Peeking into the Future

Here is an interesting film on the effects of the digital age and networking are having on shaping the future. I like this. This is optimistic about the future. We need more of this...

Peak Oil

For the doomsday crowd that follows regular predictions of gloom-and-doom, the "peak oil" story has been a good one.

The typical "picture of doom" is something like this from Wikipedia:

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That picture is pretty convincing. We are on the slide to perdition. Only a bleak and hopeless future awaits us...

But wait a second. Here is a more recent graph from an article in the Houston Chronicle:

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The article goes on to report a "new peak" in production:

North America appears headed for an oil renaissance, with crude production expected to hit an all-time high by 2016, given the current pace of drilling in the U.S. and Canada, according to a study released by an energy research firm this week.

U.S. oil production in areas including West Texas' Permian Basin, South Texas' Eagle Ford shale, and North Dakota's Bakken shale will record a rise of a little over 2 million barrels per day from 2010 to 2016, according to data compiled by Bentek Energy, a Colorado firm that tracks energy infrastructure and production projects.

Canadian crude production is expected to grow by 971,000 barrels per day during the same period, with much of the oil headed for the U.S.

Combined, the U.S. and Canadian oil output will top 11.5 million barrels per day, which is even more than their combined peak in 1972.

Goldman Sachs has estimated the U.S. could move from being the No. 3 oil producer behind Saudi Arabia and Russia to the No. 1 spot by 2017.

It's a reversal of the steady downward production trend that started after 1971, when U.S. oil production peaked around 9.5 million barrels per day.

I know this is a shock and disappointment to the end-of-days crowd. But this is an old story. If you followed the Club of Rome with its best seller in the early 1970s, the book "Limits to Growth" you've seen this tale before. It is so convincing. The end is nigh! Repent!

But human ingenuity keeps foiling that tale of gloom and despair. It is so seductive to believe that there is no hope and we must give up our sinful "modern ways" and go back to our pastoral past when we were disease ravaged and lived an average of 34 years. But those pesky scientists and technologists keep ruining out return to a "golden age" by creating new techniques or helping us conserve or producing a new substitute. This story is older than civilization. But the siren call of "repent! the end is nigh!" keeps winning because it appeals to our dark side that expects us to be punished for "having it too good".

The Club of Rome pessimists are still in business and no doubt still selling their siren song of "the end is nigh!". But you are better off reading "The Ultimate Resource" by Julian Simon. Unlike the Club of Rome, Simon has been right more than wrong. But unlike the Club of Rome, Simon is ignored by the press. It is so much easier to sell papers with the story of doom-and-gloom. Nobody wants to hear that we will "muddle through" or that we can count on "human ingenuity". We want morality plays. We want punishment for sinful ways, the excesses of the past. Nobody wants dull fact, reasoned judgement, and a scientific attitude. It doesn't sell.

A Walk Down Memory Lane

Here is a documentary series on the 2008 financial crash entitled "Meltdown: The Secret History of the Global Financial Collapse".

This was done by the CBC (Canadian Broadcasting Company) and the homepage for the documentary is here and provides more information about the series.

Enjoy being an eyewitness -- from a Canadian perspective -- to the end of the world as we know it...

Part 1:


Part 2:


Part 3:


Part 4:


If you need an antidote to the above grim story, here is a bit from a post by Mark Thoma in his Economist's View blog:

It seems to me that the current crisis is, to a large extent, reversing the economics of hope. When workers look forward today, what do they see? Technical progress that will make them better off -- change that will elevate their standard of living -- or do they see a future where they'll be lucky to keep the job, benefits, and wage rates they currently enjoy (if they have a job at all)? Much of the rhetoric from the right -- from opposition to government trying to help to the age old worry that the rate of technological progress is slowing -- has been about "what you couldn't change," and pessimism about the future is as high as I can ever remember.

I refuse to give up. It's distribution, not production that has failed us over the last 30 or 40 years. We produce far more than we ever have, and we will continue to increase our ability to squeeze more and more out of the resources we have. We have the ability to produce enough stuff. But the distribution of the things we produce has been tilted toward the top. Instead of wages rising with productivity as our textbooks say they should, wages have stagnated and the rewards have gone elsewhere. Thus, while the pessimism of the past was about production not being able to keep up with population -- many classical economists looked forward to a long-run outcome of a dismal, stationary state with most people struggling at subsistence wages -- the pessimism of the present is driven largely by a failure of distribution. The haves get more and more, and the have nots get less and less even though overall output is rising. And to make it worse, those in power have successfuly promoted the idea that intervening to ensure that workers get to keep the share of output they've earned will harm our long-run growth prospects.

Pessimism about breaking through the wealth and power structures that stand in the way of change is understandable, as is the desire of the winners in our increasingly two-tiered society to keep the focus on growth rather than distribution. However, this outcome is not pre-ordained, it is not etched in stone, it's something we can fix without sacrificing our long-run growth prospects. But only if we refuse to buy into the narrative that the "it can't be changed so suck it up and deal with it" crowd is peddling.

An Optimistic Economist

Here is an optimistic assessment of the future by a Harvard economist, Ken Rogoff, in an article published by Project Syndicate. Here are the key bits:

Until now, the relentless march of technology and globalization has played out hugely in favor of high-skilled labor, helping to fuel record-high levels of income and wealth inequality around the world. Will the endgame be renewed class warfare, with populist governments coming to power, stretching the limits of income redistribution, and asserting greater state control over economic life?

...

The next generation of technological advances could also promote greater income equality by leveling the playing field in education. Currently, educational resources – particularly tertiary educational resources (university) – in many poorer countries are severely limited relative to wealthy countries, and, so far, the Internet and computers have exacerbated the differences.

But it does not have to be that way. Surely, higher education will eventually be hit by the same kind of sweeping wave of technology that has flattened the automobile and media industries, among others. If the commoditization of education eventually extends to at least lower-level college courses, the impact on income inequality could be profound.

