## Friday, December 31, 2010

### New Year's Resolutions and Literary snobs

New Year's resolutions?
Not a fan.

Well, I say that but I'll probably try and harden my resolve in finishing up some things I've been putting off for a while. Speaking of which...

Literary snobs.
I'm probably one.

Okay, okay... Definitely one. I cannot help but snigger loudly into my embroidered handkerchief whenever someone mentions the words "Code" and "Da Vinci" (not necessarily in that order) in any positive context. Similarly, other books will invoke a feeling of disdain even though I've never actually read them and they might even be rather good. (E.g. For some reason or another, Shantaram falls into this category.) It's not something I'm necessarily proud of - or perhaps even justified in feeling - but it's a hard trait to shake nonetheless.

Anyway, I have a competition going with a  friend, Bloomsboy - who I mentioned here and who's quite possibly more snobbish than me - whereby we are meant to read six epic novels. I can't remember exactly where we hit upon the idea, but it was some time while we were traveling through Africa together (which I might write more about later) and comparing the size of our literary dongs. Figuratively speaking, of course.

The criteria are simple. The chosen books shall be a) Very long, and b) Widely considered as "classics". Our challenge thus involves the following:

1) Anna Karenina - Leo Tolstoy
2) War and Peace - ibid
3) Don Quixote - Cervantes
4) Ulysses - James Joyce
5) Moby-Dick - Herman Melville
6) In Search of Lost Time - Marcel Proust (This was a somewhat late addition to the party and I don't think we've quite decided on how many volumes we're supposed to cover. I'm hoping it's not the whole bloody thing...)

Ingeniously enough, the winner will be decided the old navy way: First guy to die, loses! is simply the person who completes all six first. So far the score is tied at one-one. I'm down War and Peace, while Bloomsboy has got Ulysses under the belt. To be honest, I read W&P some time before our actual bet started. Still, I certainly regard it as one of the best books I've ever read and, as such, I'm looking forward to Anna K. It doesn't hurt that I've yet to hear a bad review of it... Much the same for Don Quixote. I'm less enthusiastic about numbers 4 through 6. Apparently Moby-Dick contains 90-page descriptions of whaling ships... Zzzzzzzzz.

The aim had been to get them done before I hit the big three zero, but at, uh, current rates that might be a bit on the tight side. (The seven volumes of ISOLT alone come to a million and half words!)

I was wounded to learn that the GF is backing Bloomsboy for this title. True, he is an English major and I'm a lowly economics grad. However, you underestimate my fear of losing!

May the best snob win.
o-[-<

PS - Oh, happy 2011 everyone :)

## Wednesday, December 15, 2010

### Quote of the Day - Idiots

"Never argue with an idiot. He'll drag you down to his level and beat you with experience."
Not sure of the original source, but spotted this pithy little piece of advice on a friend's facebook status...

## Thursday, December 9, 2010

### Leaving Europe in a few hours

The taxi arrives in three and a half hours to be precise... And it's just gone midnight now, so you can guess how I'm going to be feeling after the 16-odd hours travelling time. Still, really looking forward to getting to SA and seeing everyone.

I plan to write some musings on my experiences here once I get settled in at home and soak up some southern hemisphere sun (and reasonably priced drinks). While that will have to wait, here's something I rather enjoyed from my time here in the Nordics. Great vocalist and really enjoy this live version...

See you soon.
o-[-<

UPDATE: Getting home turned out to be an absolute disaster. Flights cancelled and then rerouted. End result: Total travel time increased to 36 hours via four cities. To top it all off, our luggage was lost. Managed to get it back a few days later, but hardly the ideal start!

## Wednesday, December 1, 2010

### Merry Engerland

Exams all done and dusted :)

Went reasonably well. Some time issues for two of them, but that's nothing uncommon for me to be honest...

Anyway, just a quick update as I'm currently in England for a 10 day holiday visiting F&Fs before heading down south for the summer. I thought I might have left the cold behind in the Nordics, but fook me it's chilly over here. Seriously, "this" [-] cold. Snow everywhere and apparently all the airports have been shut. Luckily still have a few days before we're scheduled to  fly back...

In Hampshire right now with my aunt and uncle, but going up to Cambridge tomorrow to "partner" a friend for his College's Christmas Dinner. Got a couple mates studying there at the moment that I'm keen to catch up with and should be a good night. I also can't wait to try on my heels show off my 'tache. (Yes, I eventually ha-ha-hardened the hell up and partook in Movember. We actually got a nice little group at school so I wasn't stuck on a Han Solo mission this time... Anyway, I ended up grooming a real steamer. Think Errol Flynn or Zorro.)

En garde!

After Cambridge, I'm back to London to meet up with some other friends. Not too many of my old crew left standing after the great financial cull, but I have some great memories of my time in the city. Much of which was associated with music; for instance this one:

A little cheesy (read: obvious), I'll freely admit. Still. I personally think this Radio 1 'Live Lounge' version of "Fans" blows the album version out the water.

On the subject of Kings of Leon... WTF was happening with their new album? Perhaps it requires more time, but I thought it was pretty much rubbish upon first listen. Or, as friend told me he saw tweeted the other day:
"KOL - grow back your beards and divorce your last two albums. You're stealing fans from 30 seconds to mars"
The painful truth...

## Saturday, November 20, 2010

### America is in good hands...

The Colbert ReportMon - Thurs 11:30pm / 10:30c
Chair Apparent
www.colbertnation.com
 Colbert Report Full Episodes 2010 Election March to Keep Fear Alive
[HT: Aguanomics and Env-Econ]

I'd like to to echo the sentiments expressed in the above blogs: Oh. My. God.

PS - Reminds me of a comment I left elsewhere
Yup, the Tobacco Institute-esque funding of Climate Change denial is a huge problem in trying to clear all the misinformation out there. (I almost feel sorry for sincere sceptics, because it's increasingly hard to separate the BS from legitimate concerns. Although, perhaps that says something in of itself...)
Still, with some people, 'evidence' will never be enough:
“Climate change is real, and man is causing it,” Mr. Hill said, echoing most climate scientists. “That is indisputable. And we have to do something about it.”
A rain of boos showered Mr. Hill, including a hearty growl from Norman Dennison, a 50-year-old electrician and founder of the Corydon Tea Party.
“It’s a flat-out lie,” Mr. Dennison said in an interview after the debate, adding that he had based his view on the preaching of Rush Limbaugh and the teaching of Scripture. “I read my Bible,” Mr. Dennison said. “He made this earth for us to utilize.”
http://www.nytimes.com/2010/10/21/us/politics/21climate.html?_r=1
Take *that* science!

