower for an incumbent due to production history, and lower for the largest producer. So new and small car companies are at a disadvantage. Short list of failures: Avanti, Graham-Paige, Tucker, Nash, Hudson, Rambler, Kaiser, Willys, AMC, Chrysler, DeLorean, Packard and Studebaker.

I do hope Tesla survives and thrives, I just doubt that it will.

crandles said...

>"The costs per car are lower for an incumbent due to production history, and lower for the largest producer."

There may well be some economies of scale if the market size for an incumbent model is higher. In addition, development costs may be lower due to having more experience with similar vehicles and more chance of getting production line right more quickly. OTOH large companies can come with large overhead costs and not be so nimble.

Perhaps these factors favour large incumbent when market is not changing rapidly but could work against them when there are lots of changes coming or in progress.

crandles said...

>"There may well be some economies of scale if the market size for an incumbent model is higher."

But is this true?

"Earlier this month, Tesla claimed that Model 3 is about to become the best-selling mid-size premium sedan in the US – electric or not.

While it could be there soon, it’s already there in California, where Model 3 outsold the BMW 3-Series and Mercedes C-Class to become the best-selling car in the segment during the first quarter, according to a new report based on new registrations."

https://electrek.co/2018/05/22/tesla-model-3-beats-bmw-3-series-mercedes-c-class-best-selling-california-report/