Economics – Page 118 – a sibilant intake of breath

Pollan on climate change

Michael Pollan (whose books I have previously reviewed: 1, 2), has an article in the New York Times about climate change. Essentially, the piece is about the need to change lifestyles in a way that goes far beyond making a few trivial gestures and waiting for technology to save us:

Here’s the point: Cheap energy, which gives us climate change, fosters precisely the mentality that makes dealing with climate change in our own lives seem impossibly difficult. Specialists ourselves, we can no longer imagine anyone but an expert, or anything but a new technology or law, solving our problems. Al Gore asks us to change the light bulbs because he probably can’t imagine us doing anything much more challenging, like, say, growing some portion of our own food. We can’t imagine it, either, which is probably why we prefer to cross our fingers and talk about the promise of ethanol and nuclear power — new liquids and electrons to power the same old cars and houses and lives.

It is refreshing to see someone else getting the big picture and accepting the reality that global emissions absolutely need to peak in the next 10-15 years, if we are not to live in a world transformed.

The whole article is well worth reading, though Pollan’s argument that growing a vegetable garden can significantly change a person’s outlook doesn’t strike me as hugely plausible. That said, it is not something I have ever tried.

The Black Swan

Nassim Nicholas Taleb‘s The Black Swan: The Impact of the Highly Improbable is an unusual, excellent book with broad applicability. In particular, those concerned with finance or the use of mathematics in social disciplines (politics, economics, international relations, etc) should strongly consider reading it. They will probably find it uncomfortable – as it demonstrates how their ‘rigorous’ disciplines are built on sand – but they will be wiser people if they can accept that.

Taleb’s main point is that life is dominated by improbable events of huge consequence. This is obscured to us for a number of reasons: not least, because we are able to look back and construct plausible after-the-fact stories about why things turned out the way they did. Because we fail to appreciate how explosively improbable the world is, we leave ourselves far more vulnerable than our predictions suggest. Indeed, the biggest thing Taleb attacks is the very notion that we can make good predictions about the future. ‘Black Swans’ are those improbable events of massive consequence which we are able to rationalize after the fact, though we could not have predicted them before. They can be negative (the sudden collapse of a bank) or positive (the amazing success of an obscure book). They relate to the way in which the world is skewed towards extremes when it comes to things like income or the importance of a publication.

Taleb’s book consists of an odd combination of anecdote, mathematics, scholarly and literary references, personal history, and diatribes. Throughout, one has the impression of engaging in conversation with an unusually fascinating fellow – albeit one who takes special pleasure in cutting down those who disagree with him (the text ignores no opportunity for mocking and insulting economists and financial analysts, in particular).

The lessons Taleb says one should draw from an appreciation of Black Swans are noteworthy and sensible. First, we should maximize our chances of getting lucky and finding a positive Black Swan. In investment terms, that means making lots of small bets on long shots that might really pay off. In life more generally, it basically means trying new things – visiting the restaurant you never normally would, going on the blind date, seizing the opportunity to meet with the big shot publisher to explain your book idea. Second, we should minimize our exposure to negative Black Swans that can wipe us out. That means definitely avoiding standard financial instruments like mutual funds, distrusting any risk assessment based on the bell curve, and appreciating that blue-chip stocks might collapse despite decades of steady growth. His overall financial prescription is to put whatever you are unwilling to lose in US government bonds, while using the rest to make long-shot speculative bets.

It would be very interesting to see Taleb’s ideas applied directly to International Relations (the capital letters mean ‘IR the discipline’ rather than IR the phenomenon) or climate change. Within IR, there are a few dissenters who appreciate just how inappropriate all the statistics and quantitative methods being trotted out really are. They would find Taleb’s book to be confidence-boosting, whereas the number obsessed IR scholars concentrated in the United States would probably respond to it with as much anger as hedge fund managers.

When it comes to climate change, the Black Swan idea seems relevant in several ways. First, it creates a healthy scepticism about projections: whether they are for economic growth, greenhouse gas emission levels, or greenhouse gas reductions associated with certain policies. Secondly, it reveals how fallacious it is to say: “Humanity muddled through so far, therefore we can handle climate change just like any previous crisis.” Thirdly, it sheds light on scenario planning in the face of possible disastrous outcomes with unknown probabilities attached.

It is safe to say that anybody interested in how history is written or how people try to come to grips with an uncertain future will find something of value in this text. At the very least, the colourful asides provide plenty of mental fodder. At the very most, appreciation for Black Swans might significantly alter how you live your life.