## Thursday, November 18, 2010

### Experts, democracy and public opinion

Consider this a follow-up, of sorts, to my Facts vs Beliefs post...

Going over what I had written there and then partaking in the comments section, I was reminded of a review of Mark Levin's best-selling book, Liberty and Tyranny, by Jim Manzi[*]. It's a great piece of literary criticism in which Manzi - focusing specifically on the the issue of climate change - doesn't pull in punches about Levin's intellectual laziness. I really urge everyone to read the entire article, but here is a sample:
Liberty and Tyranny and Epistemic Closure
[W]hen I waded into the first couple of chapters, I found that – while I had a lot of sympathy for many of its basic points – it seemed to all but ignore the most obvious counter-arguments that could be raised to any of its assertions. This sounds to me like a pretty good plain English meaning of epistemic closure. The problem with this, of course, is that unwillingness to confront the strongest evidence or arguments contrary to our own beliefs normally means we fail to learn quickly, and therefore persist in correctable error.
I’m not expert on many topics the book addresses, so I flipped to its treatment of a subject that I’ve spent some time studying – global warming – in order to see how it treated a controversy for which I’m at least familiar with the various viewpoints and some of the technical detail.
It was awful. It was so bad that it was like the proverbial clock that chimes 13 times – not only is it obviously wrong, but it is so wrong that it leads you to question every other piece of information it has ever provided.
Levin argues that human-caused global warming is nothing to worry about, and merely an excuse for the Enviro-Statist (capitalization in the original) to seize more power. It reads like a bunch of pasted-together quotes and stories based on some quick Google searches by somebody who knows very little about the topic, and can’t be bothered to learn.
After mentioning the fact the Levin fails to mention a single one of the host of scientific organisations that have endorsed the notion of man-made global warming, Manzi goes on to list a good number of them. He then writes:
Of course, this roll call [of scientific bodies] could be arbitrarily long and illustrious, and that does not make them right. Groupthink or corruption is always possible, and maybe the entire global scientific establishment is wrong. Does he think that these various scientists are somehow unaware that Newsweek had an article on global cooling in the 1970s? Or are they aware of the evidence in his book, but are too trapped by their assumptions to be able to incorporate this data rationally? Or does he believe that the whole thing is a con in which thousands of scientists have colluded across decades and continents to fool such gullible naifs as the U.S. Congressional Budget Office, numerous White House science advisors, Margaret Thatcher and so on? Are the Queen of England and the Trilateral Commission in on it too?
But what evidence does Levin present for any of this amazing incompetence or conspiracy beyond that already cited? None. He simply moves on to criticisms of proposed solutions. This is wingnuttery.
===

By chance, I then scrolled through some of Manzi's more recent posts and came across one that is directly relevant to the topics that Becks, Mars and I have been discussing in the comments section of the Facts vs Beliefs post. Essentially, Manzi is grappling with the question of how we should proceed when public opinion conflicts with that of the relevant experts. He cites some interesting articles that offer food for thought on a number of opposing views. Again, I urge you to read the full article, but here is a snippet:
Our So-called Experts
This isn’t a very popular statement, but there is a role for elites in public life. Just like I want knowledgeable CEOs running companies and knowledgeable doctors performing surgeries, I want knowledgeable legislators crafting public policy. That’s why we have a representative democracy, rather than some form of government-by-referendum. But of late, the elites in the Republican Party are abdicating their roles, preferring to pander to the desire for free tax cuts and the hostility to Al Gore than make tough and potentially unpopular decisions to safeguard our future.
[snip]
I think this raises the crucial question in this debate: What is the valid scope of expertise?
In the case of climate change, there is actual scientific knowledge about the properties of CO2, but advocates of emissions mitigation schemes constantly attempt to drape the mantle of science, or more broadly expert knowledge, around public policy positions that, as I have argued many times, do not follow even from the core technical reports produced by the asserted experts.
[snip]
The essential Progressive belief that Klein expresses in undiluted form is that crafting public policy through legislation is a topic for which, in simplified terms, the benefits of expertise outweigh the benefits of popular contention. Stated more cautiously, this would be the belief that the institutional rules of the game should be more heavily tilted toward expert opinion on many important topics than they are in the U.S. today.
This would be a lot more compelling if the elites didn’t have such a terrible track record of producing social interventions that work.
While social interventions certainly don't always work, this of course does not mean we should abdicate our responsibility in thinking seriously about how we might solve the problem at hand. Further, the crucial point with "relevant expertise" in the context of this discussion, is the juncture where we move from science to the spheres of policy and economics. As I've pointed out a number of times before on this blog, these need to be separated. I want scientists to tell what they expect the likely impacts of climate change to be, but they shouldn't be the ones to decide how (or if) we react. Speaking of which...

I deplore misinformation and alarmism on both sides of this argument. I can think of a number of people - Manzi among them - who believe that man-made global warming is occurring, but provide reasonable arguments as to why it makes more (economic) sense to focus on, say, adaptation rather than mitigation measures. For various reasons - uncertainty, the imperfect substitutability of of natural and man-made goods, etc - I respectively disagree with these assertions.

Nevertheless, whatever your stance, the fundamental problem remains that carbon does not carry a price to correct for the negative externality that it entails... People are simply not able to make an economic valuation of how best to respond to climate change if they are missing the cost component. There are many good reasons to oppose regulations and micromanagement of our lives by the state. However, I have yet to hear a single convincing argument of how society would resolve the climate issue without significant government intervention. That, unfortunately, is the very problem at the heart of public goods.

[*] For those of you that haven't heard of Manzi before, I don't think he would object to me summarising his political position as somewhere between a modern-day conservative and libertarian (though closer to the latter). He has provided reasoned criticisms of reactionary emissions-reductions policy while writing for the Cato Institute among others, yet remains strongly critical of those opposing the mainstream scientific view on (i.e. anthropogenic) climate change. He currently contributes regular opinion pieces for The American Scene.

