Sunday, September 8, 2013

WWCF: Solar power or passive heating and cooling systems?

Which will come first?

Economical solar power
Economical passive heating and cooling systems

The key here is the leading term economical. It is not enough to develop the technology--especially not in simply a proof of concept form. We are interested in when we can truly use these technologies. In some limited cases we are already there for both types, but those are indeed limited. The essence of this puzzle is when can we expect to see these things widespread including in average households. And while these are related in many cases, I don't think I'm splitting hairs here to make the distinction.

A passive heating and cooling system (or either one alone to satisfy the achievement) would be something akin to geothermal but not necessarily limited to such. The roof and attic of my house are exceptionally hot in the summer. Once the sun goes down, my attic cools a lot faster than my garage because the soffits work air through the attic accelerating cooling. There is an opportunity in this greenhouse effect. Similarly, my brother's basement has a more moderate climate (albeit more humid) than the ground floor and upstairs of his house. To qualify a passive system would rely on a minimal amount of catalytic energy to initiate a system that would use these energy properties to the effect of a desired cooling or heating result. To be clear, using my attic heat in the summer to run a generator to cool my house counts.

Solar is the great, green hope. The power the sun rains down on us continually during the day, which is obviously a big impediment to solar energy, is fountain of youth and El Dorado all rolled into one. The future society that can economically use this energy will be quite rich. It is important to note that the there is a bit of chicken and egg here as the society may be rich enough to develop the technology as much so as the technology makes that society rich.

The trends in the economics of geothermal look less favorable as compared to solar (note: the links here are not supposed to be a comprehensive look at the economic trends affecting these technologies). Geothermal capital costs are exceptionally high since the target tends to be on the large scale as opposed to the household level. In the larger consideration of all passive-type, non-solar solutions, many of those potential technologies probably fall into the category of those in need of a happy accident (we aren't specifically looking for these breakthroughs). Because solar is thought of and more so developed for the individual end user, that probably gives it the edge in this WWCF. The other leading factor is that solar is a more politically attractive cause resulting in a lot more "investment" using the best kind of money, OPM. 

My guess is that solar edges out passive systems by less than a decade, but both are 30+ years away. The standard error is large in these estimates; so I have very little confidence in my guess about solar winning. I'm sure others have a firmer grip on this, and I will follow up with new information as I discover it. 

Thursday, September 5, 2013

The value of authenticity

Business Insider has an article about a new technology, 3D printing that replicates paintings, and the implications are interesting. The article focuses a lot on worries that the technology will threaten the art market. These concerns are misplaced for at least three reasons.

First and foremost, the ability to more easily satisfy demand for fine art including "priceless" masterpieces is a feature not a bug. Certainly those who have invested in art will be worse off in direct proportion to the magnitude that this new technology offers a good substitute. But that is simply a transfer from those who own the art to those who would like to own the art. We would have that same effect if we simply took the art from the current owner and gave it to someone who wanted it. But where that property-rights violating transfer probably is utility reducing since the one who loses the art probably valued it more than the one who received the art, this technology is utility enhancing since it creates value on net. The owner still has the art. Someone who values it for less than the current owner wished to relinquish it prior to the technology's advent now has greater access to it--the price of purchasing the art is lower and hence may now be in reach. And others can enjoy the art by replication in a way not previously possible.

We would see the same effect if we stumbled upon a second Mona Lisa truly painted by Leonardo da Vinci. The Louvre might be upset, but the world would gain a second painting of artistic value. The loss in value to the first would be more than displaced by the gain of now having a second.

Second, the value of art is inherently the value of the creation, not simply the monetized utility of those who yield satisfaction from owning, viewing, possessing, etc. the art. Great art has value even if no one is around to appreciate it. The most popular band is not necessarily the band with the best musical artistry. The best food is not made and could not be made for mass consumption. There really is something to expert opinion on matters artistic rather than appeal to popularity--the so called ad populum fallacy. Unfortunately for those in the business of art and art investment, this technology serves to decouple somewhat the artistic appreciation from the financial appreciation.

Third, having more art more widespread enhances us culturally. The promise of this technology advances the football considerably. Greater availability and exposure means more minds can appreciate, admire, and aspire. The economies of scale are the initial effect. The substantial secondary effect is to deepen the market for art. Music is more widespread today than ever by orders of magnitude. At the same time music appreciation, depth, quality, and variety are greater than ever and growing at a compounding rate.

The lesson here is that sharing and duplication continues to be the future. Only the selfish suffer.

It is also interesting how this technology will serve to clarify the value of authenticity. We will now be better able to see how much the average patron really likes a particular painting versus how much the average patron really likes authenticity. We might also learn a lot about how popular certain artists and works are removed from the rarity via authenticity of the work itself--for example, how many people will be hanging Picassos in the living room? And if no one really likes to look at a particular work, does that imply a change in value? I've thought for some time that a future with machines building mastercrafted furniture, art, clothing, etc. will create a world where the truly old and authentic takes on heightened meaning. But a counter force to this is not just how much easier and cheaper it is to preserve antiques (both yesterday's and tomorrow's). It is more strongly how uninteresting authentic may become when everything old is new again.