Many commentators seem to believe that the growing gap between rich and poor is an inevitable byproduct of increasing globalization and technology. In their view, governments will need to intervene radically in markets to restore social balance.

I disagree. Yes, we need genuinely progressive tax systems, respect for workers’ rights, and generous aid policies on the part of rich countries. But the past is not necessarily prologue: given the remarkable flexibility of market forces, it would be foolish, if not dangerous, to infer rising inequality in relative incomes in the coming decades by extrapolating from recent trends.

I'm not as optimistic as Rogoff because I think he has misidentified the problem. The real problem is money & power. The rich have bought off the politicians and got themselves in the catbird seat paying effectively less in taxes than the poor and having politicians constantly fighting to "reduce taxes to unleash entrepreneurial power" despite 30 years of evidence that it doesn't. The best economic growth was under Clinton who raised taxes. From Wikipedia:

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Technological Advance

I worked with computers and Moore's Law was the elephant in the room. We would take on projects knowing that they were cutting edge and likely to fail, but during the 2 or 3 years of development we would be saved by newer faster equipment which would mean that our software could in fact meet the tough technical standards required by the project's goals.

But genomics is making Moore's law look like a lazy Sunday stroll compared to the breakneck 100 metre rush being put on by advances in gene sequencing:

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I got the above from a fascinating article in Forbes magazine about an Oregon family devastated by a genetic disease that has now been found and decoded by new technologies:

This one family, in Ogden, Utah, has watched as five children in two generations have died from a mysterious disease that science could not explain.. Thanks to huge leaps being made in DNA sequencing and in computer programs to decipher genetic code, researchers were able to find the gene for this disease in just sixteen months. Potentially, this could offer Lundell and her sisters the opportunity to have children via in vitro fertilization, selecting embryos that don’t have the gene.

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Three new technologies allowed Lyon to find the gene that was causing the boys to die. The cost of sequencing a human genome has been dropping precipitously, from $100 million in 2001 to $10,000 last year, according to Macquarie Securities, an investment advisor. Other new technologies allowed Lyon to focus on just 1% of human genetic material that was likely to provide him answers. And a brand new kind of software allowed him to use information about the family and their genetic material to find the defective gene.

I don't know how the increasing technology advances in biology will shape the future. Just like nobody could really foresee all the applications of computers as they became faster and more diverse. But I have high hopes that 50 years from now people will be living vastly richer and more interesting lives because of this new technology.

There is a lot to get despondent about and become pessimistic on the future. Gloom and doom are popular. Religious zealots want to close off our minds to the future. But human ingenuity and the ability to dream about a better future make me optimistic. Sure some of the new stuff will be abused in the hands of cruel and selfish people. But enough will find its way into the hands of the great majority that overall the future will be better. I look at 10,000 years of civilization where ideas have been cumulative and I see a definite trend despite dark ages and monstrous cruelty. I am optimistic. Since the advent of science just 400 years ago, human society has made giant strides.

Oil's Future

Here are some bits from a WSJ interview with the CEO of Chevron:

The Chevron CEO is a rare breed these days: an unapologetic oil man. For decades—going back to Jimmy Carter—politicians have been peddling an America free of fossil fuels. Mr. Obama has taken that to an unprecedented level, closing off more acreage to drilling, pouring money into green energy, pushing new oil company taxes, instituting anticarbon regulations. America is going backward on affordable energy, even as oil hits $110 a barrel.

Enter the tall, bespectacled Mr. Watson, who a little more than a year ago stepped into the shoes of longtime CEO David O'Reilly. An economist by training, soft-spoken by nature, the 53-year-old Mr. Watson is hardly some swaggering wildcatter. Yet in a year of speeches, he has emerged as one of the industry's foremost energy realists. No "Beyond Petroleum" (BP) for him. On energy, he says, America "has a lot to learn."

Starting with the argument—so popular among greens and Democrats—that we are running out of oil. "Peak oil"—the theory that global oil production will soon hit maximum levels and begin to decline—is a favorite among this crowd, and it is one basis for their call for more biofuels and solar power. Mr. Watson doesn't dismiss the idea but explains why it remains largely irrelevant.

In theory, he says, "we've been running out of oil and gas for a long time," yet technology creates new opportunities. Mr. Watson cites a Chevron field long in decline down the road in Bakersfield—to the point that for every 100 barrels of oil "in place," the company was extracting only 10 or 20. But thanks to a new technology called steam flooding, Chevron is now getting 70 to 80 barrels. "Price creates incentive, and energy will be developed if there's demand for it at the price you can develop it," Mr. Watson says. In that sense, "oil and gas are plentiful."

Don't believe it? Over the past 30 years, even as "peak oil" was a trendy theme, the world's proven reserves of oil and natural gas increased 130%, to 2.5 trillion barrels.

Or consider America's latest energy innovation: hydrofracking for abundant and cheap natural gas. This advance, says Mr. Watson, took even the industry "by surprise"—as evidenced by the many U.S. ports to import liquid natural gas that are now "sitting idle." Chevron last year paid $3.2 billion to buy natural-gas producer Atlas Energy as its foray into this new market.

Mr. Watson has little time for the Beltway fiction that America will soon be able to do without, or nearly without, fossil fuels. Yes, "we need all forms of energy." But the world consumes 250 million barrels of energy equivalent today, only a "tiny fraction of which" is wind and solar—and even those "are not affordable at scale," he says.

As for biofuels, "we would need to consume land the size of states" to hit the country's current ethanol targets. Chevron is investigating biofuels, but Mr. Watson says the "economics aren't there" yet. Unlike many CEOs, Mr. Watson insists on products that can prosper without federal subsidies, which he believes are costly and lacking in transparency when "consumer pockets are tight, government pockets are tight."

Bottom line: "We're going to need oil and gas and coal for a long time if America wants to keep the lights on."