## Sunday, November 14, 2010

### Facts vs Beliefs

I should really be studying... but my attention has been drawn to several articles and interviews over the last few weeks that coincide with a recurring theme here at Stickman's Corral: The tendency of beliefs to trump facts, and a priori biases to cloud objective decision-making.

For instance, the below radio interview discusses new research on the problem of "backfire". As the name suggests, this is the phenomenon whereby facts don't necessarily have the power to change people's minds... Indeed, quite the opposite, as people actually tend to cling to their beliefs more strongly when presented with opposing evidence!

A related article on the same research can be found here:
The general idea is that it’s absolutely threatening to admit you’re wrong,” says political scientist Brendan Nyhan, the lead researcher on the Michigan study. The phenomenon — known as “backfire” — is “a natural defense mechanism to avoid that cognitive dissonance.
holds that people make rational decisions by assessing facts. All that has to be done to persuade people is to lay out the data: they will then use it to decide which options best support their interests and desires.
A host of psychological experiments demonstrates that it doesn’t work like this. Instead of performing a rational cost-benefit analysis, we accept information which confirms our identity and values, and reject information that conflicts with them. We mould our thinking around our social identity, protecting it from serious challenge. Confronting people with inconvenient facts is likely only to harden their resistance to change. [HT: WTD]
Regular readers will know that I've been trying to make a similar point on this blog for a while (e.g. herehere and here).  Stickman's Corral tries to abide by the relaxed principles of El Duderino and this approach was motivated by the realisation that: a) Making purely unequivocal statements is a one-way ticket to intellectual stagnation, and b) The fear of embarrassment or being wrong is among the most powerful motivators out there. If you don't offer people a way out that preserves their sense of dignity, you don't really offer them anything all. I'm always taken aback by how many people don't seem to grasp this simple rule of human behaviour. Or, as I've said several times now: Calling someone an "idiot" is not the best way to convince them of your position.

Now, of course, being respectful of someone you disagree with is hardly the same as not having an opinion. I take numerous angles on this blog that I feel are pretty clearly laid out. Further, I abhor false equivalences. Being open to changing your mind is of fundamental importance, but there are many issues where I think the evidence is simply too compelling for any reasonable person not to embrace a particular side. On this topic, it really grates me to see how tautological the defensive arguments against, say, evolution and climate change are. The first of these is well documented, but the latter typically goes something like this:

Knee-jerk Sceptic: There is no scientific consensus about humans causing climate change.
Response: Well, actually every major survey shows that over 95% of practising climate researchers support this mainstream view...
Knee-jerk Sceptic: Those studies are flawed. [Or: Those mainstream scientists are wrong and the minority who disagree and are correct and have simply been marginalised.]
Response: Come on, that's a real stretch. The dissenting research simply doesn't hold up to scientific evidence and peer-reviewed scrutiny...
Knee-jerk Sceptic: The peer review process has been corrupted. We can't trust it any more as opposing views have been silenced. Just look at the "Climategate" emails.
Response: Well, actually, the whole thing was blown ridiculously out of proportion and three independent reviews have cleared the involved parties of any significant scientific malpractice.
Knee-jerk Sceptic: The reviews were just a sham and a cover up.
Response: Seriously? Okay, how about the fact that independent media analyses have come to a similar conclusion and even sceptics have offered compelling reasons not to put stock into the conspiracy theories...
Knee-jerk Sceptic: I don't care about those reviews; they aren't official. And there is a conspiracy: The governments of the world want to institute a new communist world order by imposing a huge carbon tax so to regulate the free peoples of the world.
Response: That is ridiculous. The amount of money spent on fighting climate change pales in comparison to money spent on, say, oil exploration and research. Even if it didn't, why do you suppose governments would sabotage their own economies by potentially depriving themselves of "cheaper" fuel? Think about it: They can't even agree to binding emissions targets!
Knee-jerk Sceptic: Governments are just fighting it out to see who gets greatest share of the pie.
Response: Look, scientists working separately all over the world have arrived at the same basic hypothesis that CO2 is the most likely culprit behind the observed warming of the last 150 years. Yes, there is uncertainty, but that should call for more caution if anything. More to the point, putting a price on carbon is ultimately about saving us money, since it corrects  for the negative costs that climate change is likely to entail.
Knee-jerk Sceptic: Scientists/Economists are part of the global conspiracy.

Etcetera, etcetera...
Sealed argument, much?

THOUGHT FOR THE DAY: Facts are important, but you have to play - and be sensitive - to peoples' emotions and values if you really want to win hearts and minds.

## Friday, November 12, 2010

### Exams beginneth...

So posting is going to take a back seat for the next week or three.

Well, not that I've been particularly prodigious in terms of output so far anyway... But just getting the word out there in case.

o-[-<

## Tuesday, November 9, 2010

### Daylight savings, cigarette bans and the freedom to choose

Over on the aguanomics blog, David Zetland has a post arguing that the concept of Daylight Savings Time (DST) is "rubbish". He says that it does not contribute towards energy savings and simply inconveniences people.

I'm pretty sceptical of the 'benefits' of DST myself, but felt compelled to comment on his assertion that "it wold be better (more flexible) for businesses to adjust work hours, instead of facing a command and control 'fix'". In essence, my point is that individual businesses are unlikely to adjust their own work hours, or have much freedom (i.e. scope) to do so in reality. Firms need to operate during "conventional" office hours because this is when everyone else is doing business. It just isn't profitable to break rank when it comes to this kind of thing. Deciding to open shop an hour later would be counterproductive in terms of profitability and competitiveness; you've essentially cut yourself off from the bulk of the marketplace for that entire period.

In these situations - where we're faced with norms that have become institutionalised - it's very difficult to establish the level of coordination that makes it profitable for a firm to change its work hours without some intervening force guaranteeing that everyone does the same. Or, at least some critical mass of firms that corresponds to a tipping point. Thus, if daylight savings does confer benefits (again, I'm certainly not convinced), the institutional inertia associated with the established system makes the market inflexible to adapt. In short, my behaviour is too dependent on the behaviour of others and the norms in society. This is closely linked to what Thomas Schelling described in discussing the problems of "micromotives and macrobehaviour"...