Friday, August 30, 2013

It's the most wonderful time of the year

This is my favorite time of year--football season, which maybe isn't saying much since it extends for arguably half of the year. But specifically, I love autumn and college football. The period from now, August, until late October is a splendid few months.

As I have gotten older, I have come to appreciate the joy of anticipation. That's what makes this weekend special for football fans; for it is now that hope is alive. No matter how realistic, every team is right now a theoretical contender. And regardless of how many trophies will actually be won, every team and every fan has a chance to dream of joyous, fun, and celebratory moments big and small.

I thought I'd briefly pen a few thoughts on some of the current dynamics in college football as I see them. This is a look at the larger picture beyond this season.

Conference re-re-realignments:
I fully expect this trend to continue. The current arrangement does not seem like a stable, sustainable equilibrium. Large disparity among conferences whether true or perceived weaken the league-wide product. They also hinder participants' (individual teams') ability to specialize and innovate as appearing too different can be counter productive to input acquisition (recruiting) and output revenue (fan interest). Breaking old traditions is probably more difficult than was first appreciated when this process began. That is partially why it has taken so long with so many fits and starts and busted deals. Now we are much more used to the idea that old rivalries, etc. may not continue. The other major reason why it has been a clumsy process is the relative uncertainty as to the value to be gained through new arrangements. Because college athletic departments are not fully operating within a free market, profit-driven environment, this murkiness about value is compounded. 
Super division formation:
We've heard rumblings of this recently. It is no longer the subject whose name shall not be mentioned. The product of the league has been diluted through the addition of too many teams. There are currently 126 teams playing in the highest division of NCAA football (the FBS division), and this number has surged in the past 10 years. The range among these teams in terms of quality is stark. Throughout all divisions we see this growth in the sport, although not always the self-generated resources to support it. The artificial stimulus that fuels this at the lower division level is the expansion in the number of games and the revenue streams at the upper division coupled with the need/ability to "pad" schedules playing against softer opponents. Again, this dilutes the product. I think what will evolve is a super division of perhaps 60 elite teams and perhaps a promotion/relegation method as used in soccer. While this may make a more just system of paying players more palatable and hence to the extent that trend is an inevitability it self reinforces, I would not be fully satisfied in only these "semi-pro" players finally getting their just desserts. 
How would we populate the 60-team elite league? Rather than appointing a czar or council of elders, I would propose we assume all FBS league teams have a property right in the new league and auction off slots in it. The method I propose is that the highest bidders pay the "losing" 66 bidders for the right to be in the league. Single submission, silent bidding would be used. To elicit honest bids (paying close to what it is actually worth to the individual teams), the highest 30 bidders would each pay the average of their own bid and the corresponding lowest bidder equal from the bottom that they are from the top. So, the top bidder would pay the average of the #1 and #60 bid. The second highest bidder would pay the average of the #2 and #59 bid. After the 30th highest bidder, the remaining bidders would pay simply the amount of their bid. Yes, the order of bidding would most likely not match the order of amount eventually paid. That is the point.
Playoff format:
The coming playoff format for determining the league champion will strengthen these trends on net and have a positive feedback to push towards a larger playoff. The net economic influences are also in this direction. But I believe after about 8-12 teams the diminishing returns become dominant and the process stops. Another implication of all these trends is stronger schedules--more competition among equals. 
Player pay and safety:
Players will be paid. It is only a matter of time. The NCAA is on the wrong side of justice. The hypocrisy will eventually become too much. The O'Bannon lawsuit is a major catalyst for change, but it is not alone.
Similarly, player safety (concussions, et al.) is probably on the precipice of the most significant change since the NCAA was originally formed (for that purpose no less). Equipment improvements will not be how this gets resolved. Fundamental changes to rules, practice conditions and procedures, and as importantly fan/coach/parent/player attitudes about what is and what is not proper football will be what brings about ultimate resolution--more appropriately termed the new plateau as it will only be a new but not permanent equilibrium. The NFL's settlement of the concussion lawsuits for $765 million is not an end to the issues; it is a coming to terms that major change is needed and on its way.
Enjoy the season! Boomer Sooner!

Wednesday, August 28, 2013

Highly linkable

Google, the great disruptor, is at it again this time targeting TV.

All those beauty queens may finally get their wish.

This one from Megan McArdle is heavyweight great. Far too often the simplistic analysis of policy advocates fails miserably to fully appreciate the nuances and complexities of life and its tradeoffs.

Angus points to a paper showing that 401(k) plans can have hidden and unavoidable pitfalls.

More sharing is made possible through technology. This time it involves ad hoc tasks. The future isn't plastics as much as it is butlers and maids for the masses. (HT: Mark Perry at Carpe Diem)

Far be it from me to advocate more regulation, but the NCAA is a government sanctioned and subsidized monster that may need some babysitting. Here is a nice start.

John Cochrane raises some quibbles but largely agrees with Greg Mankiw's take on Au.

Steven Landsburg shows us one awesome version of the Game of Life. (Warning: the nerd indications are high on this one.)