...

But what about the BP Gulf spill? Mr. Watson blames the "cultural aspects and behavioral aspects" of the particular drilling rig that exploded. He roundly disagrees with the finding of Mr. Obama's spill commission that the "root causes" of the spill were "systemic" to the industry.

"There is no evidence to support that. I don't know how that conclusion was reached. I know the industry has drilled 14,000 deep water wells without having this sort of problem." As for the moratorium, "I can understand taking a pause. I can't understand shutting down a whole industry for a better part of a year."

Chevron has three deep water rigs in the Gulf, so the ban cost it millions of dollars in idle rigs and lost jobs. For the country, says Mr. Watson, it means "less oil." Offshore drilling takes years of lead time. Mr. Watson cites Chevron's Gulf "Tahiti" project, which started producing about 18 months ago. It has taken "the better part of a decade to do the seismic work, drill the exploratory wells, evaluate those wells, drill other development wells, to delineate it, to build the facilities and to place the oil wells online," he explains.

The endless moratorium has already meant that "if you go out to the middle of the decade, there are already 200,000 to 300,000 barrels a day of oil that aren't going to be produced that year. . . . That won't be retrieved." And the lost production number is getting larger, since the new Bureau of Ocean and Energy Management is still dallying on permits—and those primarily for backlogged projects, not new leases.

Democrats are now arguing, as Mr. Obama did in his speech, that the oil industry already "holds tens of millions of acres of leases where it's not producing a drop." Some are advocating "use it or lose it," calling for the government to strip oil companies of their leases if they don't immediately start producing.

Mr. Watson explains why this is bogus. Only one-third of Chevron's offshore leases are classified as "producing" oil and gas today. The other two-thirds either are "unsuccessful" (they don't hold viable oil or gas) or "are in varying stages of development—seismic work, drilling wells, constructing facilities." Mr. Watson says companies would be crazy to sit on productive lands, since leases require costly bonus payments and annual rental payments to the government.

If Washington institutes Mr. Obama's "use it or lose it" policy, Mr. Watson says, it will mean less U.S. oil production. And how does this help Mr. Obama with his goal of reducing imported oil?

As for soaring oil prices, Mr. Watson blames growing demand, tighter supply, Mideast uncertainty and inflation. He doesn't predict future price trends, though during a recent analyst call he warned that the drilling moratorium would only make them higher. Lost production in the Gulf is "going to represent a sizable chunk of the spare capacity that the industry expects to see. And that will impact prices, and that will retard economic growth."

The economy is also why Mr. Watson won't pay the usual energy CEO lip service to new carbon regulations. The cap-and-trade bill the House passed in 2009 was "poorly conceived and it collapsed under its own weight for good reason," he notes.

The EPA move to regulate carbon is no better: "It's not why the Clean Air Act was put in place, and it doesn't seem to be the right way to attack concerns about greenhouse gas emissions," he says. The EPA is "placing huge new regulatory burdens on industries that are import sensitive." The regulations will place burdens on refineries, putting "their competitiveness at risk, and ultimately we'll produce less gasoline here and end up importing it from refineries that are less energy efficient overseas."

There is more material in the WSJ article. Go read the whole thing.

I got a chuckle out of my father who during the 1970s "oil shortage" told me that when he was a kid in the 1920s the schools taught him that America would "soon run out of oil". It will. But not in my lifetime and probably not during the 21st century. Definitely by the early 22nd century oil will be mostly gone, but there will still be lots of coal and lots of methane clathrate waiting to be "produced" and used as an energy source. The CEO of Chevron said there was 2.5 trillion of known oil reserves. I think he is undercounting. Canada alone has over 1 trillion barrels of oil sands. The far north of Canada has not been explored and the Russians are getting very nationalistic and aggressive in the Arctic ocean because there will probably be several trillion barrels of oil there waiting to be produced.

Since I think the "dangers" of global warming are based on bad models that over-estimate the greenhouse effect of CO2 and under-estimate the other feedback loops in dynamic weather, I'm not as concerned as most with the exploitation of all this oil. But it if does prove to be a problem, within a decade a crash program could shift 80% of energy over to nuclear reactors with all personal transportation shifted to electricity and not fossil fuel (saving the fossil fuel for long haul transportation).

I'm a pessimistic optimist. I think technology holds lots of promise. But I'm realistic enough to know that humans will mostly try to dodge the tough choices as long and hard as possible and create all kinds of crises before the every "solve" the energy crisis or get on top of "global warming". It is like democracy. Democracy is well understood to be the worst possible form of government, except that all the other choices are in fact far worse. Humanity will muddle through. That's my pessimistic optimism speaking.

William Black is an Optimist and a Pessimist

Here is are two interviews with William Black famous for helping to clean up the S&L financial mess and famous for his opinion that fraud was rampant in the 2008 financial crisis.

The optimist... In this video he comments on the S&P ratings agency with a comment "downgrading" US federal debt. I find Black to be more optimistic about the Republicans not committing economic suicide by refusing to raise the US debt ceiling. He thinks that is simply impossible, but I see it as somewhat possible but hopefully not very likely:

The pessimist... In this video he expresses his view that the big financial criminals are "untouchable" because of the money under the table from big financial institutions which have bought off the administration as well as Congress. This video deserves close viewing because he points out some real problems in the US and predicts its inevitable consequences.

Good News Out of Japan

I sure hope this is credible. I've become so disillusioned with "official" statements that I don't believe anything made public. But maybe, just maybe, this is true and it means that the corner has been turned.

From the NY Times:

Energy Secretary Steven Chu said Friday that roughly 70 percent of the core of one reactor at the crippled Fukushima nuclear plant in Japan had suffered severe damage.

His assessment of the damage to Reactor No. 1 was the most specific yet from an American official on how close the plant came to a full meltdown after it was hit by a severe earthquake and massive tsunami on March 11.