To give some brief anecdotal evidence, I mentioned the fact that, having worked in countries without DST, I can't really recall any companies changing hours of their own volition. (Flexible work hours -- e.g. the option to arrive between 9am and 9:30am -- don't count because firms arrange for overlapping cover. Someone has to be at the office at 9am and again until 5pm.)

Anyway, this got me on to the issue of cigarette bans and smoking laws, which I do consider a legitimate problem. I've been chewing on this for a little, since I sympathise with free market arguments over the primacy of private property and market incentives to create "smoke-free" clubs and restaurants if there is a need. Further, if non-smokers freely choose to frequent such places, exactly what externality does Government correct when it passes smoking legislation? However, while there's a seductive logic to these sort of arguments, things just don't seem to work like this in reality... Again, I can draw on my personal experiences.

Having spent most of my childhood in South Africa, I remember restaurants installing separate smoking sections only once they had been required to do so by law. Despite this convention having been in place for over a decade now, bars and nightclubs -- which do not fall under the same law -- have yet to follow suit. So it's not like the market hasn't had time to react. In my home city of Cape Town (and the rest of the country for that matter), I really can't recall a single bar or nightclub that has established smoke-free zones of their own accord. I've asked several friends and family members just to be sure and they can't name any either. It's the same for other areas of the world that I've visited where no smoking bans exist.

Public health issues of cigarette smoke aside, I think that this again boils down a matter of institutional inertia and a coordination problem that is limited by competitive behaviour. Nightclubs and bars may want to switch over to smoke-free environments, but would be nervous to lose clientèle. Further, the problem with these places of social gathering is that they represent, in effect, areas that we like to enjoy in common. I don't wish to exclude my smoking friends from the places that I frequent, and vice versa. (I think that this issue of "commons" is another reason to be sceptical of the "freedom to choose" argument in this particular instance.) Unfortunately, since there are inevitably some people already smoking in the club, there's little point in "polite" -- for want of a better word -- smokers going outside for a drag. Lastly, I'd suggest that it's not a matter of smoking being "socially unacceptable", but rather that these institutions have become so entrenched that we can't assume businesses will change their own rules, at least not on any significant scale.

THOUGHT FOR THE DAY: We should always question whether Government interventions really make us better off as a society. The rule of thumb is that we want less micromanagement and more freedom to choose for ourselves. However, market outcomes don't always play out as well as we'd like to think they will. As always, the proof of the pudding is in the eating.

UPDATE: Karl Smith agrees.

## Monday, November 8, 2010

### Solar thermal and water use in California

Having discussed some similar implications for the grandiose solar plans in South Africa, here's a snippet from an interview with Bright Source Energy CEO, John Woolard. Talking to Yale Environment 360, he discusses the company's experiences from building solar-thermal plants in California's parched Mojave Desert:
e360: BrightSource’s Ivanpah project is not only the first large-scale solar thermal project to break ground, it is the first to deploy a new power tower technology. Why is that significant?
Woolard: [snip] The big [problem] is water. What is the world going to look like over the next 20, 30, 40 years? Water in the desert is going to become a much more challenging proposition. So we’ve gotten water usage down to a minimum — the lowest of anybody in the world, basically.
[snip]
e360: It seems that one thing BrightSource did that avoided a lot of controversy was the water issue. You chose to use “dry” cooling, which uses substantially less water than “wet” cooling.
Woolard: Best decision we ever made as a company. We were the only one that did it early. The fact that we’re doing it has forced others to do it. If you use 2,000 or 3,000 acre-feet of water [the equivalent of nearly 1 billion gallons] in the desert on an annual basis, that’s obscene.
We’re providing power for 150,000 homes, and we’re using water for 300 homes. That’s as water-efficient as anything you can do. Fossil plants still use wet cooling and everybody ought to know that. That needs to change. It ought to be a level playing field. It shouldn’t just be renewables that do this. Energy and water are so inextricably linked.

## Friday, November 5, 2010

### Fancy a cruise?

This gets better and better...

It's like watching a tennis match with humans and chairs.

I enjoy how your man at the front desk is acting all chilled until he gets sucked in as well. Also, see if you can spot big stripey guy from 0:20 make a swift cameo again at the one minute mark.

### Physics Envy (again)

Seeing as I've covered the topic a few times already, here is an interesting - and surprisingly amusing - presentation by Andrew Lo of MIT, based on a paper he has co-authored with (physicist) Mark T. Mueller: "WARNING: Physics Envy May be Hazardous To Your Wealth!"

Lo's discussion is somewhat contextualised towards financial economics and markets, but he certainly builds his case by first discussing economics in general:

(HT: Bill Easterly. The actual presentation begins around the 03:10 mark)

As I see it, Lo and Mueller's general propositions dovetail nicely with the arguments that I (and many others for that matter) have put forward in the past. For instance (+/-07:05), focusing on when to use your tools rather than simply throwing them to one side:
So what we thought we would do in this paper is to try to trace the origins of physics envy and then see whether or not it really is the cause of crisis, or when it is and when it isn't, and how we might deal with it in a somewhat more productive manner than simply saying that quant is broken and we should forget all about all of this fancy mathematics.
Because, frankly, when I first came across this very popular sentiment that quant is at the root of financial evils, I have to say that it struck me a little bit odd. It's a bit like blaming arithmetic and the real number system for accounting fraud. It's true that they're involved, but you're sort of missing a piece!
Among the many interesting points Lo makes, it's also intriguing to see how reverent he is to the supposed father of physics envy, Paul Samuelson. For example, at (+/-) 12:45 he defends Samuelson against a charge of blind physics envy by quoting a passage from the latter's famous dissertation:
[O]nly the smallest fraction of economic writings, theoretical and applied, has been concerned with the derivation of operationally meaningful theorems. In part at least this has been the result of the bad methodological preconceptions that economic laws deduced from a priori assumptions possessed rigor and validity independently of any empirical human behavior. But only a very few economists have gone so far as this. The majority would have been glad to enunciate meaningful theorems if any had occurred to them. In fact, the literature abounds with false generalization. (Samuelson, 1947, p. 3)
[Editors note: Samuelson goes on to add (p. 4): "By a meaningful theorem I simply mean a hypothesis about empirical data which could conceivably be refuted, if only under ideal conditions." Karl Popper anyone? I would also note that Lo makes repeated reference to the need for empirical testing as a means of validating economic theory, at the same time as he is wide-eyed about the problems we may encounter in doing so.]