Here at MM we love sports ticket intermediators (pejoratively also known as "scalpers"). Here is a great video arguing our point.

Sunday, August 25, 2013

Risky business

People generally understand the concept of a trade off between risk/return, but their understanding of this relationship is not always technically correct. The true nature of this relationship can be more nuanced than our intuitive feel for it allows. Here is an example of an incorrect way to conceive of risk/return and the appropriate alternative.

All three charts are using the same data set, total return of the S&P 500 by month going back to 1975. In the first case we see how people commonly are led astray when conceiving of this relationship. It is not fully correct to simply think that "return" is what you gain when you gain and "risk" is what you lose when you lose. More appropriately, risk is volatility, deviation from the trend both up and down. Fortunately, the trend is biased upward in the case of the S&P 500 (at least historically and probably in the future). This bias is because upward risk (call this positive volatility) tends to be greater than downward risk (call this negative volatility). Because of this bias and the fact that the S&P 500 tends to outperform many other capital assets, we are encouraged to get exposure to the S&P 500 when we otherwise wouldn't have any. As an added advantage exposure to the S&P 500 comes at a relatively low cost, but that is a little outside of the scope of this blog post.

PS. Note that in the last chart the risk in red depicts the range of one standard deviation of total return above and below actual total return. One standard deviation will tend to capture about 67% of historical volatility. Two standard deviations reflects about 95% of historical volatility. Because we are adding one full standard deviation to return and subtracting one full standard deviation from return, we are depicting in the chart 95% of historic volatility.

Sunday, August 11, 2013

WWCF: Immunity to venom or immunity to food allergies?

Which will come first?

Immunity to deadly venom (snakes, spiders, wasps, etc.)
Immunity to life-threatening food allergies (peanuts, shellfish, etc.)

Since these share the root problem of anaphylaxis, an immune system response to allergen exposure, they may be solved together. I'm not sure which one is the most breathtaking in terms of a media response, but from the standpoint of fatalities, animals top food. However, both are fairly small in absolute magnitude. While cases of anaphylaxis seem to be on the rise, it is important to note this is not the low-hanging fruit of death prevention. 

Of course, it is not all about dying. Living with a food allergy as many do is life under constant threat knowing that something many people enjoy as a small part of everyday life is potentially your death sentence. And if you don't die, it is a very agonizing medical emergency. To an allergic person, hearing you've just eaten lobster-filled eggs can be as shocking and unforgettable as hearing that your baby is ugly. Similarly, most of us go through life with a primordial fear of that which hisses or buzzes. So, don't discount too steeply the long-term benefits from immunity to these problems. 

Keeping in mind that I am asking about immunity rather than developed tolerance through incremental dose therapy (i.e., not just a shrinkage of the problem), these both seem more distant especially in light of the better living through prevention (avoidance) option. I would count any sure-fire, immediate result therapy that stops anaphylaxis in its tracks as "immunity". 

My guess is that because children are most at risk with food allergies and we can kill or avoid venomous animals with increasing ease, food allergy immunity comes first. But I'll add that it will probably be 30+ years away, and I would guess it will be the serendipitous result of other research/developments. 

Thursday, August 8, 2013

Flooding the sports autograph memorabilia market

This past weekend was Meet the Sooners Day for the Oklahoma Sooners football team as the kicked off the start of fall practice. I would assume that this fairly common event throughout college football shares the same rules, which attempt to keep it child-focused. Those rules specify:
Each child may be accompanied by a maximum of one adult, but adults will not be permitted to submit items for autographs.
Each child may bring ONE item to be signed - no exceptions.
These rules are designed to keep Ernie eBay from having all the start players and coaches sign 15 items all to be auctioned off to the highest bidder. This leads me to some thoughts:

  1. Is the university or athletic department opposed to sports memorabilia? More specifically, opposed to a secondary market in sports memorabilia? Do they find it unhealthy, unwholesome, and this is a way to somewhat defund it? If so and setting aside the silly moralistic position, I think they are going about it the wrong way. I'll elaborate shortly but in another point because I find it unlikely this is the primary cause.
  2. I do think there is some highbrowishness supporting the motives, but I generally think it is a genuine and legitimate attempt to be mindful of the players' scarce time (minimally exploitative for a change) and direct the benefits to the most deserving group (children).
  3. Are the universities, athletic departments, and the NCAA missing a revenue opportunity while at the same time missing the best method to limit or control the secondary market? I think the answer here is a resounding yes. I think with two actions Meet the Sooners Day would be all about the kids without the rules needed to make it so. 
    • Organize a signing by the entire roster on a limited number of sports items to be sold through the athletic department. Johnny Manziel purportedly was paid $7,500 to sign 300 mini and regular-sized helmets. These would be "authentic, originally-signed" autographed items. 
    • At the same time take an electronic image of each player's signature. Use this to mass produce signed items. This essentially floods the market for signed goods taking away most of the impetus for others to duplicate these efforts.
  4. Of course these business actions might be a bridge too far making it obvious that a third action would be necessary to avoid charges of exploitation--give the players the proceeds of these sales.