Nuclear subsidy simile

Countries that build nuclear reactors are, in some ways, like parents whose children run lemonade stands. The children get the ingredients for free and sell them for less than they are worth. Parents are usually willing to pay the difference, because they like to see their children hard at work. People who actually want lemonade for the lowest possible price would do best to find the kids with the least sense and the most generous parents.

Bastiat on subsidies

Anyone who spends time thinking about public policy might benefit from reading Frédéric Bastiat‘s final essay: “What Is Seen and What Is Not Seen,” published in 1850. Many of the sections – such as those concerning people employed by the armed forces, and those on state subsidies for the arts – are surely as valid now as 150 years ago.

Bastiat also provides a concise rebuttal of the kind of ‘job creation’ argument frequently employed by governments:

Let us get to the bottom of things. Money creates an illusion for us. To ask for co-operation, in the form of money, from all the citizens in a common enterprise is, in reality, to ask of them actual physical co-operation, for each one of them procures for himself by his labor the amount he is taxed. Now, if we were to gather together all the citizens and exact their services from them in order to have a piece of work performed that is useful to all, this would be understandable; their recompense would consist in the results of the work itself. But if, after being brought together, they were forced to build roads on which no one would travel, or palaces that no one would live in, all under the pretext of providing work for them, it would seem absurd, and they would certainly be justified in objecting: We will have none of that kind of work. We would rather work for ourselves.

That is, indeed, an excellent mental test of public worth. If we were all brought together to build a museum that will be widely admired and universally enjoyed, we will not feel cheated of our labour. If we were brought together to build some white elephant – an international airport for a tiny town, a bridge to nowhere, and anti-ballistic missile shield – we would feel duly resentful for not having employed our labour for better purposes.

The essay features a spirited defence of middlemen, which is well worth reading. The story told about rent seeking and protectionism is also admirably clear and engaging:

Mr. Protectionist was going to resign himself sadly just to being free like everyone else, when suddenly he had a brilliant idea.

He remembered that there is a great law factory in Paris. What is a law? he asked himself. It is a measure to which, when once promulgated, whether it is good or bad, everyone has to conform. For the execution of this law, a public police force is organized, and to make up the said public police force, men and money are taken from the nation.

If, then, I manage to get from that great Parisian factory a nice little law saying: “Belgian iron is prohibited,” I shall attain the following results: The government will replace the few servants that I wanted to send to the frontier with twenty thousand sons of my recalcitrant metalworkers, locksmiths, nailmakers, blacksmiths, artisans, mechanics, and plowmen. Then, to keep these twenty thousand customs officers in good spirits and health, there will be distributed to them twenty-five million francs taken from these same blacksmiths, nailmakers, artisans, and plowmen. Organized in this way, the protection will be better accomplished; it will cost me nothing; I shall not be exposed to the brutality of brokers; I shall sell the iron at my price; and I shall enjoy the sweet pleasure of seeing our great people shamefully hoaxed.

It is a point especially well made as the American electoral season continues to encourage less and less sensible statements from leading candidates, when it comes to trade.

Twelve days to taxes

Only twelve days remain before taxes need to be filed. Sure, one could print all the myriad forms required, fill them out by hand, and send them off with a big red lipstick kiss to the Canada Revenue Agency. Alternatively, you can use their very accessible NETFILE system to do it all electronically. All you need are documents detailing your various earnings and tax deductions.

You need to have an epass before you can file online, and you won’t be able to use it until they send you a code in the mail. As such, those wanting to file online and on time should request one immediately, if they haven’t already done so.

The data file you submit to NETFILE needs to be prepared using some kind of software. One option is to use the H&R Block online service. It costs $20 a person and produces a .tax file that you can upload to NETFILE yourself. Alternatively, the H&R Block page will let you print off a physical return to mail in.

If you want to save $20, you can prepare a NETFILE return using free software. A friend of mine recommends Taxman: a free piece of Windows-only software. It is not quite as elegant as the H&R Block interface, but $20 might justify a bit of finicky dealing, as well as the need for fellow Macheads to find a Windows machine to use for a while. The Taxman site also includes a game plan for filing taxes.

P.S. Given how mobile people reading this blog seem to be, it is worth mentioning that if you moved in order to be closer to a school or employer, you are eligible for tax benefits. In the future, make sure you hang on to receipts for related expenses. Even meals you eat during the time you are traveling are eligable.