## Tuesday, November 2, 2010

### Carbon Price vs Technology (R&D) Initiatives

This coming in a few days late, but Rob Stavins continues with his series of excellent posts on environmental economics and policy instruments. In his most recent column, he discusses the need for substantive climate policy to go beyond the view that we should either establish a carbon price or pump money into technology R&D. Instead of being seen as substitutes, these two policy alternatives should be viewed as compliments to achieve meaningful emissions reductions...

Both are necessary but neither is sufficient:
For many years, there has been a great deal of discussion about carbon-pricing – whether carbon taxes or cap-and-trade – as an essential part of a meaningful national climate policy. It has long been recognized that although carbon-pricing will be necessary, it will not be sufficient. Economists and other policy analysts have noted that policies intended to foster climate-friendly technology research and development (R&D) will also be necessary, but likewise will not be sufficient on their own.
Stavins then lists some of the key elements that make a carbon price and technology polices, respectively, important.

For the former, his basic argument is that a carbon price (i.e. carbon tax or cap-and-trade) internalises the negative externalities of CO2 at the least cost to society; something widely agreed on by economists. It does this by establishing a level playing field that allows for decentralised decision-making by firms on how best to reduce their own emissions, while also overcoming problems of pollution heterogeneity. (In economics jargon, a carbon tax or cap-and-trade can ensure that marginal costs of abatement are equalised across producers... Which basically just means that we cut our pollution as efficiently as possible.)

However, while a carbon price is the most cost-effective means of reducing CO2 emissions, it falters in other areas... most importantly "R&D market failure". This essentially refers to the fact that firms are unwilling to make the necessary (i.e. efficient) levels of investment in R&D, because they won't capture the spillover effects that accrue to other firms from pioneering new technology. To bring it back to economic jargon, this time we are faced with a positive externality that is not sufficiently exploited. Or, as one of the top executives at Statoil put it when referring specifically to Carbon Capture and Storage (CCS): "There is a first-mover disadvantage, as the one who builds (later) will not make the same mistakes and learn from others."

In other words, we probably need active technology polices that aim to foster innovation and R&D directly. Stavins doesn't readily name many examples in his post, but they include things like targeted investment support and government research, as well as feed-in schemes for alternative energy sources. These issues all fall within the category of innovation economics, which is a very interesting field. (Unfortunately, the wiki entry on innovation economics that I've linked to here is pretty poor in my opinion. Nothing on lock-in and path dependencylearning effects and learning-by-doing, spillovers and network effects,...)

Before wrapping this post up, I'll say that focusing on direct technology support and investment has become increasingly popular recently. To name one prominent example, controversial environmental commentator Bjørn Lomborg raised more than a few eyebrows when he called for the establishment of a $100bn climate fund in late August... to be funded by a$250bn carbon tax, no less. (No matter how some sceptics were trying to frame it, this was certainly a stark departure from his previous position that climate change did not seem to warrant dramatic mitigating action, as this wouldn't yield a profitable return on investment.)

THOUGHT FOR THE DAY: Sometimes two weapons are better than one. Just ask He-Man...

 Gun? Check! Sword? Check!

## Sunday, October 31, 2010

### Movember

Anyone out there doing Movember?
Movember (the month formerly known as November) is a month long moustache growing charity event held each year to help raise funds and awareness for men’s health.
Having started in Australia seven years ago, Movember has grown to be an international event, taking place in six countries. This global expansion looks set to continue with demand from Mo Bros and Sistas around the world wanting to grow moustaches and celebrate Movember in their own countries.
Movember is about bringing back the moustache for a serious cause and sees Mo Bros, supported by the Mo Sistas in their life, register at Movember.com and then start Movember 1st with a clean-shaven face. They have the remainder of the month to grow and groom their moustache, whilst raising funds and awareness. Each Movember we challenge men to change their appearance and the face of men's health by growing a moustache. The moustache is our ribbon, the means by which we raise awareness and funds for prostate cancer and depression in men programs.

Having grown a "mo" for the last few years, I have to admit that I'm not sure whether I'll be partaking in full this year. Apart from the fun of doing it with friends, there's safety in numbers for these things... which made it much easier to do when I was living in London and Cape Town. (While many Commonwealth countries have embraced the MOvement (zing!), Movember has yet to take off in the Nordics so I was pretty much all on my own last year.)*
:'(

Still, it's a great cause and I'll see whether I can persuade some of my European fellows to embrace a return to looking like real men...

* Despite the lack of support, I will say that I still put out quite a beauty last year. Here's a little snapshot of Telemundo heartthrob yours truly in full mustachio mode:

Look inspired by my 2009 MOtivation,  Brian Fontana from the great Anchorman:

## Saturday, October 30, 2010

### New Goldfish single - "Get Busy Living"

Very nice, chaps.

Any readers that weren't previously aware of Cape Town's coolest electro-jazz duo - but like what they've heard so far - are strongly encouraged to sample some previous selections such as "Soundtracks and Comebacks", "Fort Knox" and "The Real Deal".

Be warned though: It's infectious.

## Friday, October 29, 2010

### Currie Cup Final

After a great start to the 2010 season, South African rugby descended into disappointment and embarrassment. Still, there's light at the end of the tunnel as Western Province have the chance to end a decade of mediocrity tomorrow and reclaim their rightful place as Currie Cup champions!

So, if there are any rugby fans out there reading this... Do the right thing and support the blue and white hoops tomorrow around 17:30 local time (GMT +2 hours). Come on!

Proooooovince!

UPDATE: Fack.
Pardon moi French, but I'm a few Guinesses (Guini?) to the good. Well played Sharks... WP completely outgunned.