Japanese officials have spoken of “partial meltdown” at some of the stricken reactors. But they have been less than specific, especially on the question of how close No. 1 — the most badly damaged reactor — came to a full meltdown.

Mr. Chu, a Nobel laureate in physics, suggested that the worst moments of the crisis appeared to be receding, saying that the best information the United States had received from the Japanese authorities indicated that water was once again covering the cores of the stricken reactors and that pools of spent fuel atop the reactor buildings were “now under control.”

In addition to the severe damage at Reactor No. 1, the Energy Department said that Reactor No. 2 had suffered a 33 percent meltdown. Mr. Chu cautioned that the figures were “more of a calculation” because radiation levels inside the plant had been too high for workers to get inside, and sensors were unreliable.

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Questioned about the long-term effects of Japan’s effort to “feed and bleed” the reactors — pouring in cooling water, then releasing it as steam into the atmosphere — he said there was an effort now under way to “minimize the release” of radioactivity into the air.

“They’re trying to reach a steady state,” he said, in which cooling could take place with minimal radioactive releases into the atmosphere.

Apparently it will take over a year for the reactor cores to cool enough to fully "decomission" the reactors. But hopefully things get less worse from here on out.

Reason in the Face of Fear

Here is a bit from a statement of principles by physicist Peter Heller, physicist emeritus of Harvard University.

As a physicist it fills me with great joy and pride to see how man is able to rouse this force of nature at the most minute structural level, then amplify, control, and use it for our benefit. As a physicist I have the fundamental understanding of the processes – I can imagine them and describe them. As a physicist I have neither fear of an atomic power plant nor of radioactivity. Ultimately I know that it is a natural phenomenon that is always around us, one we can never escape – and one that we never need to escape. And I know the first as a symbol of man’s capability to steer the forces of nature. As a physicist I have no fear of what nature has to offer. Rather I have respect. And this respect beckons us to seize the chances like those offered by neutrons, which can split nuclei and thus convert matter into energy. Anything else would be ignorance and cowardice.

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There were times in history when ignorance and cowardice overshadowed human life. It was a time when our ancestors were forced to lead a life filled with superstition and fear because it was forbidden to use creativity and fantasy. Religious dogma, like the earth being the centre of the universe, or creationism, forbade people to question. The forbiddance of opening a human body and examining it prevented questions from being answered. Today these medieval rules appear backwards and close-minded. We simply cannot imagine this way of thinking could have any acceptance.

But over the recent days I have grown concerned that we are headed again for such dark times. Hysterical and sensationalist media reporting, paired with a remarkably stark display of ignorance of technical and scientific interrelations, and the attempt by a vast majority of journalists to fan the public’s angst and opposition to nuclear energy – pure witch-burning disguised as modernity.

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The media suggests a nuclear catastrophe, a mega-meltdown, and that the apocalypse has already begun. It is almost as if the 10,000 deaths in Japan were actually victims of nuclear energy, and not the earthquake or the tsunami. Here again one has to remind us that Fukushima was first hit by an unimaginable 9.0 earthquake and then by a massive 10-meter wave of water just an hour later. As a result, the facility no longer found itself in a highly technological area, but surrounded by a desert of rubble. All around the power plant the infrastructure, residential areas, traffic routes, energy and communication networks are simply no longer there. They were wiped out. Yet, after an entire week, the apocalypse still has not come to pass. Only relatively small amounts of radioactive materials have leaked out and have had only a local impact. If one considers the pure facts exclusively, i.e. only the things we really know, then it exposes the unfounded interpretations of scientific illiterates in the media. One can only arrive to one conclusion: This sorrowful state will remain so.

In truth, this does not show that the ideologically motivated, fear-laden admonitions and warnings were correct. Fukushima illustrates that we are indeed able to control atomic energy. Fukushima shows that we can master it even when natural disasters beyond planning befall us. Still, at Fukushima the conflict between human creativity/competence continues to clamour against the bond energy in atomic nuclei. It’s a struggle that that shows what human intelligence, knowledge gained, passion, boldness, respect, and capability to learn allow us to do. Personally this does not fill me with apprehension, but with hope. Man can meet this challenge not only because he has to, but most of all because he wants to.

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I am a physicist. My wish is to live in a world that is willing to learn and to improve whatever is good. I would only like to live in a world where great strides in physics are viewed with fascination, pride, and hope because they show us the way to a better future. I would only like to live in a world that has the courage for a better world. Any other world for me is unacceptable. Never. That’s why I am going to fight for this world, without ever relenting.

This is a statement of principle and a credo well worth fighting for. We have to fight for the future and not the ignorant fear mongers condemn us to live blighted lives ignorant of the real world and of what is really possible. Optimism has to conquer pessimism if we are to "own the future".

I think back to the negative pessimism that swept the US and democratic Europe in the late 1930s when fear of another global war made many become "pacifists" and willing to appease a madman like Hitler. The doom-and-gloomsters of today are the fanatical offspring of the forces of darkness like Hitler. They refuse to accept that humans can invent and learn and create a better tomorrow. They simply want to "surrender" and hope that the forces of darkness let them "survive". But I'm not one to want to "survive" in a concentration camp and I certainly don't want to "survive" in an anti-science blighted dogmatism of the Chicken Littles of today.

When the Glass is Definitely Half Full

Or maybe it is just plain empty...

Here's a post from Calculated Risk that looks at the "issues" overhanging the world right now and pressing down on governments and economies and even the state of happiness of the world's citizens...

Sometimes it helps to make a list of issues and hopefully start to check them off. Unfortunately the list has been getting longer, and some of the downside risks will be with us for some time.

Here is a list - with a few short comments:

• Risks from the earthquake in Japan.

• Higher oil prices and a possible supply shock.

Although U.S. oil prices have fallen under $100 per barrel this morning, prices are still high and a risk to the economy. As Professor Hamilton noted over the weekend, the recent sharp decline in consumer sentiment is probably tied to the high price of gasoline.