McCain is wrong to suggest gas tax cuts

Following up on ‘hurricane insurance for all,’ John McCain has a new bad idea: suspending gasoline taxes over the summer. There are lots of reasons for which this is a bad move. Gasoline taxes are a partial recognition of the ways in which the price at the pump doesn’t include all the costs associated with driving: from road construction to keeping troops in Saudi Arabia. Also, it is important for people to realize that, in the long run, they will be paying ever more for gasoline. This is the result of three major phenomena: decreasing output from oil fields as they reach maturity, increasing demand from fast-growing states, and the increasing trend towards internalizing externalities associated with fossil fuel use. Creating a temporary dip in prices will obscure the broader message, while encouraging harmful behaviour.

If anything, the US presidential candidates should be sending a strong signal that the era of inexpensive gasoline in the United States is over. People should be bearing that in mind not only when they decide what sort of car to buy, but when nationwide efficiency standards are being set and urban transportation infrastructure decisions are being made.

The seductiveness of the bell curve

Among the statistically inclined, there are few more elegant bits of mathematics than the bell curve or ‘normal’ distribution. At the centre, you have the most predictable outcome for any variable: say, the amount of food you eat on the average day. Higher and lower numbers close to the mean are still quite probable, but each possibility gets less and less likely as you move farther out. While you probably vary your food intake by hundreds of grams a day, it is rarer to vary by kilograms and quite rare to vary by tens of kilograms.

The reason the bell curve in particular is so charming is that it gives us the opportunity to assign probabilities to things. For instance, we can take the mean weight of airplane passengers, the standard distribution in the population (a measure of how much variation there is), and come up with a statement like: “99.9% of the time, this plane will be able to seat 400 people and have sufficient power to take off.”

That being said, there are big problems with assuming that things are like bell curves. For one, they might not be ‘unimodal.’ We can imagine a bell curve as being like a mountain of probability, where the peak is the mean and the slopes on either side represent less probable outcomes. Some distribution ‘mountains’ have more than one peak, however. A distribution of the heights of humans, for instance, has a male and female peak. If we took the male peak as the mean and tried to predict heights based on the standard deviation for the whole sample, we would find that there are a lot of unexpectedly short people in the sample (women).

Another big problem is that the peak might not be symmetrical. Consider something like the amount of money earned in an hour by a reckless gambler or stock broker. On one side of his average earnings are all the below-average instances, which are probably many. On the other side, the slope may taper off. On a few extremely lucky hours, they might earn dramatically more than is the norm, and do so in a way not mirrored in the shape of the distribution on the other side. Assuming that the distribution is like a bell curve will make us assign too low a probability to these outcomes.

The last problem I am going to talk about now is a venerable one, commonly associated with Bertrand Russell. Imagine you see a trend line that jitters around a bit, but always moves upwards. Asked what is likely to happen next, you would probably suggest a jump comparable to the mean increase between past intervals. Too bad the data series is grams of food being eaten by a turkey per day, and tomorrow is Thanksgiving. You might have a beautiful bell curve showing the mean food consumed by the turkey per day, but it might all fall apart because something that undergirded the distribution changed. Those whose pensions were heavily based on Enron stock have an acute understanding of this.

When their use is justified, bell curves are exceptionally useful. At the same time, using them in inappropriate circumstances is terrifically dangerous. Just because a stockmarket fall of X points is five standard deviations greater than the mean does not imply that it will happen 0.00005733% of the time, despite what bell curve equations and relatively soft-headed statistics instructors might tell you.

Choosing nuclear

The flowchart above illustrates one process through which we could collectively evaluate the desirability of nuclear power, given the potential risks and benefits associated with the technology. In my personal opinion, the answer to the first question is probably “yes,” though perhaps not to as large a degree as commonly believed. The second and third questions are much more up in the air, and necessarily involve uncertainty. We cannot know exactly what will be involved in building a massive new nuclear architecture before it is done; similarly, it cannot be known with certainty what would result from choosing conservation and renewables instead.

As for the third question, there are major questions about risk evaluation and risk tolerance. If the world keeps running nuclear plants, it is a statistical certainty that we will eventually have another serious nuclear accident. No nuclear state is without its contaminated sites, and none yet has a geological repository for wastes.

This post definitely isn’t mean to settle the question initially posed, but rather to clarify thinking on the issue and dismiss the automatic logical leap from “climate change is happening” to “build more fission plants.”