UPDATE 2: Back to my normal sober self and I see all and sundry are singing young Patrick Lambie's praises. Rightly so, after a stellar season and yesterday's m-o-t-m performance. Still, it wouldn't be the first time a 19/20-year old flyhalf has been fêted as the next big thing in South African rugby after dominating a Currie Cup final. Remember Derick Hougaard back in 2002/03? Brian "The Chiropractor" Lima does:

Thanks, Joost!

To be fair to Hougaard, he went on to have some very successful domestic campaigns with The Bulls. The problem is that he ultimately failed to deliver any performances worth mentioning for the national side...

### SA planning world's biggest solar park

South Africa is to unveil plans this week for what it claims will be the world's biggest solar power plant – a radical step in a coal-dependent country where one in six people still lacks electricity.
The project, expected to cost up to R200bn (£18.42bn), would aim by the end of its first decade to achieve an annual output of five gigawatts (GW)* of electricity - currently one-tenth of South Africa's energy needs.
Giant mirrors and solar panels would be spread across the Northern Cape province, which the government says is among the sunniest 3% of regions in the world with minimal cloud or rain.
Apparently the Dept. of Energy is going on a big investor drive to drum up support for the whole shebang. Apart from South Africa's Renewable Energy Feed-In Tariffs (REFIT) scheme - I'm not really in a position to make predictions about the economic implications at this stage... Well, apart from the rather obvious matter that anything requiring a subsidy is going to be more expensive than the current going rate. Still, until we get a carbon price up to internalise the externality costs of coal, I suppose subsidies will have to do to for kick-starting the broader integration of renewables in South Africa and beyond. (Lord knows we could also do with a bit of diversification in the electricity supply down there... And I won't even mention the need to do away with Eskom's crippling monopoly on power supply.)

General aversions to monopolies (and certain subsidies) aside, I've been pretty positive about CSP (concentrated solar power) in that part of the country for a while. One concern I do have about these big solar projects though, is that they tend to be in - well - hot and dry places. This becomes problematic given that you need pretty substantial amounts of water for cooling (with thermal plants) and even cleaning (for photovoltaics). I guess it was inevitable that they've got their eyes set on the Orange River for this one... I'm interested to see what the EIA throws up.

* Unfortunately, the article contains a frustratingly common mistake here. The author surely means "5GW of capacity" (not output) as the only meaningful way to interpret output is watt hours... It happens again later on when he writes: "South Africa currently consumes 45-48GW of power per year." (If you're interested, you can visit the reliable StatsSA to see that total electricity consumption in 2009 was the order of 230TWh, i.e. terrawatt hours.)

## Monday, October 25, 2010

### Why we need maths in economics 2(b) - Schelling's segregation model

Slightly later than planned... Here is the second example of a little maths helping to improve our analysis of a real economic problemSeeing as I received some complaints about the calculus in my first example being too much for a blog post, I've tried to go for something much more basic this time. As such, the only maths that we'll only be using here is the arithmetic that everyone was taught in school. Again, however, those that are only interested in the final outcome can skip to the concluding "THOUGHT FOR THE DAY" and accompanying video at the bottom of the post!
===

Topic: The formation of segregated neighbourhoods.
Aim: To show how seemingly innocuous discriminatory preferences among neighbours (in terms of race, sex, etc) can lead to completely segregated outcomes at the aggregate level.

When research has been done in racially segregated neighbourhoods, one interesting (and consistent) finding is that respondents from these areas generally claim to desire more integration. “We don’t want to live in segregated neighbourhoods!” they implore. However, there are usually some important caveats thrown in and a typical response might be, “I want to live in an integrated neighbourhood... just as long as I am not in too much of a minority”. Nevertheless, what if such “very minor” discriminatory preferences are still enough to lead us to completely segregated outcomes?

This is the question that nobel laureate Thomas Schelling first explored in a seminal paper back in 1969. He later extended his analysis in a series of subsequent books and articles (e.g. here). Alongside his contributions to game theory and conflict strategy, the brilliance of Schelling's work was to examine not only the underlying motivations characterising individual behaviour, but also the implications of individuals acting on each other in the aggregate.

I say “in the aggregate”, though this is a potentially misleading phrase. We have become used to interpreting “aggregates” as something like the average behaviour of individuals. However, much of Schelling’s research has been aimed at proving the exact opposite; i.e. that aggregate results in society are not necessarily simple extrapolations from the individual. Instead, aggregate outcomes are often much more complex since they result from a system of interactions between individuals and their environment. In other words, we impact others and our environment by our actions, while they impact us in turn. These complex interactions can lead to the emergence of surprising and even undesirable outcomes when considered at the societal level. This led Schelling to make the famous distinction between "Micromotives and Macrobehaviour".[*]

Right, so let’s establish the stylised “facts” for the particular model that we’ll be using here. The most important assumptions are as follows:
• People live in different neighbourhoods. If someone is unhappy with their current neighbourhood, then they can costlessly move to a new one. In this model, the only thing that makes people (un)happy about where they live is the racial profile of their neighbours.
• For simplicity we specify a population that consists of only two ethnic groups: greens and reds. In this example, we’ll assume that there are 50 greens in the population and 100 reds. (I briefly consider a different scenario at the end of this post.)
• Both green and red individuals have a variety of “tolerance levels”, reflecting the maximum ratio of race mixing that each person is prepared to accept in his or her neighbourhood. If the colour ratio exceeds a person’s particular tolerance ratio, then they will move to another neighbourhood where they are satisfied. (Those with the highest intolerance will move first.)
• Finally, we assume that tolerance levels among greens and reds can be ordered sequentially from high to low.[**] For both groups, let’s say that the most tolerant individual will accept a ratio of 2:1... In other words, be willing live in a neighbourhood as a one-third minority. The median individual will tolerate a ratio of 1:1, while the least tolerant will accept no person of opposite colour in their neighbourhood.

From the above, it should be obvious that there are a number of greens and reds who would be happy to live together in some combination. However, in order to analyse which combinations are most likely to occur, as well as the processes that cause people to leave or join a neighbourhood, we must turn to a little maths...