In addition to the events in Libya, Saudi Troops Enter Bahrain to Help Put Down Unrest

• U.S. Housing Crisis.

House prices are at new post-bubble lows and still falling.

And there is probably more distressed supply coming with 11.1 million U.S. residential properties with negative equity and about 4.3 million mortgage loans are delinquent or in the foreclosure process.

Although foreclosure activity has slowed - because of foreclosure processing issues - distressed sales are expected to increase again later this year.

• The European financial crisis.

Although an agreement was reached late Friday night on the loans to Greece - to extend the term and lower the interest rate - and also to allow the EFSF to intervene in the primary bond market, this just buys more time.

The Greek ten year yield is down to 12.3%. The Irish ten year yield is at 9.4% - even with no interest rate cut for Ireland.

There was some speculation last week that Portugal would request a bailout over the weekend. That didn't happen. Here are the Portuguese 2 year, 5 year and 10 year bond yields from Bloomberg. All are lower today after rising sharply last week.

Here are the Ten Year yields for Spain, and Belgium. Both lower too.

• State and local government cutbacks.

• Possible Federal government cutbacks (even shutdown).

Although the "debt ceiling" debate is just political grandstanding, you never know what will happen (I doubt the U.S. will default). It sounds like another short term budget deal will be reached, and it is but it is possible that more cuts will be enacted this year - slowing growth in 2011.

• Inflation (a two sided coin).

Although I think core inflation will remain below the Fed's target all year, it is possible that inflation could pick up more - or that policymakers will overreact. I think it is likely the Fed will remove the "the measures of underlying inflation have been trending downward" sentence in the FOMC statement tomorrow (see FOMC Preview), but I think we are still a long ways from tighter policy.

That's a pretty depressing list. I'm a pessimistic optimist, so I'm not surprised that there are a lot of "issues" out there right now. But my irrepressible optimistic side says "and the good news is that we are overdue for some really good news!" So I'll be out looking for silver linings amongst all these dark and foreboding clouds.

Egypt: The People Win, Now Comes the Hard Part

Mubarak didn't have the courage to say the words, so he got his right hand man to step in and announce that he has given up power. Thankfully only 300 lives were lost and several thousand injured to achieve this great victory for the Egyptian people:



The power now rests with the military. Hopefully they will use it wisely to quickly put in place a civilian transitional government, set about electing a constitutional assembly, and start the rebuilding of Egyptian society. The signs I will be looking for will be announcements where commissions are set up including leading opposition figures and representatives of the demonstrators, the clear definition of timelines, and a process of education throughout the land to prepare the people for elections.

Achieving a successful democracy is hard work. It requires thoughtful leadership, an engaged public willing to bear the burdens of building a new society, and patience for putting in place the changes needed. Sadly there will be fanatics and criminals who will try to steal this victory from the people, so the nation must stay vigilant. It will take many months to build the necessary institutions and prepare the people to make wise choices. It will require the people to be patient but watchful. This is the hard work of laying the foundations for a new society.

This is hopefully the start of a wonderful new era for Egypt, an era of peace and progess, of economic growth, of properity, and the chance for Egypt to take a seat among the leading nations on earth.

Here are some hopeful voices from posts on Al Jazeera:

7:34pm Qatar: We look forward a continuous special relations with Egypt that will benefit both countries.

7:12pm Bahrain's foreign minister Khalid al Khalifa: Egypt takes the Arab world into a new era .. Let's make it a better one

6:54pm ElBaradei speaks to Al Jazeera:

We need to rebuild the Egyptian culture and intellect

Microfinance, the Good, the Bad, and the Ugly

Here is a bit from a wonderful post by Maxine Udall on some wonderfully positive aspects of the microfinance world:

A couple years ago I heard Vikram Akula speak at a top graduate business school about his for-profit micro-finance firm in India, SKS. The talk was held in a large lecture hall, probably seating at least 250. The talk was held after the Lehman collapse. One of the remarkable things I remember about the talk was that it was standing room only and many, many future MBAs were standing to hear it. Another remarkable thing I remember was that Akula asserted during his talk that his managers and workers were paid something on the order of 20% less than they could make in more traditional finance firms. I remember him saying that the rationale for this was that he wanted people who were interested in doing good, not just in making money. At least, this is how I remember it.

But the most remarkable thing I remember about his talk was that when it was done, he fielded question after question from different members of the audience, all on a theme of "how do I come work for SKS?" Even at only 80 cents on the MBA starting salary dollar, a lot of the audience wanted to come work for SKS.

I suppose they might have been asking that last question because at the time and for a multitude of reasons traditional finance wasn't looking like an attractive career option. But I think not. Most of the future MBAs phrased their questions in ways that suggested that the draw was putting their skills and talents to work doing some good in the world. And they were willing to work for less to do this.

This is not news. Economist Robert Frank provided evidence some years ago that people are willing to work for less when they believe they are doing some good in the world. (As an aside, I will point out that this phenomenon is entirely consistent with utility maximization, but not with maximization of indirect indicators of utility, such as income).

But, as with much of life, there is a dark side as well:

A couple weeks ago, my friends and readers began sending me links to articles about "beneficiaries" of micro-finance in India resorting to suicide when their indebtedness became overwhelming. More recently, Muhammad Yunus, micro-finance originator and Nobel Peace Prize winner, weighed in with this condemnation of for-profit micro-finance. This was followed by a fairly predictable response from the Philanthrocapitalism blog making the usual arguments in support of for-profit micro-finance and this more nuanced and thoughtful response by Felix Salmon.

Go read Maxine Udall's original post to get all the details and the embedded links.

I'm from that cynical school of thought which says that "if it is too good to be true, then it isn't true". There is a lot to like about microfinance, but it isn't "the solution" that some proponents would like to sell you. Like anything, it can be misused. And, like anything, it works better in some situations and worse in others. In short: there are no easy answers in life. If you want to do good, you have to go in with your eyes open, because even in the world of "doing good" there are sharks, and submerged rocks, and unexpected surprises.

