There is No Free Lunch in Kiev

We have all heard, “There is no such thing as a free lunch”. As economists, we believe every exchange requires the reallocation of resources, even in the case of theft. But how much does war cost?

The Russian invasion of Ukraine has been raging for almost a month. No one will deny the reality of the destruction, with images from Ukraine blasted across the world. While the world watches, the Ukrainians are mounting a heroic effort. But such losses are not isolated to the battlefront alone in a global economy. The refugee crisis is flooding neighboring countries, putting pressure on their social networks and the associated budgets to service these refugees. There are costs associated with military ordinances, hiring soldiers, moving men and materials into the battlefield, separate from the costs of moving people from the war-torn areas. War is not cheap.

But these are but the short-term costs. Replacing damaged buildings, transportation, and public goods, would take years, and in some places, historical buildings, icons, recorded history, and works of art may be lost forever. (And based on the reports from Syria and Georgia, the Russians are ineffective nation builders.) There will be other costs, especially regarding the people who fled, who suffered from the death of loved ones, or simply the destruction of their way of life. (And living in Louisiana, where people take years to recover from a hurricane, I can only imagine how long it takes to recover from a war.)
Some of the other costs will be the payment for ramped-up military spending. We will see a continued militarized Europe over the next twenty years. The world will also struggle with energy independence, which may push for more internally generated fuels from alternative sources. But in all cases, these investments will take away from other public goods.
While military and humanitarian aid flows to Ukraine, the western response has been to impose sanctions. Despite reported shortages in Russia, I will bear some costs associated with “defending Ukraine”, as I pay more for other goods. But I am lucky when compared to those in developing countries as the threat of food scarcity remains an issue.
But despite the degree of challenge, we can instantaneously follow the war through podcasts, Twitter, and other social platforms. In many ways, the material streaming from Ukraine and concerns over Russian-supported “Big Lie” propaganda made this conflict, at least here in my immediate circle, more engaging. If the Vietnam War was called the “living-room war”, the Ukrainian invasion may become the “app war”.
The Russian Invasion of Ukraine highlights not only the role of interconnected economic networks but also socially connected networks. There are costs spread out across all of these networks, even as the discussion on limiting information, “fake news”, etc., remains a reality.

So, while Russian bear attempts to “consume” Ukraine, we will all pay a portion of President Putin’s enormous lunch tab, both today and into the future.

A Brief Thought About How Decarbonization Efforts Must Address the Principal-Agent Problem

There are many entities, in both the public and private sectors, pressing for decarbonization goals to address global warming. However, these groups, pushing for change through the creation and adoption of innovative technologies, operating systems, education, etc., must balance that against the current inertia of other activities. This creates the Principal-Agent Problem, where differences in priorities may influence the development of these technologies and timelines for adoption and deployment.

The principal-agent problem assumes the following: The principal, or the person responsible for paying an agent, will want the agent to achieve a specific goal or outcome at the lowest cost to himself. While working to achieve that goal, the agent may act in a rent-seeking manner that may not be in the principal’s best interest.  For example, the principal pays a sales agent, but the sales agent may seek payment for additional expenses.  Decarbonization goals, while laudable, require firms to examine their operations. However, they have to do so through the following categories:

  • Existing assets/systems that are internal to the agent.  These projects, already constructed, require maintenance, etc., but also budgetary commitments to remain viable.
  • Currently developed projects undertaken by the agent.  These projects may have funding or preengineer work performed, but are actively in development.  These  projects also can tie up short term capital.
  • Planning Process to support the agent’s long-term goals  These are often of a longer term manner, and must operate within the current permitting/regulatory activities.


The role of decarbonization does not necessarily fit into these internal processes, but firms will seek to engage in this effort through the use of their existing organizational structure.
As such, planners who are conformable with the “status quo” may not be willing to learn new tasks to meet decarbonization goals. Construction teams will build to the contract, and in some cases, these plans cannot adopt these innovative technologies. Finally, there remains the ongoing asset management needs to service existing programs.

As new funds and programs are proposed, there could be disincentives between principals and the agents responsible for adopting the innovation.  The question becomes, “can we manage our expectations without pointing the finger at others”?


How much will you pay for a bottomless cup of coffee

close up of coffee cup on table

Often we don’t think about coffee refills, as most diners will try to keep your cup full. For most restaurants, refills are free. As such, it is not uncommon for people to have a few cups of coffee. If someone is bringing you coffee, it is easier to keep the cup full than if one has to get up and walk to a coffee station. (And for most people, no one wants to refill the almost empty pot!) So, you make a decision concerning how much effort do you want to spend to get that next cup of coffee? But some people will go to the extreme! Especially if one tries to drink 60 Cups of Coffee!