The first thing to do is create tolerance schedules for our two groups. Recalling our tolerance ratios from earlier (most = 2:1, median = 1:1, least = 0:1, etc), we depict these as follows:

Next, we translate these tolerance schedules into “absolute-numbers” curves by simply multiplying the population level by the corresponding tolerance ratio. In other words, we're finding out how many greens each red is prepared to tolerate, and vice versa. The parabolic shape of the resulting curves reflect the diminishing level of tolerance among each population, as you move from the most "tolerant" individual of the group to the most “racist”:

Note the placement of the green population on the vertical axis, and how this allows us to easily compare the interaction with the red population. There are three areas: 1) Any point within the overlap area (bottom left-hand corner) represents a combination of reds and greens that can coexist happily in the same neighbourhood. 2) Points beneath the red curve, but to the right of the green curve, represent a mixture where all the reds will be satisfied, but not all the greens. 3) In contrast, any point within the green curve and above the red curve corresponds to a combination where all the greens in the neighbourhood are content, but not all the reds.

Importantly, the above figure also depicts the dynamics of motion of the system. This is what the arrows are showing us: We can see how the populations of the two groups will be changing at any particular point.[***] For example, the bottom-left arrow (pointing up and to the right) indicates that the numbers of reds and greens will be increasing together at low population levels. However, if reds begin to settle in the neighbourhood at a faster rate than greens, then some greens will be motivated to leave. This in turn exacerbates the problem, since the ratio of greens to reds now becomes even worse which prompts more greens to leave! And so... we inexorably move towards neighbourhood comprised entirely of reds. (This is depicted by the bottom-middle arrow that is pointing down to the right.) In this way, the dynamics of motion show us that we can approach three possible equilibria. However, only two of these -- the completely segregated outcomes -- are stable. The mixed equilibrium combination is unstable since any disturbance, i.e. the departure or arrival of a new neighbour, has the potential to set off a chain reaction that will ultimately lead to one colour completely dominating the neighbourhood!

Now, of course, this was a rather specific example used for illustration. You might ask whether the segregated outcome depends for instance, on the relative sizes of our green and red populations? The answer to that question, however, is “not really”. A one-colour equilibrium is still the inevitable result even when we have reds and greens in equal numbers. Having said that, having equal numbers together with steeper tolerance schedules will tend to produce a stable equilibrium. For example, if there are 100 reds and greens and they both have a tolerance schedule where the median individual can tolerate being in a 2.5:1 minority, then we end up with the following:

In this alternative schedule, we see that all three equlibria are stable. Importantly, this includes the interior solution (a mix of 80 reds and 80 greens), which is robust to fairly large perturbations. (However, if we are already at a segregated outcome, then a move towards a stable mixed result will require the concerted entry of more than 25 percent of the other colour.)

THOUGHT FOR THE DAY: It’s easy to assume that people living in segregated neighbourhoods are relatively racist. Similarly, we might also assume that people who express a desire to live in integrated neighbourhoods will automatically arrive at such an outcome through conventional market processes. However, the basic Schelling model shows that even small preferences for a degree of homogeneity – for just a few of our neighbours to be “like us” – is enough to cause segregated outcomes at the aggregate. (In other words, completely segregated neighbourhoods may be inevitable even when the majority of people are fine with being in a minority!) The model depicted here is very simplified and hardly perfect, but still provides extremely valuable insights into the emergent dynamics of segregation. It also illustrates how relatively simple maths can be used to deal with complex and counter-intuitive phenomena.

PS - The above model is part of a broader literature called “agent-based modelling”, which is used for analysing anything from traffic flows to health epidemics. While maths was crucial to proving that his results held generally, Schelling initially used coins and a chessboard to illustrate his point. For a pretty cool illustration of agent-based modelling at work, try one of these two online versions of the segregation model. Or just watch the below video!

[Note: Those of you paying attention might notice that this video is slightly different in terms of set-up to the model that I have discussed above, in that it each person (/egg's) neighbourhood is limited to the spaces immediately alongside them. Schelling called this a "spatial proximity model". In contrast, the model presented above analyses the make-up of the neighbourhood as a whole and is called the "bounded neighbourhood model".]

[*]  "Micromotives and Macrobehaviour" is the title of Schelling's brilliant book, which forms the basis for today's post. If the type of emergent economic outcomes that I discuss here is of interest to you, then M&M is a must-read.
[**] In technical language: we assume that the cumulative frequency distribution of the “tolerances” of individuals is represented by a straight line. This is done for ease of illustration, although it is not overly problematic to experiment with different distributions (as Schelling does here).
[***] What we have here is a simple phase diagram, which is very useful for analysing the stability of any dynamic system where you have to worry about things like multiple equlibria, tipping points, saddle paths, etc. You usually determine the direction of your arrows in a phase diagram by taking the first derivatives of your equations, but since I'm trying to keep things simple here I won’t bother with that now.

### Sunday Soul Patch - The Sam Cooke edition

Sam Cooke.

So many to choose from, but just keeping it relaxed tonight...

## Monday, October 18, 2010

### God, morality and monkeys

And by "monkeys" I really mean "altruistic chimpanzees", but I'm a sucker for alliteration...

I stumbled on a really excellent opinion piece in today's New York Times: "Morals without God" by the Dutch primatologist and ethologist, Frans De Waal. I'm loathe to highlight any particular parts because the whole thing is so good, but here are three excerpts...

First up: Morality without God.
Can we envision a world without God? Would this world be good? Don’t think for one moment that the current battle lines between biology and fundamentalist Christianity turn around evidence. One has to be pretty immune to data to doubt evolution, which is why books and documentaries aimed at convincing the skeptics are a waste of effort. They are helpful for those prepared to listen, but fail to reach their target audience. The debate is less about the truth than about how to handle it. For those who believe that morality comes straight from God the creator, acceptance of evolution would open a moral abyss.
Echoing this view, Reverend Al Sharpton opined in a recent videotaped debate: “If there is no order to the universe, and therefore some being, some force that ordered it, then who determines what is right or wrong? There is nothing immoral if there’s nothing in charge.” Similarly, I have heard people echo Dostoevsky’s Ivan Karamazov, exclaiming that “If there is no God, I am free to rape my neighbor!”
Perhaps it is just me, but I am wary of anyone whose belief system is the only thing standing between them and repulsive behavior. Why not assume that our humanity, including the self-control needed for livable societies, is built into us? Does anyone truly believe that our ancestors lacked social norms before they had religion? Did they never assist others in need, or complain about an unfair deal? Humans must have worried about the functioning of their communities well before the current religions arose, which is only a few thousand years ago. Not that religion is irrelevant — I will get to this — but it is an add-on rather than the wellspring of morality.
This very closely describes my own feelings. I've often tried to point out that morality derived from personal and social value systems just seems more genuine than morality which is (passively?) adopted as part of a religious system. If a religious person does something “good” because of the threat of hell -- or lure of heaven -- can this really be framed as a question of morality?[*] I doubt it... Now, obviously there are healthy reasons for keeping reward and punishment systems that protect the stability of a society as a whole, but the concept of "managed morality" still appears to me as little more than a lame oxymoron.