But I'm happy that microfinance exists. I wish there were more of it. And I hope the news is almost always happy. And I wish there were some way to make sure that bad things didn't happen in the world of microfinance. But if wishes were horses, beggars would ride.

Here is a bit from an article by Muhammad Yunus, the originator of microfiancne, about the current state of microfinance for the NY Times:

In the 1970s, when I began working here on what would eventually be called “microcredit,” one of my goals was to eliminate the presence of loan sharks who grow rich by preying on the poor. In 1983, I founded Grameen Bank to provide small loans that people, especially poor women, could use to bring themselves out of poverty. At that time, I never imagined that one day microcredit would give rise to its own breed of loan sharks.

But it has. And as a result, many borrowers in India have been defaulting on their microloans, which could then result in lenders being driven out of business. India’s crisis points to a clear need to get microcredit back on track.

Troubles with microcredit began around 2005, when many lenders started looking for ways to make a profit on the loans by shifting from their status as nonprofit organizations to commercial enterprises. ...

To ensure that the small loans would be profitable for their shareholders, such banks needed to raise interest rates and engage in aggressive marketing and loan collection. The kind of empathy that had once been shown toward borrowers when the lenders were nonprofits disappeared. The people whom microcredit was supposed to help were being harmed. In India, borrowers came to believe lenders were taking advantage of them, and stopped repaying their loans.

Commercialization has been a terrible wrong turn for microfinance, and it indicates a worrying “mission drift” in the motivation of those lending to the poor. Poverty should be eradicated, not seen as a money-making opportunity.

...

Grameen Bank, where I am managing director, has 2,500 branches in Bangladesh. It lends out more than $100 million a month, from loans of less than $10 for beggars in our “Struggling Members” program, to micro-enterprise loans of about $1,000. Most branches are financially self-reliant, dependent only on deposits from ordinary Bangladeshis. When borrowers join the bank, they open a savings account. All borrowers have savings accounts at the bank, many with balances larger than their loans. And every year, the bank’s profits are returned to the borrowers — 97 percent of them poor women — in the form of dividends.

More microcredit institutions should adopt this model. The community needs to reaffirm the original definition of microcredit, abandon commercialization and turn back to serving the poor.

Stricter government regulation could help.

For a different viewpoint, here is Felix Solomon's blog posting on Reuters.

Now... let me add my voice:

My cynical side says that the initial noble impulse is being watered down and diverted as times passes, as the people in charge change, as noble passions cool and greed creeps in. Otherwise, some noble enterprise from 10,000 years ago would have grown into the largest organization in existence today with its shining mission still intact. It didn't. That says that no human institution withstands the corrosion of time.

But that doesn't mean we despair. It just means we get realistic and expect every generation to re-dedicate itself and create the new institutions appropriate for the current historical setting and the current generation.

What Does the Future Hold?

You can either be a pessimist (very popular, very profitable in selling swill to the gullible) or an optimist (deeply unpopular, profitable but only at rates that reflect real effort and real risk).

Here is another classic example of this truism by John Tierny in an article for the NY Times:

Five years ago, Matthew R. Simmons and I bet $5,000. It was a wager about the future of energy supplies — a Malthusian pessimist versus a Cornucopian optimist — and now the day of reckoning is nigh: Jan. 1, 2011.

The bet was occasioned by a cover article in August 2005 in The New York Times Magazine titled “The Breaking Point.” It featured predictions of soaring oil prices from Mr. Simmons, who was a member of the Council on Foreign Relations, the head of a Houston investment bank specializing in the energy industry, and the author of “Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy.”

I called Mr. Simmons to discuss a bet. To his credit — and unlike some other Malthusians — he was eager to back his predictions with cash. He expected the price of oil, then about $65 a barrel, to more than triple in the next five years, even after adjusting for inflation. He offered to bet $5,000 that the average price of oil over the course of 2010 would be at least $200 a barrel in 2005 dollars.

I took him up on it, not because I knew much about Saudi oil production or the other “peak oil” arguments that global production was headed downward. I was just following a rule learned from a mentor and a friend, the economist Julian L. Simon.

As the leader of the Cornucopians, the optimists who believed there would always be abundant supplies of energy and other resources, Julian figured that betting was the best way to make his argument. Optimism, he found, didn’t make for cover stories and front-page headlines.

No matter how many cheery long-term statistics he produced, he couldn’t get as much attention as the gloomy Malthusians like Paul Ehrlich, the best-selling ecologist. Their forecasts of energy crises and resource shortages seemed not only newsier but also more intuitively correct. In a finite world with a growing population, wasn’t it logical to expect resources to become scarcer and more expensive?

As an alternative to arguing, Julian offered to bet that the price of any natural resource chosen by a Malthusian wouldn’t rise in the future. Dr. Ehrlich accepted and formed a consortium with two colleagues at Berkeley, John P. Holdren and John Harte, who were supposed to be experts in natural resources. In 1980, they picked five metals and bet that the prices would rise during the next 10 years.

By 1990, the prices were lower, and the Malthusians paid up, although they didn’t seem to suffer any professional consequences. Dr. Ehrlich and Dr. Holdren both won MacArthur “genius awards” (Julian never did). Dr. Holdren went on to lead the American Association for the Advancement of Science, and today he serves as President Obama’s science adviser.

Julian, who died in 1998, never managed to persuade Dr. Ehrlich or Dr. Holdren or other prominent doomsayers to take his bets again.

For those who have been kept in the dark by all the noise from the sky-is-falling crowd, Julian Simon is the economist who wrote the seminal book on how human ingenuity is consistently ignored by the linear extrapolationists known as "the knowledgeable pundit class" and/or "the doomsayers". You can read Julian Simon's text The Ultimate Resource on-line. Go ahead, dare to be different and embrace life and the possibility of a better tomorrow. Dare to be an optimist!