This raised the question, economics utilizes the concept of utility. One of the concepts is that there is a decline regarding new happiness for each unit consumed. For example, drinking one cup of coffee may be existing, but when you get to the fifth cup, the perception of the utility (enjoyment) of drinking the coffee may decline, even if the quality of the coffee remained unchanged. So, really, did the person really feel better after drinking the 60th cup of coffee? I don’t know, but I think Frank and Earnest would agree.

What Can Speculative Fiction Teach Us About Scarcity, Resources and Markets

I am a fan of speculative fiction (science fiction) and was surprised to consider how many of these stories contain an economic bent.  There are plenty of stories that include the adoption and use of science, but for many stories, there remains the use of science to advance society and create wealth (To boldly go where no one has gone before?) But why is economics so attuned with science fiction?

Economics is about the allocation of scarce resources.  In many ways, science fiction discusses scarcity, such as the lack of air (Total Recall), Land (Waterworld), Spice (Dune), Food (Soylent Green), or other resources.  In these, and other stories, the characters seek ways to collect, mine, create, or otherwise  acquire something of value.  Often these characters require the engagement with others to assist in the quest, a potential buyer, or some advisory that prevents either the collection or exchange of an item to occur.  (Which is one  of the reasons that markets feature in so many stories, such as from Valerian and the City of a Thousand Planets.  This markets provide a place for an exchange to occur, for no one is self-sufficient in an complex world.)  

Which leads to something else that lies at the heart of economics:  markets.  One can define a market as possessing three characteristics (although the Encyclopedia Britannica lists a few other items):

1.  A buyer,

2.  A seller, or

3.  A good or item to exchange between parties.

And one could add are few more caveats:

  • A medium for discussion (how do we discover information about the product and a price?)
  • A way to allocate geography (where is the product?)
  • A scarce resource that people value (is there a way to put a value on this product?)
  • An agreement regarding when the transaction occurs (how will we know when we reached a solution?)
  • Consent for the transaction to occur (are both parties agreeing to the outcome?).

If an exchange is/is not made, all parties agree to an outcome based on the what, the where and the when, that occurred.  As such, one could say the market is closed even if an agreement was not reached. (If one of these assumptions are not meet, while the exchange can occur, one would say that anything short of these tenants would be theft.) 

But even within the market and the assumptions are met, there are several stories that have an economic angle that drives some characters…

1. the potential power between the two parties (monopolies, competition).  The following story discusses how an electronic market is set up to handle resources in the Martian colony  (Escape Pod Martian Chronicles, Part 1 and Part 2).   

2. the potential for external observers to dictate a transaction (regulation),  Again, not all transactions are legal, or can be frowned upon, such as hauling children (Guardians of the Galaxy 2).

3. the presence of alternative goods/choices (opportunity costs), such as managing people as in the “The Evening, the Morning and the Night”.  

4. the timing of the final exchange (time value of money), the Restaurant at the End of Universe where compound interest pays for the final meal.  

5. determining a market price, such as in “Chivalry” by Neil Gaiman, where an elderly woman negotiates the value of the Holy Grail, read by Levar Burton,

6. the process of collecting resources and skills, such as in “The Starsmith”, where one travels across space and relearns how to craft metals.

7. Etc.

Not all science fiction stories have a strong economic tie, such as the Star Wars Episode IV: A New Beginning remains a retelling of the Hero’s Journey or the 1902 Journey to the Moon.  But there is enough stories that have an economic tie that there may always be a market exchange somewhere in the story. (Even Star Wars had a Cantina Bar where the search is on to hire a pilot!)

I am not alone in my assessment, based on the following article from the World Economic Forum.   So the next time you ride a spaceship, travel through time or battle an alien, you may meet rational parties (at least to themselves) seeking resources, living out your first lesson of “Economics 101”. 

2020 The Asterisk Year

We tend to think in nice round numbers, such as fives, tens, hundreds.  Despite being a nice round number, 2020 will always be the year with the asterisk.

Researchers will seek to account for the social, economic, and political events of the year by assuming 2020 can be “normalized”.   This is too simple a concept.  If the economy can be represented as a factory that can be stopped and started, then concerns over 2020’s prospects are unfounded.  However, this ignores the many activities that require multiple years to complete, such as capital programs, public services, or other planning and permitting activities.  The challenge will be to see how activities with longer horizons perform during 2020.  It may be many years to get to the new “normal”.