Vat-grown meat

As discussed previously, meat eating is problematic in terms of the environment, animal welfare, and human health. One mechanism through which one of those concerns can be eliminated – and the others potentially mitigated – is to remove animals from the equation. This week saw the world’s first international conference on the industrial manufacture of meat. Arguably, that is what the beef, pork, and chicken industries already do but, in this case, the meat is to be grown in industrial bioreactors instead of inside animals that are subsequently killed.

It should be noted from the outset that there are some problems that this approach absolutely will not solve. It will always take more energy to sustain a meat diet than a plant diet, whether that energy is going into cows or industrial processes. Similarly, large amounts of energy use associated with transportation and refrigeration would be undiminished in the face of in vitro meat production. Given that plants will probably always be a feedstock to the process, concerns about water and fossil fuel use in agriculture, as well as fertilizer and pesticide runoff, remain in place. That said, it is possible that vat grown meat could be marginally more efficient, since calories would not be directed towards growing skeletal or nervous systems. Big vats would also have a higher volume to surface area ratio than animals, making it less energy intensive to keep warm.

The major problem vat-grown meat could solve is animal welfare, though that is probably the reason for avoiding meat that most people find least compelling. Even most vegetarians drink milk and eat eggs, most of which is produced under conditions equally awful for the animals. Arguably, vat grown meat would still be a kind of ethical violation – not because any animals suffer, per se, but because the whole concept is somehow monstrous and demeaning to nature.

All told, this doesn’t seem like much of a solution. The way slaughterhouse animals exist already approximates the character of an industrial meat factory. There is also little reason to believe that firms that happily feed all manner of drugs and hormones to animals would not similarly manipulate huge tanks full of artificial fat and muscle. As such, any hygienic concerns about factory farmed animals would probably translate readily to vat-grown meat.

The relevance of any of this is fairly questionable, given that vats are currently capable of producing the very lowest quality kind of meat (fodder for ground meat and nuggets) and can only do so at a financial cost higher than industrial agriculture. For all intents and purposes, we have already built industrial bioreactors on the skeletons of livestock. Shifting those to steel drums, as an alternative, will only make sense if the economics swing strongly in that direction for some reason.

Drugs for mental enhancement

A recent informal survey, conducted by Nature, suggests that large numbers of scientists are ‘doping’ with drugs that enhance their wakefulness and concentration. While the old joke holds that “a mathematician is a device for converting coffee into theorems,” drugs of choice have expanded to include Modafinil (Provigil) and Methylphenidate (Ritalin).

One in five respondents said they had used drugs for non-medical reasons to stimulate their focus, concentration or memory…

For those who choose to use, methylphenidate was the most popular: 62% of users reported taking it. 44% reported taking modafinil, and 15% said they had taken beta blockers such as propanolol, revealing an overlap between drugs. 80 respondents specified other drugs that they were taking. The most common of these was adderall, an amphetamine similar to methylphenidate.

I do not find this surprising. At a conference once, I met a young woman who pays her tuition by selling drugs usually prescribed for attention deficit disorder to fellow students at her Ivy League school.

It is not clear what kind of response is justified in the face of such anecdotal evidence. It is not obvious, prima facie, that the use of drugs is an inappropriate way to improve one’s mental function or academic output. People use all sorts of mechanisms – from physical activities to dietary modifications – to try to achieve the same end. Prescription drugs are thoroughly vetted for safety, though it is also fair to say that people self-prescribing are likely to make mistakes in terms of dosages and interactions with other substances. People make all kinds of sacrifices for success and it isn’t clear why it is obviously inappropriate for them to run the risks associated with altering their biochemistry. Given the degree to which success is related to self-esteem and contentedness, as well as the degree to which perceptions of failure associate with depression, it could arguably be better for one’s mental health to use whatever aids to success are available.

One legitimate concern is about a spiral effect. If honour roll students and leading researchers start becoming dependent on drugs to improve their focus, it might become difficult for anyone not doping to keep up. That could lead to situations in which people feel strongly pressured to do drugs as well. Of course, that strong pressure already exists in competitive academic environments. Still, there is reason to be especially wary when it is combined with psychoactive chemicals.

The questions suggested by the survey cannot be adequately addressed in a short blog post, but it does seem likely that they will be the subject of greater amounts of attention in the future. The competitive nature of the world, and the need to achieve things ever more rapidly, ensures that a market will exist for products that help people cope with both of those things. As with other unauthorized uses of drugs, the policies adopted by governments will affect things like price, availability, safety, and access to information and advice. Getting the balance right will be tricky.