Sadly, an economist I respect, Brad DeLong at UC Berkeley denounces the NY Times and John Tierney for publishing what he views as wrong-headed optimism. Might I suggest that DeLong put his money where his mouth is and make a bet with Tierney for say $50,000 due on Jan 1, 2030 that fossil fuel derived energy for the average consumer will be taking a bigger bit out of the household budget than it now does? Notice, I'm not willing to bet that oil won't go higher, but if you really believe in ingenuity, you expect that some energy equivalent will be discovered or engineered to replace any "expired" oil. But... oil may just surprise us. Take a look here where I report that there are 2 TRILLION BARRELS of oil in the Canadian oil sands. At current rates of use which are well under 100 million barrel per day, that is 20,000 days worth of oil, or roughly 50 years worth of oil. And I happen to know that there has been very little exploration in Canada's North. Who knows what energy resource lie up there. (A more conservative estimate is on Wikipedia. As well as a near 2 trillion estimate here on Wikipedia. Remember, it is not in the interests of the oil companies to find more oil than they can produce in the relatively near future, so there will always be a chronic estimate of "only a few years" of supply available.)

The Reason to be Optomistic about the Future

Here is a presentation by Hans Rosling:

The Value of Optimism

Here is a bit from a documentary about Alice Herz-Sommer:



I think her message is both wonderful and true: Optimism is a great survival strategy. And I agree that music is a place to escape to for a "better world".

The sad fact is that there are monsters among us who feast on hate and suffering. The legal system of civilization usually keeps them at bay, but not always. I look at the US today where so many fools agitate to "downsize government" because they see no value in it. They need to remember the insights on Thomas Hobbes:

Hobbes postulates what life would be like without government, a condition which he calls the state of nature. In that state, each person would have a right, or license, to everything in the world. This, Hobbes argues, would lead to a "war of all against all" (bellum omnium contra omnes), and thus lives that are "solitary, poor, nasty, brutish, and short" (xiii).

Matt Ridley's "The Rational Optimist"

This is an excellent book. It is a wonderful romp through history and technology to justify Ridley's claim that we should be optimistic about the future. I especially admire his Chapter 10 where he shreds the idiotic doomsday "predictions" of the last 50 years. He's a bit younger than me, so his list pretty well covers the list of outrageous claims that got publicity and public dollars wasted during my lifetime. As well, we both got sucked into some of these "causes" in our youth but came to realize that these doomsday "prophets" were essentially in business to collect donations and extort public monies to support their "message". So we are now innoculated to the common human illusion that there was a "golden age" in the past, the current generation is going to the dogs, and that all new technology is a dangerous threat.

He examines the idea of human progress and asks what causes it. After examining and rejecting a number of the standard explanations, he puts forth his favoured explanation: humans share ideas, this gives us the ability to "progress" that no other species has. He dresses this up as "when ideas have sex" but that's just his journalistic urge to make ideas lively and memorable. By the way, he is an excellent writer with a very readable style. I've read most of his earlier books and enjoyed them all.

Here's a snippet to give a taste of his writing style:

Like biological evolution, the market is a bottom-up world with nobody in charge. As the Australian economist Peter Saunders argues, 'Nobody planned the global capitalist system, nobody runs it, and nobody really comprehends it. This particularly offends intellectuals, for capitalism renders them redundant. It gets on perfectly well without them.' There is nothing new about this. The intelligentsia has disdained commerce throughout Western history. Homer and Isaiah despised traders. St Paul, St Thomas Aquinas and Martin Luther all considered usury a sin. Shakespeare could not bring himself to make the persecuted Shylock a hero. ... Economists like Thorstein Veblen longed to replace the profit motive with a combination of public-spiritedness and centralised government decision-taking. In the 1880s Arnold Toynbee, lecturing working men on the English industrial revolution which had so enriched them, castigated free enterprise capitalism as a 'world of gold=seeking animals, stripped of every human affection' and 'less real than the island of Lilliput'.

You can learn a remarkable amount of history from reading this book. He mines the past to understand why progress has happened and where it went off the rails. He covers standard history but he also shines light on some corners that were new to me. Excellent.

The only two drawbacks in this book. This is the first book where he lets some of his prejudices shine through. His earlier books were on biology and the personal opinions didn't protrude into his writing. But here he shows his right wing bias with his occasional taunts that governments are bureaucracies all gone bad. That is foolish. He knows it in the better passages of this book. I will accept that citizens must ever be vigilant against lapses by government, but he overdraws the picture because of his libertarian bias. The other problem is in the preface where he decides to discuss the 2008 financial crisis and gets the facts all wrong. He should know better. He was a director the the English bank Northern Rock that went backrupt. He should know that it was not:

"Markets in assets are so automatically prone to bubbles and crashes that it is hard to design them so they work at all. ... But what made the bubble of the 2000s so much worse than most was government housing and monetary policy."

No! This is the Republican party propaganda that ACORN and the GSEs (the Government Sponsored Enterprises Fannie Mae and Freddie Mac) caused the problem. That is a lie. The big surge in subprime loans came when Wall Street decided to securitize mortgages creating a flim-flam operation of "tranches" that supposedly turned subprime debt in to AAA debt which was sold to unsuspecting investors around the world. It was purely a case of banks taking excessive risk using a new fangled "financial engineering" trick based on "financial risk models" that were in fact flagrantly inadequate as models of reality. These Wall Street banks colluded with ratings agencies to create AAA ratings for junk mortagages. That's what caused the crash, not "the government housing and monetary policy". Ridley is showing his libertarian prejudice in blaming government and not blaming his rich banker buddies who in fact engaged in securities fraud to create an inflated housing bubble by turning subprime mortgages into supposedly "AAA mortgage bonds".