Next: Thoughts on Altruism.
Modern popularizers [have argued] that true moral tendencies cannot exist — not in humans and even less in other animals — since nature is one hundred percent selfish. Morality is just a thin veneer over a cauldron of nasty tendencies. [However], instead of blaming atrocious behavior on our biology (“we’re acting like animals!”), while claiming our noble traits for ourselves, why not view the entire package as a product of evolution? Fortunately, there has been a resurgence of the Darwinian view that morality grew out of the social instincts. Psychologists stress the intuitive way we arrive at moral judgments while activating emotional brain areas, and economists and anthropologists have shown humanity to be far more cooperative, altruistic, and fair than predicted by self-interest models. Similarly, the latest experiments in primatology reveal that our close relatives will do each other favors even if there’s nothing in it for themselves.
[snip]
Even though altruistic behavior evolved for the advantages it confers, this does not make it selfishly motivated. Future benefits rarely figure in the minds of animals. For example, animals engage in sex without knowing its reproductive consequences, and even humans had to develop the morning-after pill. This is because sexual motivation is unconcerned with the reason why sex exists. The same is true for the altruistic impulse, which is unconcerned with evolutionary consequences. It is this disconnect between evolution and motivation that befuddled the Veneer Theorists, and made them reduce everything to selfishness.
[snip]
Nature often equips life’s essentials — sex, eating, nursing — with built-in gratification. One study found that pleasure centers in the human brain light up when we give to charity. This is of course no reason to call such behavior “selfish” as it would make the word totally meaningless. A selfish individual has no trouble walking away from another in need. Someone is drowning: let him drown. Someone cries: let her cry. These are truly selfish reactions, which are quite different from empathic ones. Yes, we experience a “warm glow,” and perhaps some other animals do as well, but since this glow reaches us via the other, and only via the other, the helping is genuinely other-oriented.
Quite so. I'm tired of all the Ayn Rand types bleating on about selfishness all the time. Trust me, I get it: self-interest is very important... But I feel much of the Randian contribution these days is simply to fixate on meaningless semantics. Apart from the fact that altruistic acts often confer no obvious or immediate benefits to us, surely the exact point is that altruism is concerned with the well-being of others? "Altruism" exists as a singular -- and separate -- construct because it reflects a very specific set of actions and motivations.

Finally: Extending an olive branch to religion.
While I do consider religious institutions and their representatives — popes, bishops, mega-preachers, ayatollahs, and rabbis — fair game for criticism, what good could come from insulting individuals who find value in religion? And more pertinently, what alternative does science have to offer? Science is not in the business of spelling out the meaning of life and even less in telling us how to live our lives. We, scientists, are good at finding out why things are the way they are, or how things work, and I do believe that biology can help us understand what kind of animals we are and why our morality looks the way it does. But to go from there to offering moral guidance seems a stretch.
Even the staunchest atheist growing up in Western society cannot avoid having absorbed the basic tenets of Christian morality. Our societies are steeped in it: everything we have accomplished over the centuries, even science, developed either hand in hand with or in opposition to religion, but never separately. It is impossible to know what morality would look like without religion. It would require a visit to a human culture that is not now and never was religious. That such cultures do not exist should give us pause.
[snip]
Other primates have of course none of these problems, but even they strive for a certain kind of society. For example, female chimpanzees have been seen to drag reluctant males towards each other to make up after a fight, removing weapons from their hands, and high-ranking males regularly act as impartial arbiters to settle disputes in the community. I take these hints of community concern as yet another sign that the building blocks of morality are older than humanity, and that we do not need God to explain how we got where we are today. On the other hand, what would happen if we were able to excise religion from society? I doubt that science and the naturalistic worldview could fill the void and become an inspiration for the good. Any framework we develop to advocate a certain moral outlook is bound to produce its own list of principles, its own prophets, and attract its own devoted followers, so that it will soon look like any old religion.
As something of a secular humanist myself, I'll have to mull over the very last of these points. I strongly identify with many of the moral teachings that I've read in religious texts... But I also think that this reflects the innate strength of certain religions: They simply codified a set of moral guidelines that societies needed to "evolve" if they wanted to survive and flourish over the long-run. This, in turn, acted as the ballast for these religions to endure. The fact that we -- at least in Western societies -- seem far less concerned with certain rules than we might have been in previous years (e.g. don't eat shellfish, no sex before marriage) reinforces my belief that our morality will partly evolve with the times. (We even reject outright certain notions from religious texts, such as the right to own slaves.) Nevertheless, I completely agree that there is no need to insult someone who finds value in religion; provided their beliefs cause no demonstrable harm to others. And, as I have said previously, I look forward to the day when we come around to the idea that calling someone an "idiot" is not the best way of convincing them of your position.

THOUGHT FOR THE DAY: Too much, I fear, in this piece to sum up in a few lines. Perhaps I can do no worse than...
Oh, oobee doo!
I wanna be like you (oo-oo-oo)
I wanna walk like you
Talk like you, too (oo-oo-oo)
You'll see it's true (oo-oo-oo)
An ape like me
Can learn to be human too!

[*] An analogy is the paradox of intrinsic versus instrumental ethics that you often hear about in courses on business ethics... The basic idea being that trying to “manage” the ethics of employees is a contradiction in terms: By subjecting ethical matters to regulation and management control, employees aren't necessarily doing something good because of it's innate goodness, but rather because they are told to so or suffer the consequences. Similarly, it could be argued that ethics derived from any authority – moral or otherwise – has some element of inherent contradiction.