Home > Uncategorized > Edward Prescott, Finn Kydland and the flooding of Fukushima

Edward Prescott, Finn Kydland and the flooding of Fukushima

How did this ever pass the peer-review procedure… In an article in the Journal of Political Economy Edward Prescott and Finn Kydland argue in favor of (undemocratic) rules instead of (democratic) economic policies. One of the methods they use to push their idea is the using examples. One particular famous one is the one about floodplains. But the example is wrong. Government policies are not as benevolent, rational and effective as Prescott and Kydland think they are. And people are not as rational. Here’s the example:


This is not what happens. What happens (and it happened after 1570 and 1717 and 1825 and 1916 and 1953 in the Netherlands and in Germany (around Hamburg) in 1962 and in the USA in New Orleans after 2005) is the next thing:

  • People build houses, farms, factories
  • The government does build dams and levees but these are woefully inadequate
  • A storm comes, the floodplain is flooded, scores of people die
  • The government and/or the people change the way dams and levees are financed as well as the design of the dams and levees and builds much better dams and levee

So, the outcome is the same. But only after the rational agent which built a house in the floodplain had drowned. As people nowadays also build nuclear reactors in flood plains the problems associated with post hoc policies are even larger than in the past. Time to panic: another flood will come.

  1. October 12, 2018 at 5:58 pm

    The last link to Nuclear Reactors in Flood Plains is is directed to German site.
    English cite is here:

    • October 12, 2018 at 11:43 pm

      Thank you for this peak into reality. Yes; the Japanese emergency generators were under water. What would have failed next had the generators been high and dry? Would engine mounts have survived an upper level structural whiplash? Just for starters.

      And news has been forgetting recent era epic floods already actually threatened central north American reactors. The dikes held! Imagine Fukushima somewhere on a line between Saint Louis and Atlanta. Or Berlin and Paris. Or Beijing and New Delhi.

    • October 13, 2018 at 4:25 am

      Dear Garret Cunnerlly

      I am not a specialist on Fukushima Disaster. What I can say on this topic does note extend beyond newspaper information. However, I can add that Fukushima Nuclear Power Plant is a part of Tokyo Electric Power Company and engineers and managers were (and are) among the best and brightest of the Japanese. Even though, they could not prepare for a high Tsunami which has been observed several years earlier off Sumatra island.

      What is more ridiculous for me is that the designers of the Power Plant put the reserve electric generators at the seaside side of the main building (which encase the Nuclear Generators). They had to be used at the time of the Power Plant breakdown. When Tsunami came, they were drowned under the water and were unable to be used as reserve power generators. Humans are so silly being.

      • Econoclast
        October 15, 2018 at 4:13 pm

        Brunswick reactors (near Wilmington, North Carolina, and of the same type as Fukushimas) were “overbuilt for safety” with 22-foot seawalls. During Hurricane Florence one of the scientific weather reports stated the possibility that the surge at Brunswick could be as high as 65 feet. Whoops! Dodged that bullet!

        In the 70s four of us challenged two proposed nukes in a siting hearing. We won on the evidence, keeping my state nuke-free. As we were leaving the hearing room, the one of the power companies’ chief witnesses thanked us for challenging them! Why did this highly intelligent, well-dressed, most articulate and presentable man with a stately bearing thank us? Because, he said, we had saved them from a really bad investment.

  2. jvinmont
    October 12, 2018 at 7:12 pm

    Besides that, both Kydland & Prescott got the Nobel Prize specially for the main theme of *temporal consistency* – base of their 1977 text in the JPE. Jorge Vianna Monteiro

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