If you ignore his idiotic libertarian politics and his prejudices against civil government, this book is an excellent read with a great deal of wonderful bits of information that sell the point that it is indeed rational to be optimistic about the future.

The Root Cause of Arguments

As everybody knows, we could rid the world of arguments if we could get the interlocutors to simply clarify their terms. Almost all arguments are caused by careless use of terms. A little effort at naming our terms can help us avoid all confusion which lead to arguments:



Only a fool would claim that ideologies and prejudice lead to arguments. As Abbott and Costello clearly demonstrate, argument has nothing to do with preconceived opinions or a misguided framework for our thinking. Nope. Arguments come down to a confusion about our terms. The above video demonstrates how an argument is initiated by two protagonists who simply refuse to clarify their use of terms. Abbott works hard to define terms but Costello refuses to listen. Instead Costello takes his half understood concepts and runs with them creating needless confusion.

OK... I'm joking. That comedy routine has nothing to do with real debate and argument. A confusion of terms is almost never the root cause of heated debate. Instead, it is a clash of ideologies, a clash over frameworks that define our stance toward the world.

If I'm a pessimist, I see evidence of decay and ruin everywhere. If you are an optimist you see promising starts and great beginnings everywhere. We will battle because my evidence only confirms your beliefs and show you how confused I am. Similiarly my evidence will be welcomed by you as confirmatory to your viewpoint and reinforce your viewpoint that I'm a fool who has no clear idea of how the world really works. We argue because we are talking past one another.

Most people stumble about arguing a while then realize that they can't come to a resolution because their ideologies differ, their assumptions and theories are simply too different to find a common ground. Only a fanatic will fail to see this problem and disengage. A fanatic refuses to accept the possibility of a differing viewpoint. A fanatic will insist that you must accept his argument. Normal people can disengage and respect their opponent's differing ideology. A fanatic simply can't.

The world is a richer place when there are differing viewpoints. Diverging viewpoints is like artists with different styles or different palettes. Our world would be a dull place indeed if we all saw everything from the same perpective and with the same spectacles.

Obama: Leadership as Wishful Thinking

Here's a post by Paul Krugman taking the Obama administration to task for failing to do the right thing and stimulate the US economy. Instead Obama has decided to pretend that "everything is all sunshine and light" and all that is needed is a little "positive attitude" to get everybody through this little rough patch:

Here’s the reality: the stimulus was too small; we’re not seeing growth at a pace that will bring unemployment down rapidly, if at all; we clearly should be doing more; but obstructionism from Republicans is preventing action. And the administration knows all this perfectly well.

So one way to play this politically would be to tell the truth, and try to place the onus on Republicans, accusing them of perpetuating high unemployment.

Instead, however, the administration has decided to engage in happy talk, saying that it’s all good.

Do they really think this will work? I mean, I live in fairly rarefied circles (that’s not a boast, it’s an admission of inadequacy), and even so I know a number of people whose lives have become a living hell: men in their late 50s who fear they’ll never work again, small business owners who have lost everything. Does the administration really believe that it can convince these people that it’s all on the mend?

I just don’t get it.

And I don't "get it" either. A real leader gets out in front of the people and points them toward a better future. Obama is leading from the rear shouting out "just keep stumbling about, keep at it, if you wander about enough surely you will find your way out of this mess called the Great Recession!" A real leader takes on his foes and slays them. Obama has decided to give the Republicans a big sloppy wet kiss and try to hug them into submission. It isn't working. Instead, the Republicans have made Obama look like an idiot, a pathetic loser who keeps trying to please the top dog in hopes that the top dog will let him have a chew at the bone too!

The Bush "Lost Decade"

I've been worrying about a Japanese-style "lost decade" for the US. Today I got a jolt. Daniel Gross in a Slate magazine article has stated the obvious from facts sitting right in front of my face. The US has already suffered a "lost decade" because of the Bush & Republican policies...

It's common to hear concerns that the U.S. economy faces a Japan-style lost decade. But as I've documented, when it comes to employment, income growth, market performance, and fiscal management—we've already had a lost decade. The period between 2001 and 2008, characterized by easy fiscal and monetary policy, lax regulation, and low taxes on capital gains, dividends, and income produced pathetic results—and then ended in the worst debacle since the Great Depression. And the macroeconomic performance of our last decade turns out to be worse than we thought. In this release, the BEA revised growth figures for 2007, 2008, and 2009. In 2007, instead of growing 2.1 percent, the economy grew only 1.9 percent. In 2008, instead of growing 0.4 percent, it didn't grow at all. And in 2009, instead of shrinking 2.4 percent, it shrank by 2.6 percent.

The above caught my interest. But the rest of the article is well worth reading. He is pointing out that the doom-and-gloom crowd is overplaying it with their wailing about a double-dip recession.

As he points out, the reality of the US is that the housing bust and the over-extended consumer creates a big sector of the economy that is and will be stuck in the mud for quite a while, but the parts of the US economy connected with the outside world are doing quite well:

The theme for the past year of recovery has been: a tale of two economies. Businesses that are connected to trade, to the global economy, and to business services are comparatively strong. The more global and less dependent on the United States you are, the better. We've seen excellent earnings from railroads, delivery companies, coal mining, and even automakers. But businesses and industries that are tethered exclusively to U.S. consumers, like the grocery chain Supervalu or housing, remain weak.

Perspective is very important.

Mandatory Optimism

The US is an "optimistic" society. Here is a talk by Barbara Ehrenreich on how crazy this "happy thoughts make a happy world" philosophy:



I love her point that it is "moral callousness" to sell the philosophy that negativity is "all in your head" and that the "power of positive thinking" will deliver you a happier, better, more prosperous world.

I love her point that George Bush was a "cheerleader" both in college and as the US president. She argues for realism instead of optimism, or cheerleading, or pessimism.

Her tying "market fundamentalism" to this crazy idea of the power of positive thinking is very interesting.

Watch the video!