On 12/4/2012 9:02 AM, Dan Minette wrote:
I sent this to a single person instead of the list due to Killer B being
changed (probably automatically) from the sender to a cc. I think this
happened a couple of other times. I've gotten replies, but will not post
them, because they aren't my emails. But if the sender would, or would give
me permission to, that would be great.
In reply to Kevin, I wrote:
The Chinese were extremely ham-handed about this. In particular,
their stoppage of rare earth shipments in response to an incident
involving their extrodinary claims to ocean territory (basically any
territory claims of the Chinese over the last 1000 years are
considered valid and enforceable by the the Chinese government)
generated strong reaction. Given the fact that consumers rightfully
believed that the Chinese were untrustworthy suppliers, as well as
expensive ones, it was reasonable for them to sacrifice a little
performance to switch to a more reliable and cheaper supply. The Chinese
overplayed their hand, as they have overall the last year.
And if the Chinese try to raise further, it only creates more incentives
to look into alternatives.
I think this may be one of the reasons why the Club of Rome predictions
failed (there are clearly numerous reasons). As an economist named
Hotelling pointed out early in the 20th century, there are good reasons
in economics to expect the prices of non-renewable resources to rise
over time at approximately the same rate as the interest rate. (I'm just
giving a simplified explanation here, see the Journal article if you
really like this sort of thing.) But any time a resource has rising
prices it creates incentives to look for substitutes, and the higher the
price, the higher the incentive. So a lot of products are no longer made
with steel, but with plastics or composites, for instance. The other
price obviously is to stimulate the search for new sources of supply.
Put those together and you can see why those predictions of disaster
have not materialized.
By similar reasoning, any attempt to monopolize a resource or product
can only succeed if there is some way of preventing and competitor from
entering the market. Most commonly this requires government action to
create and sustain the monopoly. Since that will not happen in the case
of rare earth elements, I doubt there can be a lasting monopoly problem
here. In a similar way, recall how the oil prices hikes of the 70s
turned into the price collapse of the 1980s as both fuel efficiency and
increased exploration responded ot the market price signals.
They can probably drive Western companies out of the solar cell business.
Their entire ecconomic model, with artifically low value on their
currency, and the disdaining of IP right of other countries, fits
this. They may very well increase prices after becoming a near
monopoly, but the alternatives are oil and gas and coal and wind.
And, for certain remote applications, solar power actually works best.
Well, they can drive them out, perhaps, but can they keep them out? One
of two things seems likely:
1. China creates a temporary monopoly, then tries to raise prices to
profit from it. See above for how market forces respond.
2. China creates a monopoly, then subsidizes solar panel producers
permanently to maintain that monopoly. And permanently low prices for
solar panels cause terrible devastation to the U.S. economy...Wait, that
doesn't quite make sense. I think I rather like low prices for solar
panels. And this could create a boom in low-cost, non-polluting energy
which only benefits us.
So, I'm guessing that it will not be the big win they see. But, they
are caught at a GDP level where Huntington has pointed out that
totalitarian goverments begin to get pushed by the growing middle
class. Their reaction is to clamp down harder....especially with the
new leadership, where all the leaders are both well filtered and the
result of nepotism. It is a dangerous mixture. Putting this together
with their demographic window of opportunity (the 1-child policy has a
big demographic bubble that will be old in 20 years), a surplus of
males, and one has a classic situation where countries become aggressive.
OK, this is where my "economist" hat no longer gives me any particular
aid. I will say that indeed it will get interesting, but the factor that
is most likely to cause aggression on a large scale is water. That is in
short supply, unless we can access abundant cheap energy to desalinate
ocean water to make potable water.
Regards,
--
Kevin B. O'Brien
zwil...@zwilnik.com
A damsel with a dulcimer in a vision once I saw.
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