Wednesday, 25 April 2012

UNCLE GNARLEY ON 'JM' AND MODELS (Part II)


(In the last item, Uncle Gnarley reviewed JM’s submission to the PUB and comments on Nalcor’s use of inappropriate econometric modeling resulting in an incorrect determination of electrical demand to justify building the Muskrat Falls project.) 
Uncle Gnarley continues his narrative:

“Now, Newfoundlanders are not that different from Albertans or Torontonians, or the British or the Scots, Uncle Gnarley offered. Like the rest of the world, we have purchased all sorts of modern conveniences; but, in the same way your car needs less gas today to drive one kilometer, technology did not stand still in the electrical field either.  What is interesting, is the fact that many of these appliances need less electricity to operate now than they did just a couple of years ago. So, even you, Nav”, Uncle Gnarley delighted in emphasizing, “can see how the problem begins to build”. 

Add to this the fact, if you will, that 33% of our population will be about 65 years old by 2025 (we’re a group not exactly preoccupied with having babies at our age are we, laughed Uncle Gnarley heartily, as if both to mock Nalcor and recall some misspent years).  Recognize, too, that our rural areas are being decimated literally in front of our eyes! Given these and many other considerations, Nav, the problem of forecasting becomes vast, indeed”.

“Now the kicker is, as our man JM points out, Nalcor wants to extrapolate, based upon the demand forecast for 2010-2029, the power required for the years 2029-2067.  Now, that’s a mugs game, if ever there was one”.




“It’s like one other economist, a fellow Brendan Sullivan I do believe, writing in the Telegram recently, observed about Nalcor’s pricing methodology.  He said, it was based upon “voodoo economics”.  Perhaps this is a future subject, Nav, when you have taken your grip off the few last dregs of that very fine Scotch, the old man laughed again.  The point is though, Nav, Nalcor’s demand numbers are also based upon “voodoo economics”.  And, unless you want to be vilified by the Minister of Natural Resources, or some other low minded politician, you are expected to believe the data and, at the same time, have faith that the multi-billion dollar decision based on these data, are actually in our best interests.  Of course, here we arrive at the “bigger fool” theory, which is not solely the purview of economists, heh, heh, Uncle Gnarley laughed uproariously, at his own humour. You ought to know all about that theory, Nav”.

“Now, any student of mine, who engaged in this kind of analysis for the purpose of influencing government or industry, would have his arse kicked right out of my classroom. It is simply not worth the paper it is written on. And the arsehole that gets impressed by high sounding phrases, like ‘econometric modelling’ should also get what is coming to him”.

The great man was building a head of steam, getting redder by the second, as he railed against the bureaucrats and politicians who have so unnerved him over what, he earlier confided to me, is the riskiest scheme in the entire history of the province!

Nav, let me tell you another little tale and I will finish up my story for today.  This is the part that proves JM is not some wet economist.  It’s about Nalcor’s track record of predicting electrical demand in the province. I tell you, my horseshoe club boasts a better record”.

“Indeed, I can say, without fear of contradiction, that Nalcor has not gotten a single demand forecast right in the past 20 years; Nav, not one. This is the same group who believes they can predict the future, out to 2067, anyway!  My god, man!  What confounded arrogance! The strangest part, Nav, is that there are people out there who actually believe them”.

But, it actually gets better. They want us to reward them by offering up $5 billion so that they can prove they are wrong, once again! Ah, yes, the greater fool theory.

The man was clearly exasperated and started to show signs of cluing up.

Now that would be fine, Nav, if Ed Martin or Jerome Kennedy were picking up the tab for their stupidity. But alas, that is the taxpayers job, and that is the sad part; the taxpayer pays, whether they want to or not”, he added.

It is not an easy job to feel sorry for an old curmudgeon, but, as he arrived near the end of his story, Uncle Gnarley actually looked sad.  I wondered whether other Newfoundlanders felt that way, or if they were too busy pulling in big pay cheques, or just preoccupied with their ipads.  I wasn’t sure. His next comment seemed to make him even more depressed. Unfortunately, he added, “neither Martin nor Kennedy will be required to fall on their own swords, and that’s a pity”. 

Uncle Gnarley grew restless and started to get up. “There is more to be said about our JM, Nav.  Whatever his name is, he is a hero in my book!” 

“But if the demand numbers don’t work, he continued, it would be frivolous to continue this conversation”.  I thought that perhaps this was not a good time to suggest that the words ‘monologue’ and ‘conversation’ were mutually exclusive.

“I say Nav”, Gnarley concluded, “it is time I headed back down the shore. There must be some sensible people down there who I don’t have to explain econometric models to.  And one more thing, Nav; the scotch was fine, indeed. My advice, buy more of it now.  Likely enough, in a few years, you will need the cheaper stuff to keep warm; I don’t think you will be able to afford those power bills”!

2 comments:

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  2. Mr. Nav

    It is with great humility that I read your post which reviews my own written presentation to the Public Utilities Board. I must make a simple correction in that I am not a economist, nor have I ever been accused of being an academic. I am just an interested Newfoundlander who started to read various exhibits and presentations over the X-mas break, while sipping an old Sam and coke. As Uncle Gnarley may likely say "Nothing says X-mas like an old Sam and Coke".

    I worked on the research on my own time. The toungelashing received from my wife was second only to the abuse that the PUB commissionaires have received from the government. However, I was pleased to see that my work did get referenced in the final report. It validated the sacrifice of all those lonely nights.

    I am impressed by the insight offered by this wise Uncle Gnarley. I am interested to here what he disagreed with in my own dissertation. Hopefully that may be a future post on this blog.

    I am now a regular reader of these chronicles. Give my regards to Uncle Gnarley.

    JM

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